Top banking official praises China’s new fintech regulations
A top Chinese banking official has publicly announced his support for a spate of new regulations to manage the growth of fintech in China.
Pan Gongsheng, the deputy governor of the People’s Bank of China, who also heads the State Administration of Foreign Exchange, praised the way the communist nation-state is managing fintech risk and regulation in a recent Financial Times opinion column. His comments come in the wake of the Ant Group IPO withdrawal late last year.
China currently holds the world’s largest economy which is worth an estimated US$24.2tn. It is reportedly one-sixth larger than America's economy which stands at $20.8tn. According to Statistica, China’s fastest-growing financial market segment in 2021 will be in Digital Payments with an estimated total transaction value of $2,915,347m.
The new regulations follow on from Ant Group making a public offering in November 2020 of $34.5bn – the largest offering in global financial history. The group, which owns Alipay and Alibaba, had rebranded as a technology company following new regulations on financial institutions just before the offering. However, the move reportedly did not satisfy officials and the IPO was withdrawn two days before Ant Group was due to be floated on the Shanghai stock market.
Some news reports suggested the cancelled IPO was a move designed to control Jack Ma, Ant Group’s billionaire founder, as he was becoming too wealthy and influential for the CCP to tolerate.
However, according to a report yesterday in the South China Morning Post, China’s central bank governor Yi Gang has raised the possibility that Ant Group could be allowed to pursue an initial public offering once it fully complies with the country’s law and has addressed customer complaints.
Gongsheng said the rise of technology in China has resulted in fintech affecting all aspects of the country’s financial systems, from payments and loans to insurance, investment and security.
“With the rise of big data, artificial intelligence, blockchain and cloud computing, the integration of finance and technology has picked up speed recently. New business models of internet-based finance such as mobile payments have reshaped not only the way we live but also the financial ecosystem,” he explained.
“Fintech now affects everything from payments, lending and securities to insurance and wealth management. The advances have improved efficiency, lowered transaction costs and made the financial system more inclusive.”
Although Gongsheng admitted that fintech has not made China’s financial industry more unstable, he said it now holds a formidable position and is on track to create monopolies and unfair competition against smaller operatives.
“Fintech has not changed the nature of finance as a risky industry,” he stressed, pointing out that Big Tech is already grabbing a large share of the fintech market.
“Network effects mean that fintech competition often leads to “winner-takes-all” outcomes including market monopolies and unfair competition. Globally, we are already seeing some Big Tech companies using profits from their other businesses to directly subsidise or cross-subsidise to unfairly grab fintech market share. Smaller competitors will be either squeezed out or forced to merge.
“Fintechs may also engage in excessive data collection and infringe customer privacy,” said Gongsheng.
According to reports, China has been keeping a close eye on the fintech market since 2017, and globally, they are not alone in their attempts to prevent monopoly takeovers. Between 2017 and 2019, the EU imposed €8.25bn in fines on Google and its 2018 General Data Protection Regulation has also fortified privacy regulations. Recently, US regulators litigated Facebook and Google and are also investigating Amazon and Apple.
“Regulatory authorities in major economies are rapidly reacting to these new fintech-related problems with tougher punishment of monopoly behaviour, new laws to strengthen data protection and improved supervision to prevent regulatory arbitrage and cross-sector contagion,” said Gongsheng.
He believes that by ensuring fintechs operate under the same regulations as incumbent banks, rather than as IT facilitators of transactions and loans, better market stability would be achieved.
“China’s financial authorities take the challenges posed by fintech seriously. In fintech’s early days, China put in place a prudent yet inclusive regulatory environment for fintech development that emphasised fairness and tolerance. The non-bank mobile payment business, led by Alipay and WeChat Pay, experienced 75% annual growth between 2015 and 2019, with a mobile payment penetration rate of 86%,” wrote Gongsheng.
He continued, “China is trying to strike a balance between encouraging fintech development and preventing financial risks via prudent regulation.”
He added, “When we insist on good supervision, equal access and fair competition, fintech will develop in a way that balances capital expansion, innovation and public interests, and develops technology for good. The aim is to align business rules and standards with regulation to fend off arbitrage.”
Islamic fintech Wahed plans UK expansion: Hires expert GM
Wahed Inc has hired a leading industry expert to take Islamic finance forward in the UK marketplace.
Umer Suleman has been appointed as General Manager of UK operations for Wahed Inc.. His role will include overseeing Wahed Invest’s nationwide growth strategy and strengthening the firm’s position as a leading provider of ethically focused investment services.
Suleman’s track record includes over 15 years of regulatory, risk, and strategy consultancy roles, as well as advisory positions across a variety of businesses and sectors including positions at UKIFC, Daiwa Capital Management, and Ernst & Young (EY).
He also spent seven years at HSBC as Head of KYC Risk globally within their Global Banking and Markets business, Head of Business and Conduct Risk for MENA within Retail Banking, and headed up the CCO function for Digital (GLCM) within the UK with a global remit.
Wahed and the growing role of Islamic finance
The startup fintech was founded in 2017 and is an American company based in New York City. Since its inception, it has grown from strength to strength and in July 2019, launched the first exchange-traded fund in the US that was compliant with Sharia law.
Islamic finance typically refers to the way businesses and individuals raise capital in accordance with Sharia, or Islamic law. It also refers to the types of investments that are permissible under Islam.
Wahed currently operates in 130 countries and has offices in Washington D.C, New York, London and Dubai. It has also developed an easily accessible digital platform that balances ethical finance with modern investments, attracting over 200,000 active clients from around the world with features such as free portfolio recommendations and no hidden fees.
Wahed UK expansion plans
According to reports, the UK is highly receptive to services in the Islamic finance sector and is also one of the fastest-growing markets globally. It has a three million-strong Muslim population and one of the most developed Islamic finance sectors outside of the traditional Muslim regions, with global population figures projected to double over the next forty years.
It is hoped Suleman’s leadership of Wahed will address the underbanked needs of the Muslim community while also serving the increasing number of retail investors currently seeking ethical alternatives to wealth creation.
Speaking about the new role, Wahed CEO, Junaid Wahedna, explained “Mr. Suleman’s appointment reaffirms our commitment to providing innovative and outstanding ethically driven financial services to a market that, historically, has been underserved.
“We’re delighted to welcome Umer to the team and firmly believe that with him at the helm, our operations in the UK will continue to go from strength to strength and provide customers seeking ethical investments with accessible, trustworthy and innovative solutions.”
The appointment follows on from Wahed’s recent investment round and its acquisition of the UK-based fintech Niyah.
These events will support the company in its plans to build an Islamic marketplace that meets growing demand for socially conscious investors – and not just those of Islamic faith.
The fintech firm also plans to utilise the UK’s position as a leading hub for Islamic finance as a springboard into other European cities, and believes it has a central role to play in providing Shariah-compliant services that address inclusion and inequality.
The Islamic finance industry is currently valued at around US$2.4trn and is expected to grow steadily by 10-12% over 2021 and 2022, having experienced rapid growth in recent years.
THREE reasons why Islamic finance is a growing sector
- The UK Muslim population is growing - and has been traditionally underserved by incumbent banks. The Muslim population is growing twice as fast the world’s non-Muslim population and Islamic finance address this group’s needfor Shariah compliant financial products.
- It encourages financial inclusion. According to the World Bank, financial inclusion is defined as individuals and businesses having access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
- It supports Sharia compliant products. Transactions that work with industries forbidden in Islam (gambling, usury and speculation) are forbidden. Islamic banking only works with businesses that adhere to their ethical and moral standards.
Image credit: Wahed Inc team