Beijing Business Today (Journalist: Liu Shuangxia) With development of ICO, digital cryptocurrency, blockchain and other new innovative formats, it becomes extremely urgent to strengthen supervision of digital finance. On February 11, according to news of People’s Bank of China (PBoC), PBoC and the World Bank Group issued a report on financial inclusion in China jointly, i.e., Toward Universal Financial Inclusion in China: Models, Challenges, and Global Lessons (hereinafter referred to as “the Report”) which pointed out “idea and practice of financial inclusion in China had been changed substantially in recent years.” Nevertheless, it also mentioned in the Report that China was faced with some key challenges in long-term sustainable development of financial inclusion and needed to transform towards more market-oriented and business-sustainable development mode and policymakers should manage digital finance risk more effectively.

It was said that digital finance mainly includes digital currency, internet payment, mobile payment, online banking, financial service outsourcing, online insurance, online fund, online securities transaction and other financial services. According to Xue Hongyan, the director of Internet Finance Center of Finance Research Institute of Suning Corporation, digital finance was the official description on internet finance and other new formats. In light of the fact that internet finance was in chaos and was under centralized governance, concept of digital finance was more neutral and extensional, and covered some contents of financial technology, besides various formats of internet finance.

With respect to digital finance development of China, it was pointed out in the Report that Chinese policymaker has included expansion of basic financial service into prior development goal since the early 21st century, by taking such measures as strengthening credit and payment infrastructure construction, expanding physical service outlets oriented to rural consumers and supporting the establishment of new type financial service provider. Chinese financial management departments also reserve space for digital financial innovation.

Risk also reveals constantly with development of digital finance. As mentioned in the Report, Chinese policymakers should improve regulatory framework and tool further to manage digital financial risk effectively. The protection for financial consumers needs be particularly concerned and solved, as many consumers have limited digital and financial knowledge and digital finance can intensify data risk.

“Just as a coin has two sides, ‘regulatory forbearance’ leads to the fact ‘regulatory absence’ to some degree. From P2P to payday loan and from smart investment consulting to crow funding, most of these businesses have no relevant certificate. What we need to do now is about ‘regulatory strengthening’, said Huang Yiping, the director of Digital Financial Research Center of Peking University. For that reason, we should not do just as before, solving the problem after discovering it, but issue regulatory framework for those industries having a complete range of scale as soon as possible. The simplest but most important rule is that any platform, if wanting to provide financial service, should apply for license plate, and they should not be free just as in agricultural trade market.

Li Lihui, member of NPC Finance and Economic Committee and former president of Bank of China, also pointed out in an activity in this January, “New financial service mode brings about new financial regulation difficulty.” He gave an example then: Decentralized virtual finance became folding space of the real financial world gradually since the appearance of Bitcoin in 2009. Token represented by Bitcoin and Ether, which had no nationality, sovereign endorsement, qualified issuing responsibility subject or national credit support, was not legal digital currency.

As far as we know, global ICO scale was only USD 21 million in 2014, which rocketed to USD 1.266 billion in the first half of 2017, and Chinese ICO scale was converted into RMB 2.6 billion, with the proportion of 31.5%. According to Li Lihui, All Chinese ICO projects were not provided with financial regulatory approval and most of them might be involved in illegal financial activity.

In terms of supervision of segmented format of digital finance, license plate has been issued in the third party payment industry and will be granted for peer-to-peer lending industry. License plate system management is also realized in consumer finance field indirectly through private bank, small-loan company, consumer finance company, factoring company and other institutions. However, regulation is still in exploration stage for ICO, digital cryptocurrency, blockchain, big data and other emerging formats.