ChinaUnveilsDraftFinancialLawtoTargetOversightGaps

China has published a draft of its first overarching financial law, in a move to create a unified regulatory framework and close gaps in oversight across the financial system.

The draft, released Friday for public comment by multiple top regulators, including the central bank and securities watchdog, sets out 95 articles covering a wide range of financial activities.

One of the key features of the draft is the introduction of a “regulatory backstop,” requiring that all financial activities fall under supervision based on their economic nature, or what they do in practice, rather than their legal form, industry insiders told Caixin.

The measure is intended to address gaps in areas such as cross-sector activities and emerging financial models, rather than to imply government support for financial risks.

Under the framework, the National Financial Regulatory Administration, China’s top financial watchdog, is expected to take on a default supervisory role in cases where regulatory responsibility is unclear, people with knowledge of the matter told Caixin.

The draft also sets stricter requirements for financial institutions, including mandatory approval for establishment and major operational changes. It calls for stronger enforcement against financial fraud, improvements to anti-money laundering systems, and the development of mechanisms to manage financial risks.

The release follows a policy direction outlined at a key Communist Party meeting in July 2024 to establish a foundational financial law.

Experts have previously noted that despite earlier regulatory restructuring, gaps and overlaps in supervision remained. Some have also said that improving enforcement, alongside clearer rules, will be important for the framework to function effectively, while maintaining space for market-based activity.