How financial supervision and innovation complement each other

Recently, the relationship between financial technology innovation and supervision has attracted public attention. It can be seen that in the process of digital transformation and upgrading of the financial industry, the changes made by technology companies to the traditional financial industry are no longer simple optimization and transformation, but are subverting the underlying logic of the financial industry. However, supervision is often based on past experience and models, which makes there often exist frictions between financial innovation and financial supervision. However, innovation and supervision are not opposites. Financial innovation and appropriate supervision complement each other. There is a consensus on this point.

Supervision that inhibits innovation is like giving up food because of choking. Innovation that is out of supervision is difficult to sustain and develop healthily. Financial development is always a process of “innovation-regulation-re-innovation”, and behind it is always the balance of efficiency and safety. Both finance and new finance apply. To a certain extent, in the process of financial innovation, compared with other countries, China’s supervision of Internet finance is not harsh, nor does it inhibit innovation. However, with the fundamental changes in the entire financial ecology brought about by financial innovation, how to keep up and manage well is still a big issue worth discussing.

The first is the question of financial supervision. Emerging technologies such as cloud computing, big data, artificial intelligence, and blockchain have been widely used in the traditional financial field, and have penetrated into the core financial business layer, and many new financial risks have emerged. For example, the application of artificial intelligence technology may bring potential algorithmic risks and ethical risks, consumer privacy protection issues caused by the legitimacy of data sources, and the identity authentication risks of biometric technology. These new risks are accompanied by the scale effect of technological proliferation. They are not restricted by physical space. They may accumulate and spread in a short period of time, forming systemic risks, which in turn endanger the financial security and social stability of the entire country. P2P network financing is exactly what Lessons from the past. For the regulatory authorities, due to the opaque use of algorithms and data, it is difficult to conduct risk management and control through traditional regulatory means. As a result, the prisoner’s dilemma of “death at once, and chaos at the first release” appears.

The second is the question of financial supervision methods. Known as one of the cornerstones of the contemporary world financial system, the “Basel Accord” is the core of traditional financial supervision. Its core is the capital adequacy ratio requirement, that is, the ratio of the bank’s own capital to the risk-weighted assets is used as an indicator of risk control. The above is a comprehensive risk management for banks. This top-down explicit supervision model is somewhat difficult to meet the needs of technology companies, because the construction of risk management systems for technology companies often does not start with an explicit index system, but from the application of big data technology, and gradually build a new digital In the credit system, there are a large number of black boxes and gray boxes, as well as many complex non-linear characteristics. It is difficult to use linear logic to supervise. A typical example is Alipay’s Sesame Credit. This digital credit system is almost entirely based on the big data of users’ online behavior, which is essentially different from the traditional personal credit model of banks.

Therefore, the dissent of technology companies to the traditional financial supervision model should not be simply interpreted as capital greed. Instead, a brand-new risk management methodology and technical support system have emerged, which conflicts with the existing supervision methods. If you cannot fully realize that the law of the evolution of the technological system is as complex and profound as the law of the evolution of the financial system, it will be difficult to understand the discourse expression of technology companies. Therefore, the supervision of financial technology companies should abandon the “one size fits all” model and increase the inclusiveness of supervision methods. The key is to rely on methodological changes to improve supervision methods.

At present, the central bank and other regulatory agencies have begun a series of arrangements: through the introduction of the “Fin-Tech Development Plan (2019-2021)”, the main content of the banking industry’s financial technology transformation has been clarified. This year the central bank actively promotes the pilot digital currency, innovates currency issuance and payment technology, and builds a new generation of financial technology infrastructure to achieve penetrating supervision of the underlying technology. In addition, this year, various places began to explore the supervision sandbox pilot, which is also an important tool for financial technology innovation. Financial technology regulatory innovation should encourage the interaction and cooperation between financial license institutions and technology companies, and by building a benign regulatory environment, the results of technology companies can be applied at lower costs and with higher efficiency. At the same time, licensed institutions should also strengthen their own digitalization level, build a complete financial technology ecosystem and innovation platform, and improve compliance and technology application capabilities. Regulators should release more space for innovation to technology companies to form a dynamic balance between financial stability and financial innovation.