On December 5, Yang Fuyu, an official of the People’s Bank of China (PBOC), said the central bank is working to develop standards for fintech such as AI, blockchain, big data and cloud computing. Speaking at the ‘2019 Bank Digital Transformation Summit’, Fuyu said the PBOC is inviting foreign-funded firms to join the standards working groups, according to local news outlet Capital Observation.
Yang Fuyu, the second inspector of the Science and Technology Department at PBOC, stressed the need for fintech standards. He pointed to the benefits that fintechs offer, such as improving financial inclusion and efficiency. But they also bring higher risks in terms of financial stability, market integrity, and consumer and investor protection.
His view is that standards can take on a “soft law” role.
He acknowledged that some of the fintech giants might feel that standards could hinder innovation. That’s because they believe they can use their market influence to formulate the rules of the game. Fuyu refutes this view citing the risks of non-standard data, inadequate competition and unsustainable innovation.
The central bank is currently working to develop 17 different fintech standards, including blockchain. By inviting foreign firms, the PBOC wants to increase the diversity of the working groups. The desire for a wide variety of input extends to incorporating non-financial organizations such as technology companies and universities.
Fuyu talked about the problems caused by the rapid development of cross-border transactions and a digital economy. He said economic crime and fraud have become convoluted with the changing financial scenario. Hence, there’s a need for better systems which can accurately identify and verify counterparties.
For this, the PBOC is working with China Financial Electronics Corporation, China Financial Certification Center (CFCA) and other organizations for a pilot of the international legal entity identification code (LEI). The bank hopes to improve the system of counterparty identification and verification by using LEI and has requested commercial banks for support and participation in the project.
Accurately identifying trading partners is crucial in both trade and trade finance. While not directly related to LEI, Mastercard has a solution that addresses this need and partnered with the Marco Polo trade finance blockchain.
Meanwhile, President Xi Jinping’s comments in support of blockchain have bolstered activity in the sector. Earlier this week, China’s Blockchain Service Network announced its first partners to build a national network for blockchain as a service.
The central bank is also working on a Central Bank Digital Currency (CBDC), which may or may not be based on blockchain. China wants to be the first country to launch a state-backed digital currency.
China has already overtaken the U.S. in terms of blockchain patents, with nearly 50% of total applications from the mainland.