Good legal environment path to permanent development

Wu Xiaoling, deputy governor of the People's Bank of China, said Sunday at the closing ceremony of China International Finance Forum held in Shanghai that to establish a good legal environment for the smooth operation of financial institutions is a path to the permanent development of China's financial industry. Wu Xiaoling said whether it is the financial institutions and people engaged in the financial industry or the general public, a lack of correct understanding of the legal nexus of financial products and services is one of the root causes leading to hidden risks. The steady development of the financial industry entails identifying the legal nexus of financial products and services. Once the nexus is established rules and regulations can no longer be enacted according to institution classification, but rather a uniform system should be established for financial products of the same legal nexus so that they are supervised and regulated according to function.

Wu Xiaoling illustrated with an example of entrusting financial products. For now trust and investment companies can do the business. Securities companies are conducting discretionary account management and asset management business and banks are carrying managed account business. "Three kinds of institutions are conducting financial products of the same legal nexus. Normally the three kinds of institutions should abide by the same laws and regulations. Actually it is not the case." She believed that a good operation order can be maintained for financial products only by identifying the legal nexus of various financial products and services, evenly treating all institutions, managing a particular product according to the same principle on the part of all the institutions and supervising the particular product according to function on the part of the supervision departments.

Wu also said the rampant rule-violating conducts in the financial circles - misappropriation of clients' assets in huge quantities should be severely punished. She pointed out that there do not exist corresponding clauses in the Criminal Law explicitly against such kind of conducts. If misappropriation of clients' assets is not severely punished in the Criminal Law then a third party's properties cannot be effectively protected. Therefore the amendment of the Criminal Law should take into consideration the equal protection of all kinds of properties so as to crack down on economic crimes and maintain social order.

With regard to establishing a good market exit mechanism and maintaining the prudent operation of financial institutions Wu Xiaoling believed that the personal debts acquisition policy jointly released by four ministries this month provides a good policy condition for making strict the supervision of financial institutions. However there is still the need for a good bankruptcy law to guide companies to prudent management. And a mechanism of limited compensation and a mechanism for timely rectification should be established to reduce the exit risk for financial institutions and maintain social stability. "Different laws should perform different functions. Safeguarding employees' rights and interests is the function of labor laws and social security laws. Bankruptcy laws should protect the rights and interests of creditors. When financial institutions exit the protection of small investors' rights and interests is very important." said Wu Xiaoling.

By People's Daily Online