Study On Local Financial Oversight Power

Financial oversight is essentially an amendment and improvement for the imperfections in the market.In the context of market economy,financial derivatives and operation are continuously being innovated,and the financial sector becomes more internationalized with surging risks,making financial oversight an important tool for macro-control and economic supervision.The financial oversight system is changing affected by external factors such as the global financial crisis and market fluctuation,the WTO’s requirement for a more opened market and the abidance by Basel Accord,as well as internal factors like inflation and deflation from time to time on the process of economic restructuring,growth of financial market and supply and demand dynamics.Moreover,higher standards have been raised for financial oversight with deepening of reforms and rapid market growth.Appropriate local financial oversight system must be explored due to restricted central supervision,development of local small and medium-sized and quasi financial institutions,and demand for more professional regulatory organs.The present local financial oversight system in China is featured by central vertical management and local territorial management,both of which have pros and cons.The extreme restriction to local financial oversight power goes against the inherent law of the market development and reflects central government’s worries to the local oversight capability.With the irreversible trend of the localization of financial products and institutions,it is imperative to entrust local government certain financial oversight power.It responds to the rational request of local government for their financial interests and is conducive to better complementing the central financial oversight and effectively preventing local financial risks.The study on the local financial oversight power is based on the moderate decentralization of financial oversight,namely the respective powers and obligations of the central and local governments.To be specific,the central government entrusts local government certain financial oversight power to enable them to make independent decisions on the development scale and structure of local financial market and to effectively provide local residents with typical financial products and services as required.The sector regulation is not the financial decentralization in real sense.At the central or federal government level,it refers the central bank,regulatory institutions and financial departments play their own functions to identify different functions and powers among various regulatory institutions.In such model,the financial oversight power is centralized by the top government,while the local government has no oversight power,so local finance is under independent oversight in accordance with the law by agencies designated by the central regulatory institutions.Financial decentralization is a concrete form of oversight at different levels.It refers that the central and local governments have their respective financial oversight power redistributed to the different levels of the vertical administration within a country,aiming to disperse powers to subjects at different levels.It can be divided into financial decentralization from government to market and financial decentralization among governments of different levels.The former is the economic decentralization while the latter is administrative decentralization.In the process of the financial system reform in China,the relationship between government and market and that between the central and local governments are changing without institutionalized features.In fact,the local decentralization has already shown up in financial system after the reform and opening up.Because of the economic bubbles in China after the Asian financial crisis in 1993,the central government started to rectify financial market in an all-round way and financial decentralization appeared from time to time.In 2003,the State Council empower the local governments to administrate Rural Credit Cooperatives,since then the regional financial oversight power was decentralized prudently based on the fiscal status and financial oversight capabilities of local governments.In 2010,it was clearly stated,in the Twelfth Five Year Plan Proposal adopted at the fifth plenary session of the seventeenth CPC Central Committee,to improve the financial management system of local governments and strengthen their responsibilities to deal with risks of local small and medium-sized financial institutions.In November 2013,in the Decision on Major Issues Concerning Comprehensively Deepening Reforms adopted at the Third Plenary Session of the 18 th CPC Central Committee,it proposed to carry out reform measures and stability standards for financial oversight,improve the mechanism for oversight and coordination in the financial sector,and define the oversight functions and risk management responsibilities at both the central and local levels.In 2014,the oversight functions and risk management responsibilities at both the central and local levels were clarified and took shape in the State Council’s Opinions on Defining Oversight Functions and Risk Management Responsibilities both the Central and Local Levels,gradually transforming the exclusive financial oversight power from the central government to the joint oversight at both the central and local levels.Different from the pragmatic principles of the tax sharing system reform,the local financial oversight power has legitimacy as it is formulated in normative documents issued by the central government,central regulatory authorities or national ministries and commissions.Authorized by the central government,local governments have gradually got the oversight power to financial institutions,for instance security companies and trust companies,and non-financial institutions as well like pawnshops and financial leasing companies in their administrative areas.The branches and regional offices of the central oversight authorities started to work with the local governments and entrust them part of power through signing memorandums.Local financial oversight,though constrained by policy provisions,has shown features of standardization and legalization after local government has actively explored and promulgated relevant rules and regulations tailored to local situations.It has been proven in practice that under the premise of maintaining the unified financial market,the moderate decentralization between the central and local governments can minimize negative factors caused to local government by financial oversight resource distribution.In China,local finance is greatly dominated by local governments,but there is still obvious structural imbalance of financial decentralization and non-standardized exercise of local financial oversight.In studying the local financial oversight power,we must put the central bank’s authority first,and then rationalize the structures of financial oversight interest between the central and local government.At the legal level,it prevents the structural imbalance and illegitimacy of the central and local financial oversight power.The study on local financial oversight power aims to drive local financial development,effectively prevent local financial risks,regulate the exercise of local financial oversight and push forward the process of legalization of local financial oversight system.The local financial development and local government’s decision on financial oversight are affected profoundly by new situations,changes and progress in the financial sectors at home and abroad.The biggest problems for developing local economy lie in resolving difficulties of SMEs in financing,expanding channels and optimizing structures of financing.The fiscal decentralization between the central and local governments objectively leads to the dual identities of local government as investors and regulators in regional financial development.The local government has become direct or indirect investors to financial institutions.The regional financial development can be driven forward through government intervention to financial institutions under its jurisdiction as serving local economic growth is the primary target in developing regional finance and exercising financial oversight.Since the local government has dual identities of both the legal "political person" and practical "economic man",it theoretically safeguards public interest as required by the public,while in practice,it is inevitable to be dominated by "rational economic men" to pursue maximum benefits.If there are no regulatory constraints to the operation of local financial oversight power,local government investors who is also the supervisors will inevitably work on financing instead of exercising oversight and pursue economic benefits rather than safeguarding financial security,which can lead to unstable local financial order and even the outbreak of regional financial crisis.Considering the temporary need of local financial development or under the pressure of the central financial policy,local government may break away from the existing rules and procedures when exercising financial oversight power.The market itself does not allocate resources and the resource allocation is realized by the subject of power,so it will impede the optimization of financial structures if the subject is confused about its rights and obligations.Therefore,the study on local financial oversight system should not be limited only to the establishment or improvement the system,instead it should be started from researching the power itself and targeted to promote the optimization of local financial oversight system through standardized power exercise.Currently,most existing regulatory theoretical studies focus on the relationship between government and market as well as the restructuring of the central vertical supervision,yet few systemic studies have been carried out in local financial oversight power.With the deepening of financial reform in China and the prosperous development of local and informal finance,the absence of local financial oversight restricts the effective functioning of the local financial regulatory institutions in addition to undermining the security,efficiency and democracy of the whole financial market,and even posing severe potential financial risks.Therefore,it is necessary to respond local financial oversight power theoretically to provide a standard institutional framework for local financial reform.The author of this thesis focuses on discussing the structural optimization and improvement of operation mechanism of local financial oversight power in five chapters,including the overview of local financial oversight power,theoretical and practical basis of local financial oversight power,distribution of local financial oversight power,exercise of local financial oversight power and control of local financial oversight power.Chapter one is the overview of local financial oversight power.It discusses four issues related to local financial oversight power,namely its defining premise,connotation and denotation,power source and legal elements.The logic starting point of this study is to accurately identify and define local financial oversight power.Through define the concept in the first chapter,the author aims to analyze classification,legal elements and legal basis of local financial oversight power,and clarify its connotation and denotation,structures and legal source,so as to lay a clear-cut foundation for the follow-up study.Chapter two is the fundamental study of local financial oversight power.There are theoretical and practical basis in the study,which are interactive and indispensable to each other,providing strong support for the follow-up study.The theoretical basis is the central and local decentralization theory,which penetrates the whole process of dispersing and exercising of local financial oversight power.It is elaborated from two perspectives of Public Economics Theory and History of Chinese Legal Philosophy.The appropriate decentralization model that can meet the demand of China’s local financial development is explored based on introducing and commenting representative persons and their important thoughts in central and local decentralization theory both at home and abroad,as well as analyzing and comparing of the centralization,local autonomy and moderate decentralization in financial oversight field.The practical basis of local financial oversight power is discussed from three perspectives,including the evolution of China’s financial oversight system,the reform and development of the financial industry,and the exploration of local finance and financial oversight,resulting in an outline of the development of local financial market and the status quo of financial oversight,together with the inspiration from local financial oversight system of other countries,a solid practical basis has been laid to improve local financial oversight power system.Chapter three is the distribution of local financial oversight power.It discusses following four issues,namely the value orientation and fundamental principles of dispersing local financial oversight power,dilemma in its distribution,differentiate the power at central and local levels,and structures and layers of its distribution.It is a dynamic process to distribute local financial oversight power,which adjusts and differentiates functions of authoritative organs and interactions among subjects of power to realize structural optimization of the power.The distribution of financial oversight power,aninevitable outcome of the reform of financial system,is required as governments at different levels play different functions.It is the institutional arrangement to the differentiation,means,implementation,guarantee and constrains of local financial oversight power,so as to resolve conflicts of interest related to financial oversight power and establish a standardized legal system of local financial oversight.The primary task of law in local financial oversight is to provide normative guidelines,which refers to disperse local financial oversight power to achieve the redistribution of financial oversight by the law.The rational distribution of local financial oversight power is the structural premise for clarifying rights and obligations of the regulator,guaranteeing the effective operation of local financial oversight,and maintaining local financial order.In the meantime,it is the legal recognition,guarantee and restraint of the local financial oversight power.Chapter four is the exercise of local financial oversight power.The author discusses the principles,substantial and procedural requirements,types and responsibilities of exercising local financial oversight in this chapter.The rational distribution of local financial oversight power targets at achieving high-efficient operation of the power,thus the focus is on the means to ensure the normalized exercise of local financial oversight power.To exercise power is the action that the subject of power dominates the object of power by means of power and a dynamic process of transforming static legal force to practical force,namely to actualize the power.The exercise of local financial oversight power is an important part in its operation.The local financial oversight subjects,on behalf of the state,regulate the local financial objects through mandatory means to realize public interests.It is composed of following three elements of the process,outcome and feedbacks of exercising the power,which is a dynamic interpretation rather than a static description.The lack of standardization in exercising local financial oversight power is a major problem in this regard in China.It is necessary to find out root causes from studying the substantial and procedural requirements and accountability in exercising the oversight,and work out a draft scheme for legal system to promote standardization of exercising local financial oversight power in China.Chapter five is the control of local financial oversight power.The theoretical basis,restricts and supervision of local financial oversight power are discussed in this chapter.The rational distribution of power is of the first importance to ensure the effective operation of any power,secondly it is to regulate the exercise of power,and last but not least it leads to the formation of a power control system corresponding to the operation of power.To prevent the abuse of local financial oversight power is essential to achieve local financial legalization.The key to legalization lies in establishing an effective power control system.The theoretical basis of local financial oversight power control is discussed from perspectives of Philosophy of Law and Economics Theory.In the autonomous market and society,the function and power of the government is strictly bounded by the law and supervised by the society.The government has bounded rationality and political power is a kind of restricted power.The operation of government power is strictly restricted in purpose and means.In law-based society,the Constitution and the law clearly defines the scope of power.The operation of local financial oversight power must be restricted by the law and supervised by the society.The power without restrictions will inevitably result in the abuse of power.The restriction and supervision are two basic means to control local financial oversight power,both of which reflect two different relations,two different control systems,and two status of power control with different functions.In the Government Work Report at the fifth session of the twelfth National People’s Congress on March 5,2017,Premier Li Keqiang emphasizes to advance reforms in the financial sector and strengthen the role rural credit cooperatives play in meeting the needs of agriculture,rural areas and farmer.Our tasks also include deepen the reform of multi-tiered capital market,improve the basic systems of the main board,actively develop the ChiNext stock market and the new third board,see that regional equity markets develop in a well-regulated way,and expand channels for using insurance funds to support the real economy.The report sets the direction for local financial reform and development,and once again proves the importance of studying local financial oversight power.Furthermore,local financial oversight power system includes both the internal and external control of local financial institutions.It is a complex regulatory system supervised by the local government on behalf of the public interests,autonomously overseen by financial institutions themselves based on the credibility,and optimized by the resources in financial market driven by the whole market.In this system,the legalization of local government financial oversight is restricted by the functions and scope of the regulatory bodies and related to the valuation of others’ free interference on the basis of free judgment and normalized and legal exercise of power.The legalization requests that power must be exercised within the scope of the law.As a system of rules,the law restricts local financial oversight power starting from the power distribution,reflecting in the exercise of power and targeting at the control of power.