China will strengthen oversight of arbitrage that takes advantage of uncoordinated regulations and increase penalties to try to prevent structural risks from getting out of control, a senior central banker said.
Yin Yong, deputy governor of the People’s Bank of China, told a conference in Beijing on Saturday six forms of arbitrage were problematic.
He said they involved differing maturities, credit conditions, investment liquidity, exchange rates, capital and information.
“These six forms of malicious regulatory arbitrage, which circumvent the regulatory system and its arrangements, and take advantage of the incompleteness of regulation, could result in risks to the entire financial system getting out of control,” he said.
Chinese financial regulators have adopted a slew of “de-risking” measures this year in the face of ballooning debt and have ramped up efforts to unearth hidden problems that could become systemic threats.
Yin called for clear rules and procedures on who qualifies to make certain investments, and said information disclosure procedures should be improved while risk management is made easier.