January 16, 2020 at 12:54PM

Chinese regulators are close to creating a set of rules for the founding of digital-only banks in the country, according to Reuters sources.

Shanghai could see more digital banks in future

In what is being billed as a push to reduce risk in the financial sector and encourage new entrants into the marketplace, the new rules could allow existing foreign companies in China – Like HSBC and Standard Chartered – to set up separate China-based digital banks.

According to Reuters, a dozen groups on interested parties, including foreign companies, are in talks with Chinese regulators over the potential rules.

Banks that wish to create digital subsidiaries will be able to own majority stakes in them, easing restrictions on foreign access to China’s financial markets.

The online banking offshoots of Alibaba (MYBank) and Tencent (WeBank) will be covered by the impending legislation, as will the only two other approved digital banks in the country – Baidu’s AiBank and China Citic Bank Corporation.

Online banking gross transaction volumes in China have grown by 155% from $260 billion in 2015 to $670 billion in 2019. In 2018 mobile penetration in the country hit 57%, an increase of 6% on the previous year.

China’s banking sector is the largest in the world by assets, holding around $40.1 trillion in value in the first quarter of 2019.

It is unclear which regulatory authorities are taking the lead on legislating this new batch of digital banks. The People’s Bank of China is the country’s central bank and implements wider monetary, but shares responsibilities with the 2003-founded China Banking Regulatory Commission, which oversees supervision of banks, asset management firms and investment companies.

Related: Challenger banks in Hong Kong

Other East Asian markets to have introduced legislation allowing the formation of digital-only banks include Hong Kong and Singapore.

The Hong Kong Securities and Futures Commission (SFC) has given a dozen virtual banking initiatives the green light so far, including to Fusion Bank, a joint venture between Tencent, Industrial and Commercial Bank of China (ICBC), Hong Kong Exchanges and Clearing (HKEX) and Hillhouse Capital.

Singapore announced last year that it would be granting five digital licences, and as many as 50 bidders have supplied applications so far.

Ant Financial, games hardware firm Razr, food delivery firm Grab, and Singapore telecommunications giant Singtel have all submitted bids.

Last year the Monetary Authority of Singapore (MAS) posted a series of clarifications for those filing their applications.

Any proposed digital bank must be integrated into the corporate structure of applicants. The regulator also clarified that it does not expect firms which already offer payments services to amalgamate its existing products under the umbrella of any newly formed digital bank, but also requires solid reasoning as to why an applicant would not want to do so.

MAS plans to announce successful applicants in mid-2020.

Read more: China drafts rules to take on $500bn leasing sector

via FinTech Futures http://bit.ly/2QYhY7T

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