KPMG has released a new report which provides analysis of important topics and key performance indicators in China’s banking industry.
Titled “2016 Q3 China’s banking sector: Performance of listed banks and hot topics”, the report focuses on big data used to promote the transformation of banking outlets; how to build a data mart for banking credit risk from the basics; the interpretation of the implications of Circular No.42 on banking business; the discussion and analysis of the accounting treatment of the business of investment-loan linkage of banks; and the implications of blockchain technology on commercial banks and proposed countermeasures.
With regard to blockchain or distributed ledger technology, the report offers some countermeasures for commercial banks to adapt to an age of blockchain technology.
The authors believe that blockchain technology can solve banks’ existing business problems. It enables real-time transfers at reduced costs and allows verifying the identity of a remitter via digitized personal information of distributed ledgers. In addition, it also eliminates the need to reserve funds in banks’ current account.
Further explaining the implications of the technology for regulation in the banking sector, the report said that blockchains can be used to monitor asset conditions in the financial industry and potential financial risk to prevent, among others, front-running in stock transactions and cross-border money-laundering crimes.
“As China’s financial system may lack effective and mature regulation, offenders can take advantage of legal and institutional loopholes to carry out illegal acts that harm China’s national interest”, it added. “By leveraging blockchain technology to access more financial information, the Chinese Government can combat criminal activities more effectively to maintain fairness and stability in the financial market”.
Noting the People’s Bank of China’s (PBoC) long-term goal of making the RMB an international currency, the report said that blockchain could help the bank achieve this goal:
“[I]f China leads Western countries in adopting blockchain technology in, for instance, RMB transactions, it will increase RMB circulation, propelling the RMB to take the place of the USD as an international safe-haven currency”.
However, the report pointed out that strong decentralisation that lies at the core of a blockchain poses a great challenge to centralised regulators’ efforts to execute administrative interventions. In order to overcome this challenge, regulators need to be more adaptive to the development of new technology and change their regulatory methodology accordingly, it said.
