China's disparate Financial Standards

Written by Ken Ding || 28 Mar 2012

As China’s financial institutions continue to invest more money in information technology innovation to help them maintain strong growth and a competitive edge, foreign vendors expect enormous opportunities and are scrambling to enter this dynamic market.

However, when a foreign vendor and its local partner want to implement a new solution, both of them may face a dilemma or, specifically speaking, a real problem, in that China’s financial standardization lags behind the relatively rapid development of the financial industry globally and has yet to meet the demands of technology innovation and business expansion. This can slow the pace of technology advancement as competing standards add layers of complexity and make it more difficult to come up with straightforward technology solutions to clients’ problems. The PBOC has realized that financial standardization does and will continue to play a pivotal role in financial informationization and regards standardization work as an important strategic measure to promote China’s financial industry.

The China Finance Standardization Technical Committee (CFSTC), established by the PBOC and other financial institutions, shoulders the responsibility to draft and revise financial standards relating to banking, insurance, security and printing, and it also promotes the adoption of new standards in China. As of the end of 2011, CFSTC had issued 151 financial standards covering fundamental data elements, code, interface standards, terminology, messages, data, financial instrument designs, and parameters in printing technology. These standards have been successfully implemented in various financial areas such as bankcard, Internet Banking, accounting, treasury, information security and financial IC card.

Take for example the ISO 20022 standard, a universal financial industry message format. Since China has become a member of WTO, the scope of China’s financial institutions’ business has become much more international than before. However, incompatible financial message formats increase the cost of international transactions and impede efficient global bank connectivity, so the PBOC has already urged China’s local banks to adopt the ISO 20022 financial message standard and, at the end of 2011, CFSTC also issued the ISO 20022 standards which will be officially implemented in May, 2012.

We can expect that local banks will obtain numerous benefits from the implementation of ISO 20022 in China including the reduction of transaction costs and improvement of risk control. Vendors, of course, will be happy to help banks upgrade their cash management, treasury and payment systems.

Although progress has been made, China’s financial standardardization still faces many problems and challenges:

  • Compared with the large number of services offered by China’s financial institutions including banks, security companies, and insurance companies, the number of standards is not enough and the variety of standards is limited. For example, even though electronic payment business, such as online banking and mobile payment is increasingly popular in China, China still lacks sound and comprehensive electronic payment standards which will standardize the end-to-end process of electronic payment and control payment risk.
  • 70-80% of total standards refer to information technology, and CFSTC needs to draft more standards related to business and management, such as operation, transaction and risk management standards
  • Experts with relevant industry experience and knowledge are scarce, hindering the draft of standards
  • Currently, China only follows international standards, instead of participating the drafting of international standards 

As China becomes further integrated into global financial markets and reformation of domestic financial markets continues during the 12th Five-Year Plan Period, the authorities realize that they should continue pushing financial standardization and, more importantly, participating more actively in the drafting of international standards. By submitting its own proposals for international financial standards, China wants to strengthen its competitive edge in global financial markets.

Although it seems difficult for China to exert influence on international financial standards over the relatively short period of time that China’s markets have been developing, CFSTC will keep tracking and learning international standards first and promote indigenous innovation at the same time. In the future, we will likely see some of China’s own financial standards become international standards.

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