Chinese lawmakers have announced a new financial regulatory body, the National Financial Regulatory Administration (NFRA), which will replace the China Banking and Insurance Regulatory Commission.

The new proposal, which grants the financial regulatory body previously held by the People’s Bank of China, the CBIR, and the China Securities Regulatory Commission, was presented at a sitting of the Chinese National People’s Congress on Tuesday.

NFRA Will Eliminate Regulatory Arbitrage

Under the new law, the People’s Bank of China will expand from nine branches to 36, focusing on monetary policy.

Additionally, the new body’s oversight will be “penetrating” and “continuous” and will supervise financial activities and functions. It will look to police institutions threatening financial stability by engaging in regulatory arbitrage.

The CBIR currently serves the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

China banned cryptocurrency trading and mining last year amid concerns about the environmental impact of mining proof-of-work cryptocurrencies. However, some informal traders accept crypto from buyers in Africa and Latin America.

New Financial Regulator Amplifies Earlier Push

While no explicit reference was made to cryptocurrencies coming under the oversight of the new body, it will have some administration over the Chinese securities markets.

This inclusion may align with a broader Chinese strategy to push crypto away from the mainland through a “super regulator.” Firms wishing to operate on the mainland may find the regulatory burden too onerous.

Crypto firms in Hong Kong recently told Bloomberg that while Beijing was looking to tighten regulations on the mainland, officials see Hong Kong as a test bed for cryptocurrencies.

Presently, the Hong Kong Monetary Authority and the Securities and Futures Commission regulate crypto in the region, designated as a Special Administrative Region of the People’s Republic of China.

Several officials from China’s Liaison office were seen at crypto events in Hong Kong last month. At the same time, regulators announced plans to permit retail trading via a licensing regime launching on June 1 2023.

The Chinese Communist Party could also use the new body to rein in the speculative mania of cryptocurrencies reminiscent of the nation’s cyclical boom-bust cycles.

Booms in China are typically driven by investments from entities that are at least partially owned by the government.

Officials motivated by political goals leverage relaxed credit policies to fund large-scale investments that put upward pressure on prices. The government then introduces fiscal tightening until shortages experienced during the boom stabilize, after which the cycle restarts.

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