Professor Li Shuguang from China University of Political Science and Law recently published an article in the "China Banking" magazine, discussing the legislative objectives, basic principles to be followed, international experience, potential issues that may arise during the formulation, and the legal structure and basic institutional framework of financial law.

The article suggests that the legislative objectives of financial law should include the following aspects: defining the connotation and legal nature of finance and its activities, regulating the behavior of financial entities, clarifying the legal status of the Central Financial Committee and financial regulatory departments, promoting financial innovation and development as well as the construction of a strong financial country, protecting the legitimate rights and interests of financial operators and consumers, ensuring financial security and maintaining market order, incorporating all financial activities into the regulatory system, and preventing systemic financial risks.

The formulation of financial law should adhere to six basic principles: First, adhere to the principle of Party leadership over finance, maintaining the centralized and unified leadership of the Party Central Committee over financial work; Second, adhere to the principle of marketization and legalization; Third, adhere to the principle of serving the real economy; Fourth, adhere to the principle of professionalism and bottom-line thinking; Fifth, adhere to the "five major" regulatory principles; Sixth, adhere to the principle of digital and intelligent regulation. In addition, the legislative path of financial law should follow a modular approach to build the legal system, combining principle guidance with detailed rules.

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On July 21, 2024, the full text of the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization" (hereinafter referred to as the "Decision") was officially published after being reviewed and adopted by the Third Plenary Session of the 20th Central Committee of the Party. It mentioned an important financial legislative task - "formulating financial law." The "Decision" emphasizes that the purpose of formulating financial law is to clarify the behavioral norms of financial activities through legislative means, regulate market order, protect the rights and interests of financial consumers, and prevent systemic financial risks. This move will fill the gaps in the existing financial regulatory system, enhance the legal effectiveness of financial supervision, ensure that all financial activities are carried out orderly within the framework of the law, and is an important step to implement the spirit of the Party's 20th National Congress and the 2023 Central Financial Work Conference, and achieve the goal of building a strong financial country. Formulating financial law is a significant event in the financial field. What are the legislative objectives of financial law? What are the basic principles and international experience that should be followed in its formulation? What are the potential issues that may arise during the formulation of this law, and what is its legal structure and basic institutional framework? This article intends to discuss some immature views on the above issues.

The legal positioning and legislative objectives of financial law

Financial law was originally understood in the academic circle of law as a branch of the legal discipline system, referring to a series of laws and regulations related to the financial field. The "formulation of financial law" proposed in the "Decision" is obviously intended to formulate a special law. So, what is the legislative positioning and objective of this law?

Finance is the lifeblood of the national economy and an important part of the country's core competitiveness. Since the reform and opening up, China's financial industry has developed rapidly, playing a supporting role in the economic and social development of the national economy. At the same time, the construction of the financial legal system has also made significant progress. The formulation of laws and regulations such as the "People's Bank of China Law," "Commercial Bank Law," "Banking Supervision Law," "Securities Law," "Insurance Law," "Trust Law," and "Deposit Insurance Regulations" has initially established the foundation of the financial legal system with Chinese characteristics and played an important role in their respective fields. The Party's 20th National Congress and the 2023 Central Financial Work Conference proposed the strategic goal of building a strong financial country, which has put forward higher requirements for financial rule of law. It is undeniable that with the rapid growth of the financial market, various contradictions and problems in the financial field are intertwined and mutually influential, and there are still many economic and financial risks and hidden dangers, and irregular phenomena in the financial field continue to emerge. The existing legal and regulatory system, based on the traditional block supervision concept and system, seems somewhat inadequate in dealing with the new situations and problems of the financial market. Some financial legislation is too simple and lacks detail. Some financial laws and regulations were formulated more than ten years ago and have become outdated and unsuitable for current development. Especially for emerging financial behaviors, financial formats, and quasi-financial phenomena in recent years, the existing laws and regulations involve less and there are gaps in regulation and legislation. Therefore, it is particularly necessary and important to formulate a basic financial law that is compatible with the socialist market economic system and the financial system.

The legislative positioning of financial law is to serve as the mother law of the financial law system, the basic law, or the fundamental law? What should the name of this law be, financial law, financial basic law, or financial supervision law? What is the relationship between this law and the "Financial Stability Law" and other laws in the financial field? These issues are still being thought about and discussed in academia.

I believe that if this law should be positioned as the mother law of the financial legal system, that is, the basic law that all financial laws and regulations must follow, then the name of the law can be set as "Financial Law." According to the meaning of the "Decision" of the Third Plenary Session of the 20th Central Committee of the Party, this law can also be positioned as a basic financial law, aimed at defining and regulating financial institutions, financial activities, and financial behaviors, and protecting the legitimate rights and interests of financial operators and consumers, then the name of the law can be set as "Financial Basic Law." If this law focuses on comprehensively supervising all types of financial activities, then the name of the law can be set as "Financial Supervision Law."

The objectives of this financial law legislation should meet the following four needs: adapting to the situation of financial development and innovation, responding to the needs of financial regulatory system reform, supporting the goal of the financial power strategy, and preventing and resolving systemic financial risks. Therefore, it is suggested that the legislative objectives of financial law should include the following aspects: defining the connotation and legal nature of finance and its activities, regulating the behavior of financial entities, clarifying the legal status of the Central Financial Committee and financial regulatory departments, promoting financial innovation and development as well as the construction of a strong financial country, protecting the legitimate rights and interests of financial operators and consumers, ensuring financial security and maintaining market order, incorporating all financial activities into the regulatory system, and preventing systemic financial risks.Experts have suggested that since financial law is being formulated, the creation of the "Financial Stability Law" may no longer be necessary, as there might be overlapping content between the two laws, and enacting both could be a waste of legislative resources. I believe that the legislative objectives of financial law and the "Financial Stability Law" are entirely different. The objective of financial law is to provide general guidelines for financial institutions, financial activities, and financial behaviors, focusing on protecting the legitimate rights and interests of financial operators and consumers. In contrast, the goal of the "Financial Stability Law" is to prevent, resolve, and handle significant financial risks and systemic risks, with an emphasis on the coordination of relevant measures and judicial procedures. Additionally, the "Enterprise Bankruptcy Law" is being revised to establish a special chapter on the bankruptcy of financial institutions, aiming to provide a strict judicial procedure for dealing with financial risks. These three laws have distinct legislative objectives, and naturally, there is no issue of replacement or repetition.

Legislative Principles of Financial Law and International Experience

The formulation of financial law should adhere to the following guiding ideas: First, it should reflect Chinese characteristics while absorbing advanced international financial legislative experiences to construct a financial basic law that suits our country's national conditions. Second, the enactment of this law should aim to accurately grasp the trends and patterns of financial development in the new era, thereby promoting practical innovation, theoretical innovation, and institutional innovation in China's financial field. To this end, the formulation of financial law should adhere to several basic principles.

Adhere to the principle of party control over finance, and maintain the centralized and unified leadership of the Party Central Committee over financial work. The 20th National Congress of the Communist Party of China and the Central Financial Work Conference have proposed that doing a good job in financial work must adhere to and strengthen the Party's comprehensive leadership. It is essential to deeply understand the political nature and people-oriented nature of financial work, aim to accelerate the construction of a financial powerhouse, and unswervingly follow the path of financial development with Chinese characteristics. This is the primary principle that the legislation of financial law must adhere to.

Adhere to the principle of marketization and legalization. The legislation of financial law should adhere to the principles of marketization and legalization. Given the highly economic market attributes of finance, the role of market mechanisms should be fully played, emphasizing fair competition and honesty and credit to optimize the financial market environment, allowing the market to play a decisive role in resource allocation. However, financial innovation has a dual nature, and without necessary regulations, it may trigger risks. Therefore, the fundamental role of the rule of law should be fully played to stabilize expectations, promote the implementation of the financial powerhouse strategy, and effectively prevent and resolve systemic financial risks.

Adhere to the principle of serving the real economy. The fundamental purpose of finance is to serve the real economy and new quality productive forces. The real economy and new quality productive forces are the foundation of national economic development and the construction of a modern industrial system, as well as the foundation of finance. Serving the real economy is the basic responsibility of finance and also the source of financial competitiveness and vitality. The formulation of financial law should adhere to the principle of serving the real economy, prevent finance from becoming detached from reality, curb financial bubbles and risky behaviors, and enhance the level of financial empowerment to the real economy.

Adhere to the principle of professionalism and bottom-line thinking. The professionalism of finance is reflected in its activities, products, and services, which are not only rich in variety but also have unique development and operation patterns. Finance focuses on the liquidity of funds and investment benefits, and it has a high technical content. In addition, risk prevention has always been the bottom-line thinking of the financial industry. The formulation of financial law should adhere to the principle of bottom-line thinking, maintain national financial security, prevent and control financial risks, and ensure that systemic risks do not occur.

Adhere to the "five major" regulatory principles. The formulation of financial law should adhere to the following five major regulatory principles: First, emphasize risk-based regulation and strengthen supervision of financial institutions; Second, legally include all financial activities under regulatory scope, protect the legitimate rights and interests of financial consumers, and strengthen behavioral regulation; Third, adhere to the principle of "the same business, the same standard," and strengthen functional regulation; Fourth, adhere to the principle of "substance over form," and implement穿透式监管; Fifth, implement continuous regulation around the entire life cycle of financial institutions, the entire process of financial risks, and the entire chain of financial business.

Adhere to the principle of digital and intelligent regulation. In recent years, the rapid development of the financial industry has brought new concepts such as technology finance, internet finance, digital finance, and intelligent finance. In the process of digital transformation, financial institutions and financial activities face a series of issues, including unclear digital property rights, imperfect data governance, non-standard platform finance, difficulty in regulating virtual currencies, and high anti-money laundering pressure. The formulation of financial law should adhere to the principle of digital and intelligent regulation, promote the digital and intelligent transformation of finance according to the law, and achieve interaction between the law and the development of financial digitalization and intelligence.The formulation of financial law should be based on the actual situation of the country and draw on the experience of international financial legislation. Over the past thirty years, the integrated development of financial legislation has become a trend. Influenced by the tide of financial liberalization and mixed operations, the United Kingdom carried out a "Big Bang" financial reform in 1986, introducing the Financial Services Act 1986, which covers the financial services industry including securities, futures, and insurance. The U.S. Congress passed the Gramm-Leach-Bliley Act of 1999 in 1999, integrating a large number of financial legal norms into one legal document. Subsequently, Japan and South Korea also introduced the Financial Instruments and Exchange Act and the Financial Investment Services and Capital Markets Act, respectively.

From the international experience, an important legislative experience is to achieve the integrated development of financial law, which helps to improve the efficiency of financial law, avoid repetitive and inefficient cross-legislative norms, better protect the legitimate rights and interests of financial consumers, maintain the order of the financial market, optimize the allocation of financial resources, and fill the gaps and loopholes in the law. Another important financial legislative experience is to clarify the legislative objectives and closely relate them to the market fields regulated. For example, the UK's Financial Services and Markets Act aims to regulate the financial services industry and markets to ensure fair, transparent, and efficient operation of the market. This law grants the Financial Services Authority (FSA) extensive regulatory powers to supervise the behavior of financial institutions, protect consumer rights, and maintain the integrity of the financial market. Japan's Financial Instruments and Exchange Act focuses on regulating financial instrument transactions, including securities and derivatives, aiming to ensure the fairness and transparency of financial transactions and prevent market abuse.

The legislative path and main institutional framework of financial law

The formulation of financial law is carried out on the basis that China has preliminarily formed a financial legal system, and some important financial laws are also in the process of legislation or revision planned by the National People's Congress. Therefore, the legislative path of financial law can adopt an embedded legislative model, taking into account the original plan and new needs, and promoting at the same time. On the one hand, the financial legislation and amendment plan of the National People's Congress should proceed as normal; on the other hand, the drafting of financial law needs to be based on the positioning of the financial basic law for top-level design, and properly handle the relationship with existing financial laws and regulations and planned legislation, providing clear guidelines and space for future legislation.

Regarding the legislative path of financial law, I believe that the following two principles should be followed:

1. Use a modular approach to build the legal system. Consider the significance and position of financial law in improving the financial legal system, identify the core elements of the financial legal system, such as financial institutions, financial markets, financial infrastructure, financial instruments, financial transactions, and financial legal responsibilities, and regard these elements as independent but interrelated modules. After determining the position of financial law in the legal system, each module should focus on specific legal issues to form an independent and coordinated legal and regulatory system. This structure helps to improve the applicability and targeting of the law, while reducing redundancy and conflicts between laws and regulations.

2. Principle orientation and rule refinement go hand in hand. Promote financial legislation through a tiered legislative structure. The top level constructs the basic framework, the middle level formulates the main systems and procedures, and the lower level clarifies specific operational rules. Basic legal principles, such as marketization, legalization, problem orientation, and substance over form, should be clearly listed in the legal text. These principle clauses have a high degree of abstraction and universality, providing a basis for legal interpretation and application, guiding the implementation and value orientation of the law. Based on these principle clauses, specific institutional procedures and operational rules should be further formulated to clarify the rights, obligations, and responsibilities of financial institutions and market participants, as well as the responsibilities and regulatory methods of regulatory agencies.

Due to the different levels of financial development, market structure, development stage, and market maturity in various countries, as well as significant differences in the philosophy and historical background of financial regulation, the focus of financial law legislation in various countries also varies. We should combine China's national conditions and financial legislative objectives, draw on the relevant experience of international financial legislation, and draft this far-reaching financial law.

Considering comprehensively, it is suggested that the main institutional framework of China's financial law can be designed as:

1. General provisions: Establish the legislative objectives, key definitions, scope of adjustment, and basic principles of this law.2. Regulatory Framework: The "Plan for the Reform of Party and State Institutions" released by the Central Committee of the Communist Party of China and the State Council in March 2023 made significant adjustments to the financial regulatory system. This includes the establishment of the Central Financial Committee, the Central Financial Work Committee, the State Financial Supervision Administration, the deepening of the reform of local financial regulatory systems, the adjustment of the China Securities Regulatory Commission as a directly affiliated institution to the State Council, and the promotion of reforms to the branches of the People's Bank of China. Financial law should provide legal support for these reforms and establish the legal status of the new regulatory system. Additionally, it should ensure that regulatory agencies have the authority to conduct risk-based supervision over all financial institutions and activities.

3. Financial Institutions and Service Standards: Define the definition, legal status, qualification requirements, business standards, internal management, and risk control standards for financial institutions. Introduce a catch-all clause to ensure that any entity engaged in financial activities, whether or not it is explicitly defined as a financial institution, is subject to appropriate regulation. Also, introduce the "same business, same standards" principle to ensure consistent regulation for different financial institutions when providing the same or similar services.

4. Financial Market Infrastructure: Regulate the establishment standards, operational mechanisms, and regulatory requirements for financial trading platforms. At the same time, establish a regulatory穿透 mechanism to ensure that regulation covers the substantive content of financial activities.

5. Financial Products and Market Operations: Include the classification of financial products, listing rules, trading processes, and market access systems. Add a catch-all clause to achieve comprehensive regulation of financial products.

6. Rights of Financial Operators: Stipulate that financial operators should follow market principles, operate independently and in compliance throughout the entire lifecycle, as well as requirements for corporate governance and information disclosure. Additionally, add specific regulations for new types of operator behavior brought about by financial innovation.

7. Protection of Financial Consumer Rights: Emphasize public disclosure to ensure the right to be informed and the right to choose for financial consumers, and establish corresponding protective measures. Strengthen behavioral regulation to ensure that the behavior of financial institutions in the sales and service provision process complies with the requirements for protecting consumer rights.

8. Market Order: Prohibit market manipulation, fraud, and other unfair trading practices to ensure the fairness of transactions, and refine regulations for new types of market manipulation (such as high-frequency trading). Also, implement ongoing regulation to ensure the long-term stability of market order.

9. Dispute Resolution Mechanism: Establish mediation, arbitration, and judicial resolution pathways for financial disputes, considering new types of disputes brought about by financial innovation, and provide more flexible and efficient dispute resolution mechanisms.

10. International Cooperation in Financial Regulation: Include communication and sharing of financial regulatory information, administrative regulatory cooperation, law enforcement cooperation, and judicial cooperation, emphasizing the importance of safeguarding national interests and financial security in international financial regulation.

11. Legal Responsibility: Clarify the legal consequences of violating legal provisions, covering administrative responsibilities, civil compensation responsibilities, and criminal responsibilities. Additionally, add legal responsibility clauses for new risks brought about by financial innovation.Through the aforementioned system design, financial law, in accordance with the spirit of the 20th National Congress of the Communist Party of China and the central financial work conference, and based on the new situation of China's financial development and significant reforms in the financial regulatory system, integrates the core rules and universally applicable principles from existing financial laws, regulations, rules, and normative documents, elevating them to the legal level. This ensures the authority and guidance of the law, achieves coordinated and unified regulatory rules across different financial sectors, eliminates regulatory disparities, prevents regulatory arbitrage, ensures fair competition and consistent regulation in the financial market, effectively identifies gaps in the existing regulatory system, and formulates corresponding regulatory rules for emerging financial activities and innovative financial products. This ensures that all financial activities are conducted within the regulatory framework and firmly maintains the bottom line of not occurring systemic financial risks.