Financial regulation strengthens the safety net for risk prevention

“Strengthen financial regulation comprehensively, build a risk prevention and resolution system, and ensure stable financial operation.” “Enhance coordination in financial regulation to prevent and combat illegal financial activities.”… Opening the draft outline of the 14th Five-Year Plan and the government work report, the deployment for building a strong financial regulatory system and consolidating financial security lines is clear and well-defined.

Representatives, committee members, experts, and scholars interviewed believe that currently, from institutions to functions, from segmented to transparent, from “firefighting after the event” to “early warning,” a modern financial regulatory system that combines stability with adaptability, safety with openness, is accelerating its construction.

Taking real action, comprehensive upgrade of regulatory concepts

The draft outline of the 14th Five-Year Plan proposes strengthening transaction regulation and investor protection.

“Regulatory enforcement and investor protection are more powerful and effective. This is our core function; it cannot be weakened, only strengthened,” said Wu Qing, Chair of the China Securities Regulatory Commission, at the Fourth Session of the 14th National People’s Congress on March 6. He emphasized adhering to rule of law, promoting sound legal systems for the capital market, and advancing market reform and development on the track of legalization.

On January 23, the China Securities Regulatory Commission issued the No. 1 penalty notice for 2026, targeting a market manipulation case. The notice revealed that Yu Han used 67 accounts, including “Chen Moumou,” to buy and sell, and conduct wash trades of A-shares “Doctor Eye Glasses” continuously. Under his influence, the stock price of “Doctor Eye Glasses” showed extreme abnormal fluctuations. Over five years, Yu Han gained illegal profits of up to 511 million yuan.

Yu Han, involved in market manipulation, was fined and confiscated 1.022 billion yuan, and faced a three-year market ban and a three-year trading prohibition. The strict penalties—“punishing to the core and banning at the root”—demonstrate the regulatory authorities’ firm resolve to crack down on illegal activities.

“Finance is the area most in need of regulation; we must adhere to bottom-line thinking. If financial regulation is inadequate, the level of financial risk will significantly increase,” said Zhu Ning, Professor of Finance at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance. Over the past few years, maintaining the bottom line of no systemic financial risk has relied heavily on strong financial regulation.

Strict and robust regulation has become the norm in financial markets. Data shows that in 2025, financial regulators issued 6,546 fines to banking institutions and practitioners, totaling 2.639 billion yuan—an increase of 46.53% year-on-year; 452 large fines exceeding one million yuan were issued, with strict enforcement of the “dual penalty system,” penalizing both institutions and individuals, with individual fines increasing by over 43% year-on-year.

Judicial cooperation is strengthening, giving regulators more confidence to enforce “long teeth and sharp claws.” The Supreme Procuratorate’s work report indicates that in 2025, prosecutors increased efforts to punish economic crimes, prosecuting 137,000 cases, promoting the rule of law and credit economy. The Supreme Court’s work report disclosed that in 2025, 25,000 cases involving securities, futures, and funds were concluded, a 53.6% increase year-on-year.

The “four pillars” are becoming more solid, making full coverage of regulation a reality. In 2023, the National Financial Regulatory Administration was established, officially implementing the “one bank, one bureau, one association” regulatory framework. “Regulatory rules for similar businesses are gradually converging, and standards for banking wealth management, insurance asset management, and securities firm asset management are unified, greatly reducing regulatory arbitrage,” said Zhu Jian Di, Chief Partner of Lixin Certified Public Accountants and a National People’s Congress delegate.

Zhao Xijun, Co-Director of the China Capital Market Research Institute at Renmin University of China, said that current regulatory coordination between central and local authorities is clearer, forming a system with “more precise positioning, clearer responsibilities, and more accurate division of labor,” effectively ensuring the implementation of regulations.

Innovating to address new risks and challenges

The draft outline of the 14th Five-Year Plan proposes strengthening financial security under open conditions and improving cross-border capital flow monitoring, early warning, and response mechanisms.

Deepening opening-up has made cross-border risk prevention a key issue. Zhu Ning pointed out that differences in regulation of cross-border financial products, including virtual assets, may lead to regulatory arbitrage and cross-border risk spillover, testing China’s cross-border risk control capabilities.

China’s financial regulatory system remains prudent and flexible. Recently, the People’s Bank of China, China Securities Regulatory Commission, and six other departments jointly issued a notice on further preventing and managing risks related to virtual currencies, clarifying that relevant domestic activities are illegal financial activities and prohibiting the tokenization of real-world assets.

National People’s Congress delegate and Peking University Bo Ya Professor Tian Xuan said that building a regulatory system compatible with high-level opening-up and high-quality economic development requires improving cross-border financial regulatory cooperation mechanisms and strengthening information sharing and law enforcement collaboration with international organizations and overseas regulators.

In the wave of digital economy, financial innovation is accelerating, but it also brings new challenges. From early December 2025 to the end of January 2026, at least 20 banks received regulatory fines related to cybersecurity and data security.

“Financial industry is the ‘purse’ and ‘wealth pool’ of society; data has high value, large scale, many nodes, and involves cross-border flows, making it a prime target for black and gray industries,” said Qi Xiangdong, Chairman of Qihoo 360 and a member of the National Committee of the Chinese People’s Political Consultative Conference.

Regulatory sandboxes are becoming a core paradigm for balancing innovation and safety in financial regulation. In December 2019, the People’s Bank of China launched a pilot program for fintech innovation regulation, marking the official start of China’s regulatory sandbox. As of November 2025, 36 thematic tools have been implemented, with over 450 innovative projects launched. In March 2021, the China Securities Regulatory Commission launched a pilot for fintech innovation in the capital market, which has since expanded to cities like Shanghai, Nanjing, Shenzhen, and Guangzhou.

Yang Tao, Deputy Director of the National Finance and Development Laboratory, told Shanghai Securities News that the core value of the regulatory sandbox lies in providing a “safe space” as an institutional carrier, constructing a dynamic fault-tolerance and risk mitigation mechanism, balancing innovation stimulation with risk bottom-line protection.

Delegate Tian Xuan said that in reforming the regulatory system, attention should be paid to technological and intelligent upgrades of regulatory capacity, accelerating the construction of regulatory technology infrastructure, and promoting the deep application of artificial intelligence, blockchain, big data, and other technologies in risk identification, transparent monitoring, and stress testing.

Good laws and good governance, building a new pattern of financial regulation

Focusing on how good laws can promote good governance and establish a modern financial regulatory framework, interviewed representatives and committee members actively offered suggestions.

— Improve the financial legal system and fill legislative gaps. The work report of the Standing Committee of the National People’s Congress states that by 2026, laws on financial development and financial stability will be enacted, and laws such as the People’s Bank of China Law and the Banking Supervision Law will be amended to accelerate the construction of a comprehensive financial legal system.

Yuan Xiaobin, Chairman of the China Finance Law Committee at Zhonghao Law Firm, said that as the financial market accelerates its transformation, there is an urgent need to accelerate the development of financial legislation.

Wang Junsou, Vice Governor of Hunan Province and a member of the Chinese People’s Political Consultative Conference, expressed hope that the “Local Financial Supervision and Administration Regulations” at the national level can be issued as soon as possible, with better institutional design in clarifying regulatory responsibilities, dividing regulatory boundaries, enabling information sharing, increasing regulatory penalties, and enhancing integrated supervision.

— Deepen cross-border regulatory cooperation and participate in rule-making. Yang Chengzhang, Chief Economist at Shenwan Hongyuan Research, said that efforts should be made to deepen cross-border regulatory cooperation and institutional alignment, optimize overseas listing filing and regulatory mutual recognition mechanisms, and create a stable, predictable institutional environment for international business.

Zhu Jiandi suggested promoting signing or updating bilateral regulatory memoranda with major economies, clarifying cross-border agency responsibilities, information sharing obligations, and crisis management procedures; establishing regular cross-border regulatory dialogue mechanisms.

— Strengthen judicial cooperation to form a regulatory synergy. The government work report emphasizes strengthening financial regulation coordination and cracking down on illegal financial activities.

Niu Xuefeng, former head of the Henan Securities Regulatory Bureau and a delegate of the National People’s Congress, said that a three-dimensional accountability system covering civil, administrative, and criminal responsibilities should be established to severely punish false guidance and policy misinterpretation.

Jin Li, Vice President of Southern University of Science and Technology and a member of the Chinese People’s Political Consultative Conference, said that administrative enforcement and criminal justice should be closely linked, and criminal responsibility should be pursued for malicious crimes to ensure sufficient legal deterrence.