China Securities Regulatory Commission Pushes for Blockchain-Based Financial Infrastructure

The Shanghai Stock Exchange published a research paper outlining the potential integration of blockchain technology into Chinese financial infrastructure, arguing that adopting distributed ledger technology-based replacements for existing transaction settlement models could dramatically improve efficiency.

As the fourth-largest stock exchange in the world, the Shanghai Stock Exchange boasts a market cap of $5.01 Trillion USD as of March 2018 and is directly governed by the China Securities Regulatory Commission.

The research paper, published on July 10, 2018, analyzes the potential benefits of blockchain integration into financial market infrastructure, citing a significant potential impact driven by the unique technical characteristics of distributed ledger technology.

China's regulatory attitude regarding cryptocurrencies and blockchain technology recently shifted towards a positive position, with the Blockchain Research Working Group at China's National Internet Finance Association taking a proactive stance towards the development of the blockchain industry within the country.

"While blockchain's technological development has seen a major progress in China over last year with blockchain platforms launched by internet giants such as Baidu and Tencent, our regulatory initiative is substantially lagging behind. What we need for the future, are clear regulatory guidelines for the entire industry to follow."

The findings identify the technology behind bitcoin as likely to "Profoundly alter the way banks do business worldwide" and noting the lack of discussion regarding blockchain development within China.

Blockchain technology, argues the SSE report, could optimize anti-money laundering and information disclosure processes, as well as improve clearing and settlement processes to "Reduce settlement time and reduce the risk of settlement failure."

While the report is optimistic regarding the potential benefits of blockchain technology in the Chinese financial ecosystem, the SSE concedes that there are "Many obstacles" to overcome before the integration of distributed ledger technology into any Chinese stock exchange could occur.

The future of cryptocurrency and blockchain regulation within China appears to include a more permissive stance toward DLT-focused innovation.

"Relevant legislation reflects the combination of prudential supervision and innovative promotion We should gradually build a mature legal system for blockchain finance and digital currency regulation and I believe blockchain finance and digital currency industry have great development potential in China".