Preamble

With the passage of time, new opportunities blossom. We are at the intersection between the conclusion of the 14th Five-Year Plan and the start of the 15th Five-Year Plan, and China’s financial policy has consistently demonstrated strategic resolve and structural resilience amidst shifting global trends and intensifying geopolitical volatility. The “Five Key Financial Initiatives” continue their sound and good progress, while artificial intelligence has emerged as a critical engine driving the development of capabilities to a new level.

The road to progress is long, and it calls for bold steps. This first year of the 15th Five-Year Plan will unleash a new wave of technological revolution and industrial transformation. The financial market still needs to transition from scale-driven, extraneous growth, to an intrinsic growth model centered on quality improvement and efficiency gains. China’s financial policy will continue to feature targeted measures, reinforcing market confidence and enabling the real economy to achieve high-quality development so that it advances with discipline and determination on the path toward becoming a leading financial power.

At the beginning of the new year, the Financial Industry Group (FIG) of Fangda Partners presents the PRC Financial Regulation: Annual Report (2026), offering a review of the key events and themes in financial regulation in 2025 and looking ahead to the new chapter in 2026.

Regulatory Milestones

1. January 22: The Implementation Plan on Steering the Entry of Medium- to Long-Term Funds into the Market was released, guiding medium- to long-term funds to further increase their market entry efforts.

2. January 27: The Several Opinions on Strengthening Regulation, Preventing Risks, and Steering High-Quality Development of the Trust Industry were released. Multiple fundamental regulations for the trust industry continued to be revised throughout the year.

3. February 19: The Action Plan for Stabilizing Foreign Investment in 2025 was issued, further deepening efforts to attract foreign investment.

4. May 7: The China Securities Regulatory Commission (CSRC) issued the Action Plan for Steering the High-quality Development of Publicly Offered Funds, with multiple regulations in the publicly offered fund industry gradually implementing relevant requirements throughout the year.

5. July 13: The National Financial Regulatory Administration (NFRA) released the Interim Measures for the Supervision and Administration of Local Asset Management Companies, which prescribe fundamental provisions on the regulatory system and business operations of local AMCs.

6. July 25: The Measures for the Supervision and Administration of Financial Infrastructure were released, strengthening coordinated regulation of financial infrastructure.

7. October 27: The CSRC released the Work Plan for Improving the Qualified Foreign Investor Regime, with improvements to the QFII mechanism.

8. November 28: The People’s Bank of China (PBOC) convened a coordination meeting to crack down on virtual currency trading speculation, signaling a continuation of the prohibitive policy toward virtual currencies.

9. December 12: The NFRA released the Measures for the Supervision and Administration of Custody Business of Commercial Banks (For Trial Implementation), bringing the custody business into a new phase characterized by systematic and detailed regulation.

10. December 27: The Banking Regulation Law (Revised Draft) was released for public consultation, marking the first comprehensive revision of the law in two decades.

2025 Key Regulatory Observations

1. Regulatory Safeguards: Financial Services Targeted at Supporting the Real Economy

In 2025, the financial regulatory authorities rolled out a comprehensive package of financial support. Monetary easing reached an unprecedented level, with the combined force of reserve requirement ratio cuts, interest rate reductions, and relending hitting a multi-year high. The approach remained targeted, focusing on the technology and real estate sectors and showing precise policy implementation.

Technology finance, the foremost of the “Five Major Sectors”, received continued policy support in 2025. In March, regulators relaxed the terms of pilot merger and acquisition (M&A) loans to tech companies, increasing the proportion of loan amounts relative to M&A transaction value. In June, the SSE STAR Market introduced “1+6” reform measures including the STAR Growth Segment, achieving “precise, targeted support” for technological innovation. In September, the State Administration of Foreign Exchange (SAFE) upgraded cross-border financing support policies for innovative tech enterprises by simultaneously raising the quotas to facilitate cross-border financing for high-tech, specialized and sophisticated, and technology-oriented small and medium-sized enterprises to the equivalent of USD 10 million. Directed support for science and technology finance was also provided through structured monetary tools and the bond market. The relending quota for scientific and technological innovation and technological transformation was expanded from RMB 500 billion to RMB 800 billion, and a risk-sharing tool for science and technology innovation bonds was created to support equity investment institutions in issuing long-term bonds on the “Science and Technology Board” of the bond market.

Regarding real estate market stabilization, in May, regulators announced plans to accelerate rollout of a series of financing policies adapted to a new development model for real estate, covering loan administration measures for real estate development, individual housing, and urban renewal. The urban real estate finance matching system and “whitelist” for developers were normalized and upgraded, while tailored housing credit and provident fund policies at the consumption end were further improved. In August, the PBOC specially announced that the Macroprudential and Financial Stability Committee established by it would focus on cross-departmental collaboration to address issues in the real estate finance sector.

2. Asset Management Industry: Unified Standards for Functional Regulation, Tailored Approach for Different Institutions

In 2025, regulatory authorities continued to implement the focus on functional regulation of the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions, further entrenching the principle of “same regulation for same type of business” within the industry. During the year, with the implementation of the Implementation Plan on Steering the Entry of Medium- to Long-Term Funds into the Market (the “Implementation Plan”) and its supporting rules, insurance asset management and bank wealth management products were granted the same treatment as publicly offered funds in areas such as new share subscriptions and participation in private placements. Meanwhile, regulatory arbitrage practices aimed at circumventing supervision, such as “masked cooperation” between trusts and wealth management products and ranking-driven strategies (“hit lists”) by wealth management subsidiaries, were strictly prohibited. The introduction of the Measures for the Administration of Information Disclosure of Asset Management Products of Banking and Insurance Institutions also fundamentally aligned disclosure standards between banking and insurance asset management and the securities industry.

However, functional regulation does not mean “one-size-fits-all”. Regulators also implemented precise policies catering for distinct asset management sub-sectors. Through the revision of the Administrative Measures on Trust Companies and the measures for the administration of collective funds trusts (asset management trusts), the trust industry placed strong emphasis on the regulatory intent of “return to original purpose”, forcing the accelerated transformation of asset management trusts by encouraging the development of asset services trusts and public welfare charitable trusts. The publicly offered fund industry stood its ground as a key element of household wealth management, with regulators strongly supporting the development of instrumental products such as ETFs while comparatively restraining the expansion of fixed-income products primarily funded by institutional capital, and demonstrating the “finance for the people” principle through the third round of fee reductions. Insurance funds acted as a “stabilizer” of the capital market under the guidance of the Implementation Plan, with insurance institutions enlisted as steadfast value investors providing long-term and stable incremental capital to the market.

In 2025 as a whole, asset management industry regulation demonstrated distinctive characteristics of “harmony in diversity”, unifying functional standards to reduce leverage and prevent arbitrage, while using differences in positioning to leverage comparative advantages and build a high-quality development ecosystem for the industry.

3.     Capital Markets: Administrative and Judicial Safeguards Steer Inclusive High-Quality Development

In 2025, financial regulation in the capital markets largely continued the political and people-oriented nature of capital markets work emphasized by the Several Opinions on Strengthening Supervision, Preventing Risks and Driving Forward High-quality Development of the Capital Markets (the "New Nine National Guidelines"), and consistently supported the related requirements for laying the groundwork for an “inclusive capital market” by 2035.

In terms of policy roll-out, the Opinions on Strengthening the Protection of Small and Medium-Sized Investors in the Capital Market (the “Opinions”) released by the CSRC in October introduced multiple significant policies. A package of measures will be implemented to “increase the allocation ratio for institutions with long-term lock-up periods and strictly restrict institutions that intentionally bid up prices”, to return new share issuance prices to reasonable ranges and prevent small and medium-sized investors from being “left holding the bag” at high prices. Simultaneous focus was placed on key areas such as transparency in securities lending and strengthened supervision of algorithmic trading, and building a fair trading ecosystem through measures such as unified trading unit management and strictly prohibiting special benefits. Separately, numerous new policies have continued to be launched since the New Nine National Guidelines. The Shanghai and Shenzhen stock exchanges are expected to have made approximately RMB 1.5 billion in overall fee reductions in 2025 (with a further RMB 1.9 billion in new reductions anticipated for 2026). In 2025, 3,767 A-share companies distributed dividends, with the total cash payout exceeding RMB 2.64 trillion - another historical record. The Chinese version of the market stabilization fund also provided strong support for inclusivity aimed at “benefits to the vast majority”.

Turning to judicial developments, both depth and breadth of investor legal protection were significantly expanded in 2025. The Several Opinions explicitly supported courts and arbitration institutions in making interpretations of standard terms in business contracts favorable to small and medium-sized investors when adjudicating relevant disputes. In May, the CSRC and the Supreme People’s Court jointly issued the Guiding Opinions on Strictly and Fairly Enforcing Law to Judicially Serve and Guarantee High-Quality Development of the Capital Market (the “Guiding Opinions”), which substantially improved investor litigation and rights protection mechanisms, enabling investors to effectively protect their rights through online case filing and element-based litigation (i.e., a streamlined trial method that extracts basic factual elements, identifies disputed points, focuses the hearing on contested issues, and simplifies judgment drafting to expedite case handling). The normalization of representative litigation for securities disputes and implementation of “civil compensation first” of the Guiding Opinions were implemented in the Jin Tong Ling (金通灵), Jinzhou Port (锦州港), and Suntang Digital (广道数字) cases during the year. At the same time, the Guiding Opinions particularly emphasize equal protection for domestic and foreign investors, calling for strengthened cross-border investigation and evidence collection, judgment recognition and enforcement cooperation, and reducing the costs of overseas litigation, directly benefiting foreign institutions. Notably, the Guiding Opinions candidly acknowledge that some current financial laws and regulations are relatively high-level, and call for a strengthening of joint action between judicial and administrative authorities, including referencing securities and futures regulations, regulatory documents and self-regulatory rules in future trials, fully consulting financial, accounting, and auditing professionals, while speeding up publication of judicial interpretations and guiding opinions on civil compensation liability for insider trading, market manipulation etc. Capital markets rulings are expected to become more specialized in the future, with both investors and institutions benefiting.

4. Steady and Solid Progress in Achieving a High Degree of Institutional Opening-Up

In 2025, China’s financial sector opening-up saw substantive progressive development, with remarkable achievements.

At the level of institutional access, foreign financial institutions accelerated the pace of establishing and expanding their presence in China, with landmark projects successively taking shape. In March, newly established foreign financial institutions including BNP Paribas Securities, AXA Global Reinsurance, and Hannover Re commenced Shanghai-based operations, the Shanghai International Reinsurance Registration and Exchange Center - China’s first international reinsurance registration and trading platform was officially launched, and the application for UBS Group to assume full ownership of UBS Securities was also approved. In June, AIA Life and Aegon were approved to commence work to establish wholly foreign-owned insurance asset management companies in Shanghai. As the first such Shanghai-based institutions, both received approval to begin operations in December. In September, with the approval obtained by Mizuho Securities, the number of wholly foreign-owned securities firms in China further increased to six. In August and October, Fubon Bank and Banco Santander were respectively approved to commence work to establish branches in Shenzhen - continuing to build up the foreign bank footprint in China.

We encountered prudent, comprehensive two-way opening-up at the level of market, product, and business access. In March, policies enabling Hong Kong and Macao bank branches to operate foreign currency bank card business in mainland China took effect. At the same time, entry requirements for foreign equity participation in domestic financial institutions were substantially relaxed, with the RMB 2 billion total asset threshold for Hong Kong and Macao financial institutions investing in domestic insurance companies officially abolished. In April, the Compliance Guidelines for Cross-border Data Flows in the Financial Industry were issued, providing clear guidance for the secure and orderly cross-border flow of financial industry data. In September, bond repo business in the interbank bond market was officially opened to overseas investors. In October, the CSRC issued a work plan for improving the QFI system, upgrading policies in areas such as clarifying the application of short-swing trading rules. It specifies that foreign publicly offered funds could calculate shareholding ratios for short-swing trading purposes on a product-account basis, on par with domestic publicly offered funds. Regarding QFLP/QDLP pilots, Shanghai QDLP pilots introduced multiple policy conveniences in March, allowing investment in low-risk domestic products and batch foreign exchange settlements. In April, QFLP pilot policies were upgraded in Tianjin Binhai New Area, liberalizing access requirements and simplifying approval processes. Regulators also state that follow-up measures, such as inclusion of RMB counters, REITs and ETFs in the Southbound Trading Link are being gradually implemented.

Policies to “stabilize foreign investment” with close connection to the financial industry continued to develop in 2025, with intense implementation of fundamental general principles including further rolling back of the Negative List for Market Access, 10% tax credit for profits reinvested and facilitating domestic fund transfers by foreign investors. For overseas investors with an interest in the financial sector, supportive policy enhancement for non-financial foreign investment improved the overall policy environment, systematic logic and predictability of policies.

5. Risk Resolution: Accelerated Improvement in Quality and Efficiency

In 2025, risk resolution in the financial industry continued to improve and accelerate.

In the banking sector, the integration of small and medium-sized banks was a particular feature. Approximately 400 banks exited through market-based approaches, such as mergers and dissolutions in 2025. In terms of models, Jinzhou Bank was acquired by a large state-owned bank, representing a more market-oriented approach and a new resolution model following the Baoshang Bank case. Reform and integration of the rural credit cooperative system intensified, among which Inner Mongolia Rural Commercial Bank, through the establishment of a new merged entity, integrated 120 rural credit institutions including local rural credit cooperatives and village banks into a unified legal entity, marking the nation’s first “holistic reform”.

The insurance industry continued to see risk resolution for institutions such as Anbang, Evergrande, and Tian’an, adopting the model of “leading with local state-owned capital + redomicile to mitigate risk”: Fuze Life Insurance was approved to commence business in Shandong, fully taking over the insurance business and corresponding assets and liabilities of Junkang Life Insurance; Bohai Life Insurance completed its relocation after the entry of Tianjin state-owned capital, achieving substantial progress in risk resolution; and the business license of Huaxia Life Insurance was revoked, marking the complete exit of Tomorrow Holdings Limited from the insurance sector.

Similar to the insurance industry, risk resolution in the trust industry largely followed past experience. Bankruptcy reorganization of Huaxin Trust was approved at the end of November, adopting a model of prior acquisition of natural person beneficiary rights followed by bankruptcy reorganization of institutional creditor rights. The models for risk resolution of trust institutions such as Everbright, Zhongrong, Minsheng, and AVIC are reportedly still being advanced and developed.

Risk mitigation achieved positive results in 2025, with key areas of risk gradually receding, though resolution of many existing risks was still required. During the year, multiple small and medium-sized banks failed to redeem Tier 2 capital bonds as scheduled and the insurance industry witnessed its first bond default incident, in a failure to repay capital replenishment bonds on schedule. Meanwhile, several third-party wealth institutions experienced risk events. The National Financial Work Conference held in December 2025, while emphasizing the high importance attached to preventing and resolving financial risks, explicitly put forward the work requirements of “strictly controlling incremental risks, properly handling existing risks, and strictly preventing major shocks”. This strict language indicates that risk resolution and risk prevention are current priorities of financial regulation - as seen in the deep reforms of the non-performing asset disposal industry during the year and the multiple regulatory guidelines issued for micro-credit companies.

6. FinTech and Innovation: Dynamic Adjustment, Prudent Innovation

In 2025, the global wave of crypto-asset development continued to evolve. China’s stablecoin regulation moved from detailed study to prudent rulemaking - seeking a precise balance between inclusive exploration and risk control - and became a notable feature of China’s FinTech regulatory landscape.

Early in the year, the progress of global stablecoin governance accelerated with the U.S. GENIUS Act followed by Hong Kong’s Stablecoins Ordinance. Mid-year, at the Lujiazui Forum, regulators gave certain recognition to the technical value of stablecoins in cross-border payment scenarios, which triggered market speculation about RMB-denominated stablecoins supporting RMB internationalization. Market institutions, industry associations and think tanks launched special studies to explore feasibility in real-economy scenarios, such as cross-border payments and supply chain finance. However, market enthusiasm could not mask the inherent compliance risks of stablecoins. Since 2025, crypto risk incidents have been a frequent occurrence worldwide. Domestically, illegal investment, fundraising and underground banking activities involving stablecoins have exposed policy gaps in key areas such as reserve regulation, anti-money laundering (AML) look-through checks, and cross-border capital flow controls. This also steered domestic stablecoin regulation from an “observe and track” phase to a “prudent rulemaking” phase. From June onward, regulators published risk alerts clearly warning of risks of illegal financial activities carried out under the banner of stablecoins and guiding the market away from speculation; in November, the PBOC-led annual inter-agency meeting made clear that stablecoins are virtual currencies, characterized related businesses as illegal financial activities, and reiterated that stablecoins do not have the status of legal tender. This regulatory conclusion, rooted in core regulatory principles, precisely recognizes the stronger potential impact of stablecoins (relative to general crypto-assets) on the fiat currency system and reflects consistency in regulatory policy.

With the progressive clarity of the regulatory framework, the financial innovation ecosystem was guided to “serve the real economy” and away from speculation. In parallel with prudent stablecoin rulemaking, China’s central bank digital currency (CBDC) - the digital RMB - entered an accelerated phase in 2025, with breakthroughs in scenario coverage and cross-border applicability. In September, the international operations center for digital RMB officially commenced operation, successfully realizing the “payment equals settlement” function in a compliant manner. In November, Hang Seng Bank launched a digital RMB merchant collection service in cooperation with merchants in Hong Kong, marking a further extension of cross-border application of digital RMB. In December, the PBOC issued the Action Plan on Further Strengthening the Digital RMB Management Service System and Relevant Financial Infrastructure Development, and clarified that the nature of the digital RMB would be adjusted from cash (PBOC’s liability) to deposits (commercial banks’ liabilities), signaling that the digital RMB had entered a more mature asset stage. Beyond digital RMB applications, steady advances continued in traditional technology finance including continued improvements to rules on cross-border data flows and governance, orderly and continued expansion of FinTech innovation regulatory pilot programs and pilot scenarios, and notable progress in AI+finance applications. Stability is essential for progress, and the embracing of innovation amid stability and guiding development through rulemaking remain the core logic of FinTech regulation.

7. Comprehensive and Deep Reform of Multiple Resolution of Financial Disputes

Financial consumer protection in 2025 saw a groundbreaking improvement in mechanisms for resolution of multiple disputes.

At the macro-framework level, in April 2025 the PBOC, the NFRA and the CSRC jointly issued the Opinions on Promoting High-quality Development of Financial Dispute Mediation Work (the “Opinions”), calling for a multifaceted dispute resolution system integrating mediation, arbitration and litigation. The Opinions establish a unified framework for resolving financial disputes across banking, securities, insurance and other financial fields, and call for a financial mediation network to be established and built out within three years, with more detailed rules for the development of financial mediation. The Opinions also explicitly draw financial institutions to actively participate in dispute mediation, and indicate that such participation is to be incorporated into consumer protection regulatory evaluations or routine supervisions. In October, the CSRC’s fundamental document on investor protection, the Opinions on Strengthening the Protection of Small and Medium-Sized Investors in the Capital Market, also called for improving the “model judgments + batch mediation” workflow.

At the level of practical development, the joint “court-industry” model for resolution of multiple financial disputes achieved notable results. In December 2025, the NFRA and the Supreme People’s Court again jointly issued typical cases on resolution of multiple financial disputes, covering key areas such as relief for micro and small enterprises, cracking down on illegal intermediaries, and controls on the renting/lending of bank accounts. These cases highlight the synergy between the courts and industry and serve as a practical example of how to apply the “Fengqiao Experience”[1] in the new era in the financial field. At the local level, the Beijing Financial Court and the Asset Management Association of China (AMAC), and the Shanghai Financial Court and the Investor Service Center, respectively, jointly released multiple typical cases, addressing the industry’s problem areas such as private fund litigation and representative actions by investors.

8. Credit Restoration: A Balanced Approach to Rebuilding the Credit System

Following the State Council’s publication at the beginning of the year of the Implementation Plan on Further Improving the Credit Restoration System, 2025 became a pivotal year of advancement in credit restoration from “localized piloting” to “national regime”.

In the area of financial credit restoration, in December, the PBOC introduced a one-off credit restoration policy, which allows credit restoration for members of the general public who are not intentionally dishonest and who have repaid their debts. This policy is unprecedented in its significance and covers a relatively broad time span, enabling more precise targeting of tens of millions of individuals with small overdue amounts. The public credit restoration field also saw a concentrated rollout of policies. In November, the National Development and Reform Commission (NDRC) released the Measures for the Administration of Credit Restoration which introduces, for the first time, a tiered and categorized model for managing information on dishonest behavior. In the same month, the State Administration for Market Regulation (SAMR) issued the Measures for the Administration of Credit Restoration in Market Regulation, which prescribes further detailed restoration rules from the perspective of different sub-sector classifications under the market regulation regime. Separately, judicially enforced credit restoration mechanisms continued to improve. In July, the Supreme People’s Court released the Typical Credit Restoration Cases that Strictly Distinguish Dishonesty from Loss of Repayment Capability of Judgment Debtors, clarifying that “one-size-fits-all” punitive measures should be corrected and sending a clear signal that “dishonesty must be punished, while incapability can be remedied”.

Credit restoration shares a common set of core values with the “personal bankruptcy system” piloted in recent years. This policy provides a degree of protection for “honest but unfortunate” individuals and small/medium sized entities, and effectively releases latent consumption and financing demand, supporting economic activity while safeguarding livelihoods and embodying the “finance for the people” principle. The personal financial credit restoration policy may also reappear at an appropriate time in the future.

2026 Regulatory Outlook

1. Staged Strategic Roll-out for the Financial Industry in the 15th Five-Year Plan

The 15th Five-Year Plan for the first time included “accelerating the construction of a financial powerhouse” in the text of the proposed Plan. For the first time, the 15th Five-Year Plan proposals include the goal of “accelerating the building of a strong financial nation”, elevating the strategic importance of the financial sector to an unprecedented level and making it one of the core development objectives for the next five years. According to relevant guidance from the General Secretary, a strong financial nation comprises six elements: a strong currency, a strong central bank, strong financial institutions, strong international financial centers, strong financial regulation, and a strong financial talent pool.

The following financial elements of the Plan are expected to provide important guidance for financial regulation and market development in the coming years.

Firstly, on institutional reform, the Plan expressly mentions “improving the central banking system and building a comprehensive macroprudential management framework” as the primary task in planning for building a strong financial nation. Accordingly, the future functions of the PBOC may be further expanded and upgraded to include more core responsibilities in macroprudential areas such as systemic risk monitoring and assessment, cross-border regulatory cooperation, enhancing China’s international voice in finance, and improving liquidity backstop mechanisms. Notably, the PBOC has proceeded with subdividing the Macroprudential Assessment (MPA), with separate focuses on monetary policy implementation and macroprudential/financial stability assessment, which should make future policy adjustments more targeted.

Secondly, on institutional regulation, the Plan calls for “improving the financial institutional system, encouraging all types of financial institutions to focus on their core businesses, improve governance, and develop in a differentiated manner”. This top-level design clearly signals a policy direction of guiding financial sub-sectors to “perform their respective functions and fulfill their respective responsibilities” and avoid disorderly competition. Institutions within each sub-sector will pursue a differentiated development strategy; while leading institutions will be encouraged to move toward becoming world-class comprehensive financial service providers, small and medium-sized institutions will be encouraged to focus more on niche segments and follow “specialized and innovative” paths. This may be reflected through category-based management in areas such as classification ratings and entry access qualifications. This path of growth through differentiation may also benefit foreign institutions.

Thirdly, regarding the overall developmental tone, the Plan, centered on “ensuring the sound operation of finance”, conveys a steady and measured regulatory stance. Measures during the 15th Five-Year Plan’s term include steadily advancing high-quality policy liberalization, developing the digital RMB in an orderly manner, and standardizing the development of futures, derivatives and securitization businesses, which reflect the stability and consistency of the regulatory policy environment.

2. Accelerated Entrenchment of Cornerstones of Financial Regulation

In 2025, China’s financial regulatory framework was further strengthened. For example, the Measures for the Supervision and Administration of Financial Infrastructure established a coordinated regulatory framework for financial infrastructure, and theInterim Measures for the Supervision and Administration of Local Asset Management Companiesfilled the gap in fundamental regulatory documents in the local AMC space. 2026 is expected to be an even more significant year for financial regulation, with multiple foundational financial laws and regulations likely to be formulated and/or revised.

• Following three years of revision after completing initial public consultation in 2022, the Banking Regulation Law was formally submitted to the Standing Committee of the National People’s Congress at the end of 2025. The new law contains substantial revisions on key issues such as strengthening look-through supervision, improving risk resolution mechanisms and increasing the cost of violations, and is expected to be implemented in short order.
• The Financial Stability Law has undergone two deliberations by the Standing Committee of the National People’s Congress and was previously included in the 2025 legislative work plan of the National People's Congress. Considering that legislative conditions for this law are relatively mature and it aligns with the overarching working objective of preventing and defusing major financial risks, we expect it to be formally promulgated in 2026 to provide core legal support for systemic financial risk prevention and control.
• The amendment history of the Law of the People’s Bank of China and the Law on Commercial Banks can be traced back to October 2020, when draft revisions were released for public comment in parallel. Substantive progress has not been noted, but given the imperatives of implementing the 15th Five-Year Plan and strengthening the PBOC’s macro-control and supervisory functions, both laws may enter the legislative review process in 2026.
• The Financial Law, as a foundational and comprehensive law governing the entire financial industry, is being researched and drafted by the Ministry of Justice in coordination with relevant departments, according to the National People's Congress in 2025. A first draft of this key law may emerge in 2026, marking a major reform in the top-level design of China’s financial legal system.

In addition to the above, the draft revision to the Enterprise Bankruptcy Law was, for the first time in 2025, submitted to the National People’s Congress Standing Committee for deliberation and released to the public, and it also clarified to some extent the application of bankruptcy rules to financial market transactions and financial institutions (for example, expanding the scope of eligible financial transactions beyond the scope of the Futures and Derivatives Law). In conjunction with the 2025 legislative plans previously released by the NFRA and the CSRC, policy development in multiple sub-sectors will also continue to advance. In response to industry requests, long-awaited rules such as the Administrative Measures for Securities and Fund Investment Consulting Business, the Supervision and Administration Measures for Derivatives Trading, and the Measures for the Supervision and Administration of Futures Companies may all be released in 2026.

3. Accelerated Risk Prevention and Industry Restructuring

The 2025 Central Economic Work Conference report specifically mentioned “in-depth reduction in quantity and improvement in quality of small and medium-sized financial institutions.” Compared to the previous formulation, “prudently handling risks of local small and medium-sized financial institutions,” this expression is stricter and more proactive and new progress in risk prevention for financial institutions in 2026 will be seen.

In terms of scale, as “reducing quantity” becomes a clear goal, the increase in concentration among small and medium-sized financial institutions is expected to enter a “fast lane” in 2026. Taking village banks as an example, with approximately 100 exits in 2024 and 300 in 2025, the number of such bank exits in 2026 is expected to be no less than in 2025. Meanwhile, only 13 provincial rural credit unions have completed the required establishment of provincial-level legal-person institutions, and substantive work remains on the restructuring and consolidation of rural credit legal persons and village banks. In terms of methods, on the basis of the 2026 tailored regulatory framework of “one province, one policy” and “one bank, one policy”, a more diversified toolbox for risk resolution may be in the pipeline. In addition to traditional models such as absorption/merger, deregistration/dissolution and joint establishment of new rural commercial banks, more large state-owned large banks, high-quality city commercial banks and rural commercial banks are expected to acquire small and medium-sized banks. Commercial banks may also acquire small and medium-sized insurance or trust institutions, with the support of the regulators.

It should be emphasized that “reducing quantity” is only a means; “improving quality” remains the core objective, and preventing institutional fallout from secondary risk events is even more important. Large-scale consolidation is an important route for risk resolution, but not the only one. “On-line resolution” through capital increases and share issuance (including allowing some banks to replenish capital via capital instruments), as well as support from national or local AMCs, is also an important approach (and some institutions have reportedly emerged from distress during the year with group-level assistance). In addition, licensing exits are both a challenge and an opportunity. While licenses are withdrawn, space is also left for development in underserved markets. The acquisition of village and town banks by large state-owned banks, followed by their conversion to sub-branches during the year is a case in point.

4. Actively Exploring “AI+Finance” Regulation

2026 will be a year in which AI and finance continue to complement each other through collaborative innovation. The Implementation Plan for High-quality Development of Digital Finance in the Banking and Insurance Sectors issued at the end of 2025 indicates that future efforts to push forward “AI+finance” will come from multiple levels of regulation and market application: on the one hand, further building up of “RegTech”, and on the other hand, encouraging financial institutions to build enterprise-level AI platforms and actively explore integrated financial applications of frontier technologies such as quantitative computing and blockchain. In 2025, multiple frontier scenarios such as quantitative financial cloud platforms, next-generation AI investment advisory super terminals and large-model-based digital operation platforms for banks were making good progress.

The current regulatory framework for AI in finance is still at an early stage. Issues such as AI hallucination and the “black box” nature of algorithms pose challenges to compliance requirements that financial businesses operate independently and remain attributable and accountable. Data contamination and convergence of market trends may also trigger systemic risks. As a PBOC official explicitly noted when commenting on AI applications in May 2025: “As a result, key financial businesses may be unable to meet look-through supervision requirements, which would not be conducive to business risk management tracking and would also hinder post-event attribution of responsibilities”. In addition, the global trend for AI regulation is toward agile governance, often relying first on “soft law” (guidelines, ethical frameworks and industry standards) with rules dynamically adjusted alongside technological iterations. Finance, however, is a strictly regulated industry that demands precision and, to some extent, foresight. This creates a degree of tension with the approach often advocated for AI governance.

These issues all require further clarification and discussion in the coming years. Our understanding is that regulators already have certain approaches in mind. For example, discussions at the Wudaokou Forum mentioned implementing AI algorithm filing systems and developing implementing rules for financial scenarios based on national laws and regulations. We expect that in 2026 there will be further progress in legal governance of AI applications in finance. Such regulation may also be progressively achieved through industry standards or guidance, among other approaches.

5. Counter-Involution in Finance On the Horizon

The “counter-involution” wave began to extend into the financial industry in 2025. The banking, insurance and securities sectors introduced discrete measures to curb disorderly “involution”. Examples include suspending personal consumer loans offered by banks at interest rates below 3% in March, and a July notice issued by the National Association of Financial Market Institutional Investors (NAFMII) to standardize underwriting fees in the interbank bond market, directly targeting the disorderly competition where underwriting fees for a certain issuer’s tier-2 capital bonds of over RMB 30 billion were only a few thousand RMB.

In October 2025, Li Yunze, Director of the NFRA, stated at the annual meeting of the Financial Street Forum that regulators would resolutely correct disorderly competition in the financial industry and effectively safeguard a healthy and fair market order. In December, the Central Economic Work Conference for the first time elevated the rectification of “involution-style” competition from an industry- specific to a national reform task. In light of these statements, we expect that counter-involution measures in finance will further expand in 2026, and more specific and practically executable sector-wide, coordinated regulatory rules may be introduced. The extensive growth model of the past in the financial industry will be increasingly unsustainable. Future development is likely to be at a more logical and reasonable pace, better aligned with the needs of real-economy development and the laws of market operation.