As China’s financial institutions increasingly turn to blockchain encryption technology to power their business operations, the central bank is stepping up efforts to ensure that the industry uses common standards for the emerging technology.
The People’s Bank of China issued regulations on the use of blockchain to banks and other financial institutions including securities, insurance and fund-management companies, a source in the financial sector with knowledge of the matter told Caixin. They mainly cover the evaluation of the design, performance and security of blockchain applications to ensure they are stable and secure, the source said.
The use of blockchain technology surged since President Xi Jinping highlighted its importance in technological innovation and industrial transformation and called for its development to be accelerated.
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Many industries, including the financial sector, have started to integrate blockchain technology into their businesses operations. According to a white paper (link in Chinese) issued by Industrial and Commercial Bank of China Ltd. (ICBC) in April, 420 companies were providing blockchain information services in China at the end of 2019, including 72 that offered 120 financial services based on the technology.
Blockchain is particularly useful in financial applications because it can help build trust and credibility among parties to a transaction as it creates permanent, unalterable, traceable records, the white paper said.
“For existing financial businesses, blockchain provides a solution to transfer their “trust base” from high-cost offline to low-cost online,” the ICBC authors wrote.
One example is the launch in the Xiong’an New Area of China’s first blockchain-powered project fund management platform to fight embezzlement of funds designated for approved projects. All construction participants in the area are required to have digital records and be able to upload the information to the blockchain.
Banks in particular have embraced blockchain technology. As far back as July 2017, Agricultural Bank of China launched a blockchain-based agriculture-related internet e-commerce financing system, and in 2018 ICBC started using blockchain in its fund management business.
To realize the entire process of on-chain management and fund penetrating allocation of Xiong’an New Area requisition files, the blockchain international syndicated asset transfer platform independently developed by China Construction Bank this month realized blockchain public cloud and a new generation of private systems. The cloud was launched simultaneously. On July 21, Shanghai announced the first batch of pilot projects for financial technology innovation supervision, and seven of the eight projects applied blockchain technology.
The PBOC document listing the rules runs hundreds of pages and stipulates specific implementation requirements for financial applications using blockchain including criteria for assessing product design, software development and systems, sources told Caixin. They also require detailed evaluation of the security of blockchain financial applications, which involves testing all the materials and systems, and whether the institutions’ systems can guarantee safe and stable operation of the applications.
Problems uncovered during evaluations must be classified as “severe,” “general” or “indicative” based on how much they conflict with the standards and rules and their security risks. Institutions will have to develop mechanisms to prevent risks in the use of the technology and file their applications with regulators for their records, the source said.
Timmy Shen contributed to this story.
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