Social Sciences in China (Chinese Edition)

No.4, 2015

 

The Legal Regulation of Internet Finance—A Perspective Based on Information Tools

(Abstract)

 

Yang Dong

 

 

Internet finance can satisfy the requirements of small and microinvestors and financiers, decrease transaction costs, encourage competition and improve market transparency, functioning to spread financial risks and bring finance back to its origins. However, China’s control-oriented legislation has failed to regulate the credit risks of internet finance, fostering absolute payments and excessive reliance upon guarantees and thus restricting competition and worsening information asymmetry. We should therefore redefine the information tools paradigm to regulate market entry and clarify the legal status of market entities on the basis of big data and credit systems. This will give full play to the role of such tools in giving early risk warnings and legislating for investor protection as well as perfecting an integrated regulatory system of internet finance law. It will thus remedy the institutional mismatch between control-oriented legislation and gaps in the law as well as regulating credit risk and reducing systemic risk. This will encourage competition, boost information production and transmission, and facilitate risk diversification and utilization, thus allowing internet finance to perform its endogenous function of optimizing resource allocation.