How to balance the relationship between financial innovation and financial regulation

1. Financial innovation refers to the activities of financial enterprises in their business activities to transform the business mechanism and provide differentiated products or services, i.e., a series of new management systems, operation methods and tools introduced by financial enterprises in order to pursue new efficiency and profits. Financial innovation is the inevitable result of the rapid development of the market economy and the financial industry, which can realize the effective allocation of financial resources, promote the liberalization and integration of the financial market, increase the output value of the financial industry, promote the development of the tertiary industry, thus expanding the employment rate. But at the same time, financial innovation also has significant risks. Each financial innovation implies the creation of new risks, and financial innovation products will also cause the accumulation of macro-systemic risks to a certain extent while transferring their own non-systemic risks. The existence of these risks highlights the need for financial regulation.

Financial supervision is the control and constraints imposed on financial institutions and financial activities by the financial authorities in accordance with the law, which is of great significance in realizing the control of financial risks, restricting vicious competition in the financial industry, and promoting the stable operation of the financial industry.

In the modern market economy, the financial industry has always been one of the most tightly regulated industries. Financial institutions in order to their own development, but also to bypass some of the constraints of financial control, and then a series of financial innovation activities. Financial innovation is the intrinsic demand and inevitable result of the development of market economy and financial industry, which on the one hand promotes the economic development, on the other hand also increases the financial risk. To analyze this issue in depth, it is necessary to explore the relationship between financial innovation and financial regulation.

2, the relationship between financial innovation and financial regulation

Financial regulation stimulates financial innovation. Financial regulation is both a constraint on financial innovation and an incentive for financial innovation. As financial regulation increases the operating costs of financial institutions, reducing the profitability of financial institutions, resulting in these enterprises have to "explore" the "loopholes" of financial regulation. When the constraints of financial regulations are so great that they can be avoided in order to increase operating profits, financial institutions will have the incentive to "explore loopholes" and financial innovation. Therefore, to a certain extent, financial regulation has a certain role in inducing financial innovation. Of course, the emergence of financial innovation is of great significance to the development of the financial industry, it breaks through the traditional regulatory constraints, promote the integration of the financial market and market competition, strengthen the substitutability of financial assets, and promote the enterprise through the financial market financing, so as to promote the development of the economy.

Financial innovation has prompted continuous changes in financial regulation. The emergence of financial innovation has, to a certain extent, put forward new challenges to the financial regulatory system. On the one hand, due to the formulation of China's traditional monetary policy as well as the implementation of the need for an accurate measurement of the flow of assets, but the inaccuracy of the test tool often leads to the monetary policy is difficult to play a role; on the other hand, financial innovation to a certain extent has also increased the difficulty of financial supervision, exacerbated the uncertainty of the financial activities, increasing the financial risk. However, we must see, it is because of the emergence of financial innovation, financial regulation is also constantly seeking a more effective system and mode of operation, thus promoting the continuous change of the financial regulatory system.

In fact, financial innovation and financial regulation is a pair of contradictory body. Only by correctly handling the relationship between financial innovation and financial regulation, mastering the balance between financial innovation and financial regulation, innovation in regulation, innovation in regulation, in order to achieve "regulation - innovation - re-regulation --The road to the development of a virtuous cycle of "regulation - innovation - re-regulation".

3, to deal with financial innovation and financial regulation of the relationship between the two countermeasures

The formation of "regulation - innovation - re-regulation - re-innovation" virtuous circle.

To form a "regulation - innovation - re-regulation - re-innovation" of the benign dynamic cycle of the game development process, the need to correctly deal with the relationship between financial innovation and financial regulation, and strive to grasp the balance between the two, so that the two are coordinated with each other, the healthy development of China's financial sector to promote the healthy and orderly development of the industry.

Continuously upgrade the level of financial innovation. At present, the global financial derivative products have developed to nearly 1200 kinds of financial derivative products, the increase in financial derivative products to a certain extent caused by the confusion of the financial market, therefore, we have to correctly guide the financial industry from the pure development of products to the development of institutional innovation, market structure innovation, and so on, and constantly improve the level of financial innovation.

Strengthening the supervision of financial innovation process. The main function of the regulator is to provide a favorable development environment for financial innovation, therefore, we should strengthen the regulation of the process of financial innovation and promote the enrichment and innovation of regulatory means. The regulation of modern financial system emphasizes more on functional regulation and ex-ante regulation, and in line with this, regulators should continue to innovate and improve the regulatory means and methods. At the same time, they should y recognize the negative impacts of financial innovation and carry out relevant legislation to guarantee the legitimacy and safety of financial institutions' business operations and prevent financial risks.

Improve the coordination mechanism of financial supervision. The accelerated pace of financial innovation will, to a certain extent, lead to an increasing number of financial services, regulatory confusion or duplication of regulation and other phenomena, regulatory inefficiency will become an important problem faced by financial regulation. Therefore, at this stage, there is an urgent need to improve the coordination mechanism of financial supervision in China. The author suggests that the central bank, the Securities and Futures Commission, the CIRC, the CBRC and other institutions can form a financial services bureau, specializing in monitoring the risks that may be brought about by financial innovations, and increase the transparency of supervision and enhance the efficiency of supervision.

Restraining the moral hazard of financial institutions. To promote the innovation of complex financial derivatives, it is necessary to restrain the moral hazard of financial institutions. In the process of financial innovation, on the one hand, it is necessary to control the executives of state-owned financial holding groups, to a certain extent, to restrain the risky speculative behavior of the executives; on the other hand, it is necessary to carry out strict budgeting and constraints on the investment of complex financial derivatives, to prevent moral risks while maintaining the stability of the financial market.

Establishment of risk warning mechanism. Establishment of risk early warning mechanism for financial innovation and strengthening of systematic risk assessment. Different indicators should be adopted for financial risk early warning, to establish a risk assessment system to determine a range, to a certain extent, can effectively manage the risks arising from financial innovation. In addition, it is also possible to establish an effective risk early warning mechanism by considering various aspects such as investment strategy, investment reputation and investment areas.

Strengthening international cooperation in financial supervision. At present, the scale of financial innovation activities for the purpose of evading financial regulation is expanding, and it is urgent to strengthen international cooperation in financial regulation. We need financial innovation to serve the economy, but more need to strengthen financial supervision to ensure financial security. Therefore, to strengthen the communication and exchange of financial regulatory information with the relevant countries to achieve data exchange and information *** enjoyment, is an important element of improving financial regulation.