The China Insurance Regulatory Commission, established in 1998 and overseeing 17 trillion yuan ($2.7 trillion) of insurance assets, will be merged with the China Banking Regulatory Commission that supervises over 4,000 banks with $40 trillion in assets, according to a State Council reform plan submitted to the annual session of the National People's Congress.
China will also transfer some of the banking and insurance regulators' roles to the central bank, the document showed.
Financial regulators have cracked down on major companies - even taking over Anbang Insurance this year - to get a handle on building risk and unwieldy debt that some analysts worry pose a serious threat to China's financial stability.
This new entity will be central to President Xi Jinping's campaign to curb risks in China's financial sector, which culminated last month in the unprecedented government takeover of Anbang Insurance Group Co.
China has unveiled plans for the biggest shake-up of its government in recent years, including the merger of its banking and insurance regulators to better handle financial risks as leaders look to address concerns over growing debt.
The reform, which aims to push forward the institutional restructuring in key areas, will strengthen the government's functions on economic management, market supervision, social management, public service, and ecological and environmental protection, it said.
"Finance is core to a modern economy and we must pay high attention to prevent financial risks and safeguard national financial security", the proposal said, adding that it is meant to fix any overlaps in regulatory oversight.
The two regulators will hand off duties such as proposing laws to the People's Bank of China in a sign that the central bank is beefing up its regulatory role.
The proposed changes outlined in the document will be discussed in parliament on Tuesday, and are expected to be formally approved by the largely rubber-stamp parliament on Saturday.
Compared with the current setup of cabinet administrations, the number of ministerial-level entities is reduced by eight and that of vice-ministerial-level entities by seven. It has grown rapidly in size and complexity, emerging as one of the world's largest with financial assets at almost 470 percent of gross domestic product, according to the International Monetary Fund.
Speculation that China was considering the creation of a super financial regulator has been rife since the Chinese stock market crash of 2015, blamed in part on poor inter-agency coordination.
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