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Shanghai tightens supervision on online P2P lenders

By Leng Cheng | February 23, 2017, Thursday | Online Edition

SHANGHAI is tightening supervision on China’s ballooned online peer-to-peer lenders amid a national campaign to curb financial frauds that had nabbed at least billions of yuan from investors countrywide since the end of 2015.

Peer-to-peer lenders will likely be ordered to provide reports on their financial affairs, business models, risk management, shareholders’ credibility and other operational information before July to get the official license by local financial regulator, various sources told Shanghai Daily.

Online lending platforms may have to sign agreement with a third-party institution such as bank for fund custody in order to get the license to enhance fund security of those lending platforms.

Sources said a meeting among local financial authorities and industry participants was held last night to discuss details on tightened rules to regulate the market.

This meeting took place one week after the Beijing counterparts gathered for the similar purpose, while Guangdong has been the first to issue guidance on online peer-to-peer sector.

Cities and places will issue new rules to guide the development of the sector in the first half of this year, officials from the Shanghai Finance Service Office said last month in respond to questions from Shanghai Daily.

Online peer-to-peer lending business is booming in China since 2014, as investors flock to these platforms in the hopes of higher returns than bank deposits as well as easier access to loans than banks that check credit records.

Despite growing numbers of foul plays coming to light amid tightening scrutiny cast by the regulator, the outstanding balance of lending still totaled 816.2 billion yuan (US$118 billion) by the end of 2016, doubling the amount a year ago, according to Shanghai-based researcher Yingcan Group.

Wrongdoings caused at least US$24 billion loss of investors’ savings in the year 2015, according to a previous calculation done by Quartz, highlighting growing risks of financial defaults and scams amid absence of regulation and legitimacy of platforms’ operation.

One of the most notorious cases is Ezubao, which was a Ponzi scheme and raised over 58.1 billion yuan from some 901,294 investors, the Ministry of Public Security said earlier. Police shut down the platform in December 2015.

The government announced draft regulations in December 2015 defining that an online lending platform should be “limited to roles as intermediaries between lenders and borrowers.” The draft put a ban on platforms selling wealth-management products, funds, insurance and trust products, crowd funding and guaranteeing returns.

Numbers of online lending platforms shrank in the year after the draft regulation, with 2,448 peer-to-peer lending brokers still operating in the country at the end of 2016, dropping 985 from a year earlier.

A multi-agency report led by the Beijing Bureau of Financial Work warned last week that 90 percent of country’s peer-to-peer lenders could fail in 2017, due to “a multitude of problems exposed.” 

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