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April 28, 2016

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PBOC to use rules to fight misconduct

CHINA’S central bank, concerned over rising default risks posed by Internet finance and private lending since 2015, argued for legislations to combat illegal fundraising activities at a joint conference held by 14 administrative departments yesterday.

The People’s Bank of China plans to implement the “Regulations for Non-depository Lending Organizations” to regulate their entry threshold and legal status, according to a document seen by Shanghai Daily. Related institutions will need licenses to provide services after the rules come into effect. But the PBOC didn’t set a specific date for the regulations.

“The risks of illegal fundraising have spread from offline to online cyberspace,” the document said. “It has been made clear that some tried to raise funds under the guise of financial innovation, and the problem was prominent in online lending.”

The PBOC’s move aims to strengthen China’s booming Internet finance sector as several illegal fundraising cases were exposed, with over two thirds of the online peer-to-peer lenders facing fraud or had difficulties for funds to be withdrawn, according to Online Lending House, a portal site tracks the sector.

The most notorious case involves Ezubao, which was a Ponzi scheme and raised over 58.1 billion yuan (US$9 billion) from some 901,294 investors, the Ministry of Public Security said. Police shut it down in December.

A new round of cleanup began last week when applicants with finance-related names or business would not be able to register via local branches of the State Administration for Industry and Commerce, Caixin magazine reported.


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