Plan aims to clean up China’s P2P industry
Print Edition
CHINA’S government has approved a sweeping plan to clean up the country’s online financial sector, according to sources with direct knowledge of the matter, including rules to limit the activities of P2P lending firms, the source of recent fraud scandals.
The plan, which was drafted by the central bank, follows a mid-April videoconference with 14 ministries and regulators organized by the State Council, which approved the document seen by the sources.
The plan outlines stricter rules for peer-to-peer (P2P) platforms, where lending increased 300 percent last year to 440 billion yuan (US$67.3 billion), according to Citigroup research, forbidding them from holding their clients’ capital in house.
Instead, client funds must be deposited with a qualified third-party banking institution and kept separate from the platform’s own funds, the plan said, while firms must also set up “firewalls” to manage transactions with affiliates.
In February, authorities arrested 21 officials of Ezubao, once China’s biggest P2P lending platform, which collected US$7.6 billion in less than two years from more than 900,000 investors.
Ezubao used savvy marketing, authorities said, to fund “a complete Ponzi scheme,” that used investor funds to support a lavish lifestyle for company executives.
Internet lending has made headlines not just in China recently, with the United States Department of Justice opening an investigation into San Francisco-based Lending Club Corp this week after the online lender admitted it had falsified documentation when selling a package of loans.
China’s State Council is urging the 14 ministries to work together and share more information to clean up the online finance sector, according to the same sources.
The government is also calling for the establishment of a centralized registration system for Internet financial products and a unified platform for online bank accounts.
The plan restricts the activities that such financial platforms will be allowed to undertake without a licence, including raising cash to fund real estate projects or engaging in financial services such as asset management.
It also creates additional responsibilities, such as a requirement to match a client’s risk profile to the investment products they sell.
The plan also prohibits non-financial companies from registering names including “finance,” “asset management,” “P2P,” “payments,” “fund” and “trading exchange.”
An inter-government body led by the central bank is also being set up, with representatives from the banking, securities and insurance regulators, along with the State Administration for Industry and Commerce and housing ministry.
The plan calls for those ministries and departments to complete their field investigations by July and complete a sector-wide clean-up by November. The State Council intends to issue a report by March.
Data collection under way
A government agency has begun collecting financial data from several of the nation’s leading peer-to-peer (P2P) lenders as a first step toward providing a credit ratings service for consumers.
At an event yesterday, one of the sector’s major players, Qianshengqian, which claims to have about 1.3 million investors across China, agreed to provide key financial data to the Institute of Credit and E-commerce, a ratings and research organization under the Ministry of Commerce.
The company is one of “several dozen” such firms to have so far signed up for the new system, which it is hoped will one day provide an effective way to rate lenders in a sector ravaged by fraud.
“The system is necessary for the industry to phase out problematic lending platforms,” said Ni Shuyin, founder and chief executive of Qianshengqian.
The ministry did not say when the ratings data will be made available to the public, but an initial report is likely to be produced before the end of the year.
Han Jiaping, the institute’s director, said the aim of the monitoring system is to identify problems before they arise.
“We will use data analysis to prevent fraud and identify system risks,” he said.
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