New rules in illegal fundraising crackdown
Print Edition
CHINA issued draft rules targeting illegal fundraising yesterday, as the authorities step up a campaign to crack down on risky and illicit behavior in the country’s financial sector.
The draft rules, issued by the State Council’s law office, call for those engaged in illegal fundraising to cover subsequent losses.
Regulators will guide financial institutions and non-bank payment service providers on tightening up supervision of suspicious flows of funds, the draft rules said.
Local governments were called upon to maintain social stability while addressing the problem.
Financial institutions and non-bank payment service providers, if found to be negligent, will be subject to having their illegal income forfeited. They will also face a fine of more than one time but less than five times the illegal income, the rules said.
The executives responsible for the illegal activity will be removed and banned from the financial industry for a certain period of time and could be subject to fines of between 50,000 yuan (US$7,508) and 500,000 yuan each.
The State Council is seeking public opinion on the draft law, and members of the public can visit the State Council’s Legislative Affairs Office website to make suggestions and comments until September 24.
The draft law encourages local governments to reward whistle-blowers and follow up on tip-offs about illegal fundraising.
Chinese authorities vowed in April to step up a crackdown on illegal funding scams, after reporting 5,197 new criminal cases last year involving 251.1 billion yuan.
More than 30 percent of illegal fundraising cases were related to private investment and financial intermediaries, including unlicensed investment advisers and providers of third-party wealth management products.
Regulators embarked on a campaign against online finance fraud last year, focusing on peer-to-peer lending platforms. But rampant growth in the sector has created risks that will take time to resolve, analysts say.
Ezubao, once China’s biggest P2P lending platform, folded last year after it turned out to be a Ponzi scheme that solicited 50 billion yuan in less than two years from more than 900,000 retail investors through savvy marketing.
Another case where illegal fundraising took place was at the Fanya Metals Exchange in southwest China’s Yunnan Province, where hundreds of investors took to the streets after losing more than 40 billion yuan in investment products that promised an annual return of up to 14 percent.
Last year, China approved the arrest of 9,441 people on suspicion of illegally soliciting public deposits and prosecuted 14,745, state media said.
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