China’s banking regulator has highlighted the burgeoning online lending sector as part of its most recent and unprecedented sweep of the country’s financing activities.
The China Banking Regulatory Commission (CBRC) has mounted a campaign of unprecedented vigour against malfeasance and risk in the finance sector, unleashing a slew of administrative punishments and statutory measures over the past several months.
The recently issued “Guidance Opinions Concerning Banking Sector Risk Prevention and Control Work” targets online lending in particular, pointing to the need to “appropriately advance administration of online financial risk …[and] continue to promote special handling of peer-to-peer online lending platforms.
Beijing Hits P2P Platforms with Slew of Prohibitions
Local regulators have responded to CBRC’s call for more concerted action, with Beijing issuing the 153 P2P platforms based in the Chinese capital with a notice outlining 148 forms of prohibited activity.
Beijing has banned the use of specific terms or information in relation to wealth management products on webpages and platforms of P2P lenders, including the words “wealth management” itself, as well as other related terms or phrases such as “expected yields.”
It has also prohibited the use of guarantees to promote P2P lending platforms, whether these guarantees be in the form of risk protection funds or provisions, and the channelling of assets to financial exchange products, financial leasing company products, pawnbrokers, factoring companies, small-scale lending companies or guarantee companies.
CBRC Will Target Online Lending Risk at the Source
In addition to focusing on existing risk in China’s online finance market, industry insiders believe that CBRC will seek to stymie further risk at the source by raising the threshold for entry into the sector.
Analysts expect CBRC to strictly prohibit unqualified players or those that lack adequate risk control capability from providing online financial services.
Industry insiders point out that CBRC’s latest set of “Guidance Opinions” have yet to be fleshed out using detailed regulations, and that the hi-tech nature of online lending will require measures that differ markedly from those applied to traditional finance – in particular micro loans.
Li Jiannuo, CEO of Xiao Yu Dian Wangdai, said that regulators should give consideration to the differences between online micro loans and traditional micro loans – in particular the fact that online technology serves the foundation and prerequisite for operation.
Li recommends that regulators establish technical standards for online micro lenders, including the possession of reliable anti-hacking capabilities, measures to safeguard systems and data security, the ability to create credit and risk-control models, and the ability to perform real-time adjustment of risk control models based in changes to operations and customer data.
According to Li regulators should also require that online lenders be able to comprehensively obtain and store the applications data, behavioural data, credit data and other third party data of customers, and possess data analysis and data monitoring capability.