Chinese regulators are intensifying scrutiny of online asset management amidst a broader crackdown on the near $16 trillion asset management sector.
China’s Internet Financial Risk Special Rectification Work Leadership Team Office (互联网金融风险专项整治工作领导小组办公室) has just issued the “Notice on Expanding the Vigour of the Rectification of Asset Management Operations Conducted Via the Internet and Inspection and Acceptance Work” (关于加大通过互联网开展资产管理业务整治力度及开展验收工作的通知).
The new Notice indicates that authorities will launch investigations into any online platforms that engage in asset management operations without official licenses or agency sales qualifications.
The move comes just after China’s central government gave the green light to new asset management regulations on 28 March, in a move which is expected to shake up the near USD$16 trillion sector by targeting implicit guarantees.
The new Notice stresses that any asset management activity conducted via the Internet is still categorised as asset management activity, and as such as is form of financial activity that requires licensing and falls within the purview of financial regulation.
The public issuance or sale of any asset management products via online platforms is prohibited unless platforms possess an asset management business license or asset management product sales license issued by the central government’s financial regulatory bodies.
These asset management products include a broad range of public fund-raising schemes, including “targeted entrustment plans,” “targeted financing plans,” “wealth management plans,” “asset management plans,” and “revenue rights transfers.”
The Notice further stipulates that where online lending companies spin off their online asset management operations into separate entities, the spun-off entity will still be considered a constituent part of the online lending vehicle for inspection and acceptance purposes.
Dong Ximiao (董希淼), a researcher with the Chongyang Institue for Financial Studies at Renmin University, said to Yicai that unlicensed online asset management operations are still rife in China, and that “if they aren’t curbed yet illicit and illegal operation is permitted, it will be impossible to combat malfeasance in the asset management sector”
Analysts point that given the recent proliferation of unlicensed online asset management platforms, there remains a huge volume of outstanding products on the market.
According to Xue Hongyan (薛洪言), chair of the Suning Internet Finance Research Center, Research, a conservative estimate of current outstanding asset management products would be at least 100 trillion yuan, including both compliant and non-compliant products.
Xue further points out that the “targeted entrustment plans,” “targeted financing plans,” “wealth management plans,” “asset management plans,” and “revenue rights transfers” referred to in the Notice fall within a grey area for which authoritative data is lacking, and that the value of outstanding P2P wealth management product could currently be as high as 1.3 trillion yuan.