China’s crack down on illicit operators in the online asset management sector has driven the price of fund sales licenses to as high as 90 million yuan (approx. USD$14.33 million)
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) 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) on 10 April, amidst a broader crackdown on China’s USD$16 trillion asset management sector.
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.
Industry observers say that the release of the Notice has already sent shockwaves through China’s online asset management sector, as well as driven up the prices for much-prized business licenses.
Yingmi (盈米财富) vice-president Huang Jianxiang (黄建翔对) told 21st Century Business Herald that there are there are approximately 30,000 to 40,000 third party wealth management firms operating in the four mega-cities of Beijing, Shanghai, Guangzhou and Shenzhen alone, as compared to only around one hundred third-party fund sales licenses on the market.
The official site of the China Securities Regulatory Commission currently only lists a total of 107 independent fund sales organisation, with the last update of the list dating from September 2016.
“This means that over ninety percent of third-party wealth management companies are facing the prospect of not being able to sell products,” said Huang.
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.
Chen Wen (陈文), a researcher with Peking University’s New Finance and Venture Investment Research Center, said that the crackdown on unlicensed operators has already driven a surge in the cost of licenses.
“At the end of 2015 the price of fund agency sales licenses was only 5 million yuan, yet this had risen to 50 million yuan in the first half of 2017,” said Chen. “This year the quote has already surged to around 90 million yuan.”
According to Chen while a huge number of businesses in China hope to crack the market for third party wealth management sales, very few licenses are currently in circulation.
Chen said that the buyers of existing licenses are either Internet giants hoping to capitalise upon their copious traffic flows, or online finance companies whose asset management business is in breach of regulations, and who hope to use the license to achieve compliant operations.
“The reason that regulatory departments have not issued any new fund sales licenses for nearly two years is mainly that fund-holding organisations have not made proper use of the licenses,” said one anonymous source to 21st Century Business Herald.
“Stated more bluntly, they’ve grabbed licenses but not used them correctly, being more inclined to engage in agency sales of non-standard wealth management products. Some organisations have even engaged in the speculative purchase of licenses.”
According to the source China’s financial regulator began to curb the transfer of licenses in the second half of last year, with uncertainty still surrounding whether any new licenses will be issued.
“Looking at the current situation, regulatory departments must first engage in a clean-up, then a reorganisation, before conducting assessments and considering whether or not to issue new licenses.”
Chen Wen expects the issuance of new licenses to increase in future, however, as China further opens up its financial sector.
“The significance of the financial market being more open is that the threshold for licensing will decline,” said Chen.
“Looking at the long-term, the supply of licenses must be increased, while punitive measures for non-compliant enterprises must be strengthened, and market withdrawal mechanisms improved.”