Beleaguered fintech giant Ant Group has met with Chinese regulators for another round of discussions, just after affiliate company Alibaba was hit with a multi-billion dollar fine for breach of anti-trust regulations.
Ant Group met with a slew of China’s top financial regulators for discussions on 12 April, including the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE).
The meeting came just after the Chinese government announced on 10 April that e-commerce giant Alibaba had been hit with fine of 18.228 billion yuan (approx. USD$2.78 billion) for breach of anti-trust regulations with its use of “exclusive agreements” for vendors.
Pan Gongsheng (潘功胜), PBOC Deputy Governor, said that the discussions with Ant Group pertained to “strengthening anti-trust [measures] and preventing the disorderly expansion of capital,” as well as “pragmatic prevention of risk.”
“Since joint regulatory discussions held in December last year, Ant Group has established a special team that has formulated a rectification plan and actively undertaken rectification work under the guidance of financial regulatory authorities,” said Pan.
“This subsequent discussion between regulatory authorities and the relevant personnel of Ant Group is mainly to require that Ant Group directly confront severe problems that exist in financial business activities and the importance of rectification work.
“[Ant Group] must actively respond to national development strategy, and expand fintech innovation and raise international competitiveness in the fintech sphere under the precondition that it satisfies macro-prudential regulatory requirements.
“[We] need to set forth from the strategic heights of establishing new advantages in national competition, establish a healthy regulatory system for the platform economy and drive the standardised, healthy and ongoing development of platform economies,” said Pan at a subsequent press conference.
Chinese financial regulators first summoned Ant Group executives for “regulatory discussions” at the start of November 2020, when they scuppered its plans for a mammoth dual listing on the Hong Kong and Shanghai stock exchanges.
During subsequent discussions Chinese authorities chastised Ant Group for engaging in monopoly conduct, and required that it “return to its payments origins” as well as convert into a financial holding group to expedite regulatory scrutiny.
Pan Gongsheng said Ant Group’s current rectification plan focused in particular on five areas:
- Correcting inappropriate competitive conduct in its payments operations, giving consumers more choice when it comes to payment methods, severing the inappropriate connections between Alipay and financial products such as Huabei and Jiebe, and correcting conduct in breach of regulations such the nesting of lending operations in payments links.
- Breaking down information monopolies, strict implementation of the requirements of the “Credit Operation Management Regulations” (征信业管理条例), engaging in licensed personal credit rating operations in accordance with the law, abiding by the principles of “lawfulness, minimalism and necessity” when collecting and using personal information, and protecting personal and national information security.
- Ant Group’s application for establishment as a financial holding company – all entities engaging in financial activities are included under the financial holding company for regulatory purposes. Improving risk separation measures and standardising affiliate transactions.
- Strictly implementing macro-prudential regulatory requirements, improving corporate governance, earnestly rectifying financial activities in the areas of lending, insurance and wealth management that are in breach of regulations, and containing high leverage and risk contagions.
- Managing and containing liquidity risk for major funds products, and actively reducing the balance of the Yu’e Bao money market fund.
Pan said that Chinese regulators would “oversee and expedite Ant Group’s pragmatic implementation of the rectification plan,” while also “maintaining the continuity of operations and the regular business of the company.”
The PBOC deputy governor also outlined plans for future regulation by financial authorities of Chinese Internet platforms, which will focus on “fair and strict regulation, an eye on the long-term, expediting fair competition, opposing monopolies and preventing the disorderly expansion of capital.”
Key principles for future regulation of financial operations by Chinese online platforms include:
- “Finance is the foundation, technology invigorates.” Internet platforms that engage in financial operations must focus on “servicing the real economy and preventing financial risk,” and are prohibited from using technology to engage in conduct in breach of laws and regulations, which will incur severe penalties.
- “All financial activity is included under financial regulation.” All financial operations must be licensed, while Chinese authorities will raise their regulatory capability and level, optimize the regulatory framework and prevent regulatory arbitrage.
- “Dual emphasis on development and standardisation.” China will “lawfully strengthen regulation, standardise the market order, prevent market monopolies, and protect data property rights and personal privacy,” as well as “effectively grasp the principles for the growth of platform economies, raise financial services experiences, and fortify and strengthen the international competitiveness of platform enterprises.”
Pan also highlighted China’s plans to engage in greater international cooperation when it came to the regulation of fintech.
“In recent years, fintech and platform economies have seen rapid growth, and have played an important role in raising the efficiency of financial services and financial inclusion, as well as reducing the cost of transactions,” said Pan.
“At the same time, because [fintech] is distinguished by cross-border and cross-regional operation and mixed operations, the pace of the spread of risk is more rapid while the scope of its spread is greater, and negative spillover effects are stronger.
“This poses a new challenge to financial regulation, and has become a new problem faced in common by the regulatory authorities of countries around the world.
“China’s financial regulators are willing to further strengthen cooperation with international financial organisations and the regulatory authorities of all countries in areas such as anti-trust regulation, data regulation, operations management and consumer protections, and drive the formulation of fintech regulatory standards, strengthen regulatory coordination, and jointly create an open, inclusive and secure fintech ecosystem.”
Pan also called for exploring the use of technologies such as big data and artificial intelligence to improve risk monitoring capabilities.