China’s top financial authorities have summoned over a dozen of the country’s leading Internet platforms for disciplinary “regulatory discussions” following concerns about widespread malfeasance in the burgeoning fintech sector.
On 29 April a cohort of China’s leading finance regulators, including the Chinese central bank, the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE), summoned the real controllers and representatives of 13 Internet platforms for discussions.
These companies included:
- Du Xiaoman Financial
- JD Finance
- Meituan Financial
- DiDi Financial
- 360 Shuke
- Sina Finance
- Suning Finance
- Gome Finance
- Ctrip Finance.
The purpose of the meetings was to “further strengthen regulation of Internet platform enterprises that engage in financial activities, strengthen anti-trust [measures] and prevent the disorderly expansion of capital, and drive the standardised and healthy ongoing development of the platform economy.”
“In recent years, online platform enterprises have increased the efficiency of financial services and the inclusiveness of the financial system, playing an important role in reducing transaction costs,” said Chinese regulators.
“However, there are also widespread and severe problems with breaches of regulations, including engaging in financial activities without licenses or beyond businesses scopes, poor corporate governance, regulatory arbitrage, unfair competition, and harm to the lawful rights and interests of consumers.
“These joint regulatory discussions are with Internet platform enterprises that engage in financial activities, possess comprehensive operating features and comparatively large operations, and have major influence within the industry.
“Problems [of theirs] which have been exposed are more symptomatic, and require strict correction in advance.”
Chinese regulators flagged the launch of a series of measures to strengthen regulation of financial activities undertaken by online platforms and “standardise the competitive order of the platform economies,” while online platforms that engage in financial activities are required to implement “rectification requirements” to address “widespread, salient problems.”
Key requirements outlined by Chinese financial authorities include:
- Upholding the [principle] that all financial activity be included within financial regulation. Financial activities require the holding of financial licenses.
- Payments returns to its origin – break inappropriate links between payments tools and other financial products, strictly control the expansion of non-bank payments accounts into the public sphere, raise transaction transparency, and correct inappropriate competitive conduct.
- Breaking apart information monopolies, lawful and compliant undertaking of personal credit operations by means of licensed credit agencies.
- Strengthening the standardisation and regulation of the qualifications, equity structures, capital, risk separation and affiliate transactions of shareholders. Qualified enterprises must lawfully apply for the establishment of financial holding companies.
- Strict implementation of macro-prudential requirements, improvement to corporate governance, implementation of “two participants one controller (两参一控) requirements for investment in the equity of banks and insurers; compliant and prudential undertaking of online deposit and loan and online insurance operations. Prevention of online mutual assistance operational risk.
- Standardising the issuance and trading of asset securitisation products by enterprises as well as their offshore listing. Prohibition on the senior management and personnel of securities fund organisations from engaging in cross-holding of positions, and ensuring the operational independence of organisations.
- Strengthening protection mechanisms for financial consumers, standardising the collection and usage of personal information; standardising sales and promotional conduct and standard contractual forms. Strengthening the supervision and standardisation of cooperation with third party organisations in financial operations.
- The move from Chinese authorities arrives following a crackdown on the activities of Jack Ma’s Ant Group, which first kicked off with a series of regulatory discussions in late 2020 that saw the scuppering of the fintech platform’s mammoth USD$37 billion IPO, originally scheduled for 5 November on the Hong Kong and Shanghai bourses.
Subsequent regulatory discussions saw Chinese regulators require that Ant Group return to its focus on payments operations, convert into a financial holding company, and reportedly oust Jack Ma from his position of key ownership and influence.