China Finalizes Internet Finance Regulations

The Chinese government is moving to regulate the online finance market using a set of new guidelines jointly issued by a body of 10 agencies, including the central bank and banking and security regulators.

The guidelines, which have been built to provide a monitoring structure for agencies to regulate different online financial institutions, are being seen by analysts as a way to favor incumbent banks.

To crack down on a growing number of P2P lending companies absconding with customers’ money, the new rules will provide a more defined regulatory framework that would keep a close tab on such companies. It would also support the growth of various other online financial services such as crowdfunding, equity finance, online payments and asset management.

“Regulation will standardize operations and expose the industry to sunlight. Practices that were seen as existing in a grey area will be forbidden,” said Online Lending House CEO Xu Hongwei in an interview with the Financial Times. Though the regulations would help consolidate the scattered Internet finance industry, the new rules in place would likely lead to a rise in operating costs, which may cause the weaker players to lose market and file for bankruptcy, he added.

Top players like Ant Financial, AliPay, Zhejiang Ant Small & Micro Financial Services and Yu’E Bao are expected to benefit from the new regulatory framework, analysts predict, according to FT.

The regulatory framework would also help separate the overlapping P2P lending and banking industry as now P2P lenders cannot take deposits, provide guarantees or raise money for their own projects. With the rules in effect, they are also required to disclose their sole role as an intermediary between borrowers and lenders to customers.

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