China issued a regulation on Wednesday to toughen its control of peer-to-peer lendingcompanies, thus cracking down on illegal fundraising activities through such platforms andpreventing financial risks.
Jointly issued by the China Banking Regulatory Commission and three other ministries, theregulation emphasizes the role of P2P lending companies as financial information serviceintermediaries providing assessment and exchange of borrowing information for unrelatedborrowers and lenders via internet platforms.
The CBRC provided a negative list to draw the business boundaries of P2P lendingcompanies, forbidding them from cash pooling, absorbing public savings or providing anyform of guarantee for borrowers.
It also clarified the market positioning of these companies as a supplement to traditionalfinancial institutions that cannot satisfy small and scattered fund demands. According to theregulation, the borrowing balance of an individual borrower should not exceed 200,000 yuan($30,068) on a single P2P lending platform and 1 million yuan on different platforms. Similarly,the borrowing balance of a legal entity should not exceed 1 million yuan on a single platformand 5 million yuan on different platforms.
To better ensure the clients' money safety, the banking regulator also required P2P lendingplatforms to have their clients' money deposited and managed by qualified bankinginstitutions and to disclose information on the borrowers, financing projects and platformoperation accurately on a timely basis.
Li Junfeng, director of the CBRC's financial inclusion affairs department, said the regulator isaccelerating the process of building support systems by making regulatory guidance on theregistration of P2P lending companies, third-party depository and management of P2P clients'money, as well as product information registration and disclosure, which will come out soon.
"The CBRC and financial service offices of local governments will divide their regulatoryresponsibilities and cooperate with each other," he said. "The CBRC will be responsible formaking regulations and policies for P2P lending companies, constantly monitoring theirbusiness activities, operation and management, while coordinating cross-region regulatoryactions. Financial service offices of local governments, on the other hand, will be responsiblefor the registration of P2P lending companies, their everyday information collection, and riskprevention, control, early warning and disposal."
According to incomplete statistics from the CBRC, as of the end of June, the number of P2Plending platforms that were still running normally in China rose 49.1 percent from the end of2014 to 2,349. Their total loan balance jumped by 499.7 percent to 621.26 billion yuan.
Also by the end of June, 1,778 platforms, or 43 percent of the total, witnessed problemsincluding the disappearance of executives with the clients' money and rising defaults.
Hu Eryi, head of p2p001.com, a Shenzhen-based internet financial web portal, said: "Thenewly released CBRC regulation will make up for the long-term lack of standards, information,intermediaries, and risk monitoring and early warning systems in the P2P lending sector. It's amilestone for the development of the sector and will become a necessary prerequisite for itsstandardized development."
