Measures to help prevent risks in internet finance

english.gov.cn 2016-10-25

China introduced measures to address risks brought by irregular and illegal activities in the internet finance sector for the healthy development of the industry, according to a circular issued by the State Council on Oct 13.

The circular made a distinction between legal and illegal activities in the sector, and submitted measures targeting specific areas of risk.

According to the circular, P2P (Peer-to-Peer) lending platforms are banned from setting up capital pools, extending loans, and illegal fundraising. Offline marketing is not allowed, either, except for credit information collection and verification, posts of loan tracking, and pledge and mortgage management.

Equity-based crowdfunding platforms should not fabricate targets and carry out self-financing, according to the circular.

The two platforms are not allowed to engage in finance business such as asset management, creditors’ rights or equity transfers, or high-risk securities market funding, unless they are officially approved.

In addition, no real estate development enterprises, real estate agents, or internet financial institutions without credentials can be engaged in real estate finance business through the two platforms.

The circular also listed measures to address potential risks in online asset management and cross-sector financial business.

Internet enterprises’ financial business and public sales of financial products generated from private offerings are banned without permit. Financial institutions should not conduct asset management business through asset management products nesting on the internet to evade supervision.

Branches under the same business group that obtain various financial business qualifications should not violate connected transaction regulations, the circular said.

As for third-party payment business, non-bank payment institutions are not allowed to seize customers’ prepayments, and the prepayment accounts should be opened at the People’s Bank of China or qualified commercial banks with no interest.

Cross-bank settlement is forbidden for non-bank payment institutions by connecting several banks’ systems, according to the circular.

Moreover, advertisements for internet financial products should be true and accurate, in accordance with related laws and regulations.

Other measures such as conducting strict market access, enhancing capital monitoring, establishing reporting systems, and incentive and punishment mechanisms should also be introduced to enhance the overall regulation of risk areas.