China takes forceful steps to tame unruly peer-to-peer lending sector
BEIJING (Reuters) - China's banking regulator unveiled aggressive measures to restrain the country's fast expanding peer-to-peer (P2P) lending sector on Wednesday, warning that almost half of the 4,000-odd online lending platforms are "problematic".
The $93 billion P2P lending sector has been a source of funds for individuals and small businesses overlooked by the country's traditional financial services institutions that prefer big borrowers with better credit history and collateral.
But Beijing's hands-off approach to promote the sector as a form of financial innovation has led to a rash of high-profile P2P failures, scandals and frauds.
Some P2P firms are running Ponzi schemes and raising funds illegally, said the China Banking Regulatory Commission (CBRC), which jointly released a new set of regulations with three other government bodies to tame the unruly sector.
Under the new rules, P2P firms cannot sell wealth management products nor issue asset-backed securities, and must use third-party banks as custodians of investor funds. P2P platforms will also not be able to take deposits.
The regulations, issued by the CBRC, Ministry of Public Security, Cyberspace Administration of China, and the Ministry of Industry and Information Technology, follow the passage of a plan by the State Council, or cabinet, four months ago to clean up the online finance sector.
The banking regulator also set a ceiling for borrowers to control the size of loans on P2P platforms, said Li Junfeng, director of the Inclusive Finance Department at the CBRC.
An individual can borrow a maximum of 200,000 yuan ($30,072) from a single P2P platform and a maximum of 1 million yuan from all P2P platforms, he said. A company can borrow no more than 1 million yuan from a single P2P platform, and no more than 5 million yuan from all P2P platforms.
The regulations also ban P2P firms from providing guarantees for investment principal or returns, a common marketing practice to lure funds from unsophisticated retail investors. Continued...