Marbridge Daily

China to Implement Internet Financial Risk Regulations by March 2017

DoNews, 10/13/16

The State Council, China's cabinet, has issued remedial regulations specifically targeting internet financial risk that must be implemented before the end of March 2017. The regulations include:

1. P2P Online Lending and Equity Financing

• Online P2P lending platforms may not issue loans, illegally collect funds, make promises to clients about the safety of the principal or interest, engage in false advertising, use fictional or exaggerated previous returns on investment to mislead lenders, or engage in offline marketing with the exception of credit information collection and verification or mortgage management.
• Equity crowdfunding platforms may not publish false information, indiscriminately raise funds under false pretenses, or engage in false descriptions or misleading advertising. Equity crowdfunding platforms have an obligation to strengthen the disclosure of platform and fundraising information to protect the rights of investors.
• Online P2P lending platforms and equity crowdfunding platforms are barred from financial services, such as asset management, debt assignment, or stock transferal, without appropriate licensing. Customer assets and corporate assets must be maintained in separate accounts, choosing an eligible banking financial institution to serve as a fund depository to protect the security of customer assets and prevent misappropriation.
• Real estate developers, real estate agencies, and organizations engaging in online finance may not use online P2P lending platforms or equity crowdfunding platforms for real estate finance without appropriate financial qualifications. With such financial qualifications, the above mentioned companies are barred from conducting illegal real estate financing business. All organizations are strictly barred from offering any sort of "Down Payment Loan" business.

2. Online Asset Management and Non-financial Institutions Involved in Online Financial Services

• Internet companies without the appropriate financial business qualifications may not use the internet to engage in financial services. A company's business must be in compliance with its registered business certification.
• Without approval from the regulatory authorities, financial institutions may not sell privately issued financial instruments to the public, whether bundled or separated, or sell products to customers without a matching risk tolerance.
• Financial institutions may not use different types of asset management products on the internet to covertly open an asset management business outside of regulatory oversight.
• A group which has obtained multiple financial business qualifications may not violate standard business norms, such as through connected transactions. The same supervisory regulations apply to online finance businesses as those for traditional financial institutions.

3. Third-party Payment Services

• Non-bank third-party payment processors are barred from diverting or using customer excess reserves. Those reserves must be deposited at the People's Bank of China (PBOC) or a qualified commercial bank.
• Non-bank payment processors may not use multiple bank systems to covertly engage in interbank clearance processing. Non-bank payment processors who wish to offer interbank payments must use the PBOC's interbank clearance system or a clearing house with legal qualifications.
• Businesses engaging in payment processing must obtain the appropriate business certification, without which, they are barred from merchants' assets clearance, individual POS machine payments, or online payments.
• Advertising and promotional activities in the field of internet finance must be accurate and comply with existing laws. Organizations without the necessary financial business qualifications may not imply market themselves as a financial business.

Keywords: P2P online lending mobile lending regulation wireless Internet State Council People's Bank of China POS third-party payment financial services