Tighten Control on China Financial Technology and Internet Finance Sectors

The People’s Bank of China sets standards to determine whether companies in the financial technology and Internet finance sectors have a monopoly. Any non-bank company that enters the standard list will face investigations. Alibaba and its subsidiary Ant Group were among the first technology companies under investigation.

The new rule will be submitted to public for discussion before February 19. According to the new rules and schemes, any non-bank payment agency owns more than half of the market, or if two companies share owns more than 2/3 of the market, or three companies share own more than 3/4 of the market, they will face invesgation.

At the same time, if the People’s Bank of China finds any monopoly phenomenon that undermines the principles of safety, efficiency, fairness and reliability, the administrative department can appeal to the relevant anti-monopoly authorities. If the company’s breach of antitrust laws is confirmed, it will take appropriate action, including suspending business, prohibiting mergers and acquisitions, and splitting non-bank payments by type of business.

The new regulations are designed to avoid “regulatory arbitrage”. Specifically, technology companies that run financial services do not enter the management of financial institutions and have more competitive advantages than their “peers” in the traditional financial sector. For example, for loans and banking institutions, there are strict capital reserves and risk weighting regulations and so on. At the same time, fintech companies have not been financially managed for a long time. On the one hand, they have created a huge size, and on the other hand, without regulation, they can pose a threat to the overall stability of finance.

The Chinese government has formulated management regulations for financial technology companies earlier. Companies engaged in online loans and small loans must have a registered capital of not less than RMB 1 billion. If the company wants to expand its business to other provinces, its registered capital should be increased by 4 times.

In addition, the maximum single loan for natural persons is 300,000 yuan, and the maximum for legal persons is 1 million yuan. Now, the new regulations stipulate that the amount of bank capital or shareholder capital attracted by microfinance institutions cannot exceed the amount of their own capital.

In this case, if a microfinance institution or Internet financial platform and a bank or other financial institution jointly issue loans, the loan share of the microfinance institution or Internet financial platform cannot be less than 30%.

The media previously reported that in the loans issued by Ant Financial Group, its own capital accounted for approximately 2%. The purpose of the new regulations is to regulate the market and establish uniform rules for all participants.

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