China will tighten supervision of the growing peer-to-peer lending sector by introducing a registration-based system and banning high-risk products.
The China Banking Regulatory Commission, which oversees the sector, opted for a registration system which ensures the P2P platforms have to register with local regulatory bodies.
Other rules include raising the registered capital of a P2P platform and banning products which aimed to get funds for related parties, Zhu Mingchun, secretary-general of Guangdong Internet Financial Association, told Shanghai Daily by phone yesterday.
The P2P platforms also have to get banks or third-party institutions to act as a conduit to safeguard investors' funds, as well as limit a loan to under 20 million yuan (US$3.2 million) for a borrower from a single platform, 21st Century Business Herald reported yesterday.
The CBRC will rely on local regulatory bodies to conduct supervision.
"The supervision aims to clean up fraud platforms as well as allow room for further developing the industry," Zhu said. "We see the regulations to be launched by the end of June."
An estimated 235 platforms reported defaults or had difficulties allowing borrowers to withdraw cash in the first four months of this year. Last year 275 platforms saw such woes.
The size of P2P lending, which allows individuals to borrow money from other individuals without going through banks or financial institutions, surged 2.7-fold from a year earlier to a record 55.1 billion yuan in April, said Online Lending House which tracks the sector.