The online peer-to-peer lending sector in China will be subject to strict rules which will affect "up to 90 percent" of the P2P platforms as the authorities get tough amid rising risks and defaults.
The rules ban the P2P lending platforms from selling products that can be bought at traditional financial institutions, including banks' wealth-management products, funds, insurance and trust products.
"Online finance platforms should be limited to roles as information intermediaries between lenders and borrowers. Raising funds of their own to lend out is forbidden," draft rules stated yesterday. The P2P platforms need to register with local financial regulatory bodies, enhance information disclosure and hire banks to safeguard investors' funds.
The draft rules were released jointly by the China Banking Regulatory Commission, which oversees the sector, the Ministry of Public Security and the State Internet Information Office. The public can give feedback on the rules until January 27.
"Up to 90 percent of the platforms in the industry will face sweeping changes," said Xu Hongwei, chief executive officer of research firm Yingcan Group. He added that the rising operational risks and default rates are the main concerns in developing the sector.
P2P online lending is booming in China as borrowers can get easier access to loans. Nearly 2,612 P2P firms lent 133.1 billion yuan (US$20.5 billion) at the end of November, according to Online Lending House, a portal site that tracks the sector.
The strict rules were hatched after several measures were taken against fake P2P platforms. One of the most notorious was Ezubao, which was suspected of illegal fundraising of 70 billion yuan from investors. Its operation was halted by the police on December 8.
