China's banking regulator yesterday issued a new rule requiring peer-to-peer lending platforms to use third-party banks for custody of funds as it enhanced a national campaign to curb financial fraud.
The bank requirement seeks to strengthen fund security and prevent capital embezzlement, the China Banking Regulatory Commission said in a statement yesterday.
A P2P lending platform should sign an agreement with only one commercial bank to safeguard the funds, and all P2P lenders should meet the custody requirement in six months, the regulator said.
As of yesterday, 209 operating online P2P platforms have signed such agreements with commercial banks, accounting for 8.8 percent of all P2P lenders, according to data compiled by Online Lending House, a portal that tracks the sector.
The requirement on fund custody was issued after the recent national campaign to further regulate the booming online P2P lending sector.
Online P2P lending business has been booming in China since 2014 as investors flocked to these platforms hoping to get higher returns than bank deposits and their loans were more accessible than those from banks.
The outstanding balance of lending totaled 816.2 billion yuan (US$118.7 billion) at the end of 2016, doubling the amount a year earlier, according to Shanghai-based researcher Yingcan Group, despite the rising number of foul play.
The foul play caused at least US$24 billion loss for investors' savings in 2015, according to a previous calculation done by Quartz.
A government regulation, which took effect last year, said an online lending platform should be "limited to roles as intermediaries between lenders and borrowers."
It also banned platforms from selling wealth-management products, funds, insurance and trust products, crowdfunding and guaranteeing returns.
There were 2,448 online P2P lending platforms operating in the country at the end of 2016, down 985 from a year earlier.