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China to better regulate Internet finance

Updated: Oct 14,2016 9:24 AM     Xinhua

BEIJING — China on Oct 13 pledged to improve supervision over the online finance market, including peer-to-peer (P2P) platforms, to reduce risks and support healthy development of the sector.

A policy document released on Oct 13 by the State Council, China’s cabinet, tasked various government agencies with working to contain Internet finance risks, improve the competitive environment and boost investors’ risk awareness.

Internet finance refers to deposits, loans, investments and other financial services provided through online channels rather than through traditional financial institutions such as banks.

Lack of strong supervision has made the industry risky for investors. Some investors have ended up as victims of unscrupulous online finance platforms, arousing the concern of supervisors and experts.

“These new measures are timely, as the online finance sector is at the crossroads of development,” said Ou Minggang, director of the International Finance Research Center at Beijing-based China Foreign Affairs University. Better regulation of this sector is not only conducive to investors’ rights and sustainable development of those financial agencies, but also to sound financial order, Ou said.

The view was echoed by Yang Dong, vice president of China Law School at Beijing-based Renmin University, who said that the sector has been plagued by fraudulent cases in recent years, and better regulation can help select high-quality platforms to provide badly needed funds for smaller firms.

A long-term and effective supervision program should be established in line with growth of the Internet finance sector, while a dual-focus approach should better regulate the sector and promote its healthy development, the document stressed.

High thresholds need to be in place to manage who is allowed to establish financial agencies, and stronger supervision of their capital will be carried out, with better technology support systems in place, it noted.

A task group involving more than 10 governmental agencies including the People’s Bank of China (PBOC) and China Securities Regulatory Commission (CSRC) has been set up to complete a raft of measures to reduce risk in the online finance sector by March 2017. The group is spearheaded by the PBOC, China’s central bank.

The short-term goal of the document and the task group is to standardize business models in the online finance industry, while the long-term target is to promote the “orderly and healthy” development of the industry and lend bigger support to mass innovation and entrepreneurship, an official with the task group told Xinhua.

Development of Internet finance has helped broaden the reach and improve efficiency of financial services, said the unnamed official. However, some online finance agencies have disrupted the market order, according to the official, by diverting clients’ funds for other purposes or creating Ponzi schemes, leading to losses for many investors.

“Some online finance entities have performed illegal services, which also creates contagion risk for banks, as financial agencies are intertwined with one another. The more standardized the development of this sector, the more confidence it can win from investors,” Ou told Xinhua.

The key areas for strengthened supervision include P2P lending, Internet-based insurance business, third-party online payment, and online asset management, said the unnamed official, adding that useful innovation in business and by law-abiding entities will be protected.

With the burgeoning development and rapid innovation of the Internet finance sector, regulators are confronted with the challenge of keeping abreast of the ever-changing industry landscape, Ou said.