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Regulations for Chinese P2P sector?

It has been reported that detailed P2P regulations will be released in China within the next month.

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The regulation would group P2P lenders with other financial institutions and could require them to gain licensing. The high levels of fraud in the industry indicate that regulation is almost definitely necessary 

Wu Xianyong, the chief executive of Shenzhen Touna Financial Services, a P2P lender, explained that adding stronger rules to a business that doubled in size last year was not a negative signal for the industry.

He continued:

"This will have a major influence. In the short run, licensing can lead to some difficulties for the industry. But, in the long run, P2P needs oversight in order to protect its reputation. So it would be a good move."

Ning Tang, CEO of CreditEase, commented:

“In terms of macro conditions, the People’s Bank of China, the China Banking Regulatory Commission, and local Ministry of Finance offices have all been very clear on the general direction. Even the State Council has noted the need to develop inclusive finance and promote internet finance. “Mass entrepreneurship and innovation” cannot be accomplished without support from inclusive finance. Internet finance and P2P lending is a very important driver, so the outlook is good on the macro level.”

During this year’s session of the Chinese People’s Political Consultative Conference National Committee in March Ma Weihua, a veteran banker and former chairman of the China Merchant’s Bank, said that introducing regulations for China’s online financial market is an urgent task.

Also, speaking at the session, Li Kemu, former vice-chairman of the China Insurance Regulatory Commission, said that the Internet may create as many new problems as it overcomes old ones, "an asymmetry of information is always a hotbed of moral hazard".

The industry has so far avoided harsh regulation despite high levels of growth over the past few years. But for an industry that is growing at such a rapid rate, regulation is necessary to curb the enthusiasm of some platforms and lenders. We wrote at the beginning of the year about Dagong Credit Data, a Chinese credit rating agency, publishing a blacklist and early warning list of the P2P platforms it thought investors should be wary of. The blacklist contained 266 platforms and the early warning list had 676 platforms on it. The regulations should contain those platforms and give a better offering to both lenders and borrowers.

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