China’s peer-to-peer lending sector – the world’s largest in terms of cumulative lending volume – has to date been plagued by malpractice. Whilst a select number of outperformers have been able to attract widespread trust, and gaudy valuations, the sector has also been hit by hundreds of platform failures and closures. The China Banking Regulatory Commission (CBRC) has now released a set of draft rules for peer-to-peer lending. These rules include the banning of guarantees to clients – a move which mimics the FCA’s approach to financial promotions in the UK's peer-to-peer space.
According to Grace Zhu of the Wall Street Journal, the regulator will also require that peer-to-peer platforms operate only as intermediaries, linking investors and borrowers. We assume that this point will serve to check the progress of any hybrid platforms – those that act as a marketplace, whilst also lending to consumers and/or businesses off balance sheet. The regulator has also stated that peer-to-peer lenders are not permitted to sell wealth management products, insurance, funds or trust products. This is perhaps more relevant than some might realise, given the expanding product sets of some of China’s larger platforms, like CreditEase – which acquired a 49% stake in Nuode Asset Management in July.
The draft rules also stipulate that platforms must file for record with local financial regulators, after having received business licences. The proposed rules also suggest that the size of the loans extended by online lenders ought to be relatively small, and that platforms should set a ceiling on how much credit may be accessed by individual borrowers.
On the matter of transparency, the CBRC asserts that peer-to-peer platforms should publish information on their websites about lending turnover, overdue loans and bad debt ratios. Such clarity is nigh on unheard of within China’s peer-to-peer sector at present.
The People’s Bank of China (PBC) also sought to instill a sense of order in the country’s ballooning peer-to-peer sector in July, by issuing a series of policy measures and regulatory propositions relating to the internet finance sector. Will the joint efforts of both the PBC and the CBRC prove powerful enough to straighten out China’s turbulent peer-to-peer space?