Not only is Ezubao responsible for the largest sum of money lost by peer-to-peer investors to date, it has also provided mainstream media outlets with the juiciest “P2P scam” story to date. Police reportedly employed two excavators in order to uncover some 1,200 Ezubao account books, which had been buried deep underground. 34 year old Founder Ding Ning supposedly used investor money to splash out on absurdly lavish gifts, including a Rmb130m villa in Singapore, and a pink diamond worth Rmb12m. His younger brother was paid over Rmb1m a month as a salaried executive. Xinhua news agency has the platform’s risk controller, who is currently under detention, on record as admitting that 95% of Ezubao’s projects were fake. Ezubao is said to have raised over Rmb50 billion from close to 1 million individual investors prior to its collapse. Some of those investors recently staged protests outside government offices in Beijing over the unraveling of the platform.
And whilst the details of one disaster come to light, another continues to drag on. The latest chapter in the TrustBuddy saga, according to the Telegraph, is that the platform’s investors will lose a quarter of their principal, following the liquidator’s decision to transfer control of the £24m in outstanding loans over to a debt collection agency. We believe the situation may be a little more complex than that, based on insider intel – but that’s the stuff of another story. What’s relevant here is that two of the world’s major peer-to-peer lending markets (and there are four in total) now carry the scars of a high profile blow-up.
Should peer-to-peer platforms in Continental Europe and China – and indeed worldwide – be concerned? Is the global P2P phenomenon now starting to cool off?
The short answer is no. Ezubao operated in a regulatory vacuum. It’s likely no coincidence that the scheme’s demise closely coincides with the publishing of draft peer-to-peer lending rules by the China Banking Regulatory Commission (CBRC). The People’s Bank of China (PBC) published its own set of proposed policy measures and regulatory propositions in July 2015. Both sets of rules will ultimately hold local platforms to a far more stringent set of standards, in terms of codes of conduct, structure, reporting, transparency, licensing, and so on.
The other thing to consider is the origins of China’s peer-to-peer lending space. Many of the platforms are simply online manifestations of the older “shadow banking” system, and by definition exist and operate beyond the scope of formal oversight. Such conditions are favourable to fraudsters, and only now are Chinese policy-makers beginning to catch up.
The peer-to-peer lending industries that have grown up in the UK and US are fundamentally different from the Chinese market. The major Western platforms are characterised by transparency, and they have for the most part been built up in a highly sustainable fashion, entailing years of carefully considered lending. I doubt that the Ezubao meltdown will cause much of an aftershock in the West.
But will it locally? Should Lufax – the P2P giant which recently raised around $1.2bn in a Series B fundraise, with a $5bn IPO on the horizon – be concerned? Not necessarily, but the platform certainly faces a challenge. Lufax must now clarify for prospective investors exactly why the platform (which is valued at around $18.5bn) ought to be held up as one of the leading lights in China’s often murky peer-to-peer lending sector.
The convergence of regulatory intervention (i.e. CBRC and PBC proposals) and major public listings (i.e. Lufax and Yirendai) should serve to whip the Chinese P2P sector into shape. Could the Ezubao fiasco in fact accelerate the maturation process?
