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China tightens rules for troubled P2P lending sector


08-25-2016 00:42 BJT

China released new rules on Wednesday to tighten regulations covering the country's scandal-tainted peer-to-peer lending sector. Government officials say reducing risks and illegal activities in the US$60 billion sector has become a key priority for regulators.

The China Banking Regulatory Commission and three other state agencies jointly issued the rules governing the P2P sector, which has been dogged by scandals and fraud.

The CBRC said some P2P firms were running Ponzi schemes and raising funds illegally and that it would bar firms from 13 "forbidden" activities. The new rules have given P2Ps a clear position in China's financing system.

"Online financing, basically, is a kind of information intermediary. It should play a role of matching information between lenders and borrowers, and help them to evaluate the information. Or we can simply say that it is online private financing," said Li Junfeng, director, Inclusive Finance Department, CBRC.

Under the new rules, P2P companies will no longer be able to sell wealth management products or issue asset-backed securities.

They also must use third-party banks as custodians of investor funds. In addition, the platforms can't guarantee investment returns or principals and must meet higher disclosure requirements.

"Next,  we will supervise P2P firms by products registration and information disclosure. Moreover, we will also collect information from third parties to detect any violations," Li said.

The sector that matches small business and individual borrowers with retail investors has seen rapid growth in the past two years. CSRC data shows that the sector had raised more than 400 billion yuan(about US$60 billion) by last November.

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