Rumors on possible regulations for the rapidly growing Chinese peer-to-peer lending sector have been periodically arising, drawing the attention of the entire industry. But until now, they remained unconfirmed news with no evidence of any serious intention. However at the end of 2015, the China Banking Regulatory Commission (CBRC), published a set of proposed rules asking the public to provide comments.
The P2P lending sector in China is reported to be the biggest in the world, with more than 2000 players. However, frauds and bankruptcies cases are not rare and transparency levels in the market are among the lowest. This makes the sector extremely fragile and vulnerable especially in a much volatile period for Chinese stocks markets.
CBRC released a draft of rules for the P2P lending sector at the end of December 2015. Among the proposed guidelines emerge a few that aim at increasing the level of transparency of peer-to-peer lending businesses. Along this line, platforms will be required to file a record with local financial authorities, after they obtain business license, and should regularly publish information on their websites on lending turnover, overdue loans and bad loan ratios.
Some other rules, instead, try to prevent online portals to take excessive risks, for instance by stating that the amount of credit that can be lended to a single borrower should be limited, although it is not specified to how much. They also ban portals from selling wealth management products, insurance, funds or trust products through their websites.
These drafted rules for P2P lending represent the first serious attempt from local authorities to regulate the market, which, so far, has benefited from a legal gray area that was letting the players operate as they preferred, with no mandatory investor protection measures in place. However, as some experts observed, the proposed rules are very vague, leaving many possibilities for free interpretation. This aspect, together with a 18-months transitional period outlined in the draft, makes some believe that the rules, if approved, will likely not have any concrete impact soon, leaving the sector consolidation up to the market.
We’ll wait for the public comment period to be over to see the results of it and understand if the players will be in favor of the proposed approach or will suggest major changes. Given the level of failures and frauds, an increased level of transparency in this fast-growing market would be much beneficial.
References
J.D. Alois (2015).China Releases Draft Peer-to-Peer lending rules. Asks for Comment. Crowdfundinsider
Grace Zhu (2015).China Lays Out Rules for Peer-to-Peer Lending Platforms. WSJ.com
Photo credit to: Manuel Joseph.
CBRC released a draft of rules for the P2P lending sector at the end of December 2015. Among the proposed guidelines emerge a few that aim at increasing the level of transparency of peer-to-peer lending businesses. Along this line, platforms will be required to file a record with local financial authorities, after they obtain business license, and should regularly publish information on their websites on lending turnover, overdue loans and bad loan ratios.
Some other rules, instead, try to prevent online portals to take excessive risks, for instance by stating that the amount of credit that can be lended to a single borrower should be limited, although it is not specified to how much. They also ban portals from selling wealth management products, insurance, funds or trust products through their websites.
These drafted rules for P2P lending represent the first serious attempt from local authorities to regulate the market, which, so far, has benefited from a legal gray area that was letting the players operate as they preferred, with no mandatory investor protection measures in place. However, as some experts observed, the proposed rules are very vague, leaving many possibilities for free interpretation. This aspect, together with a 18-months transitional period outlined in the draft, makes some believe that the rules, if approved, will likely not have any concrete impact soon, leaving the sector consolidation up to the market.
We’ll wait for the public comment period to be over to see the results of it and understand if the players will be in favor of the proposed approach or will suggest major changes. Given the level of failures and frauds, an increased level of transparency in this fast-growing market would be much beneficial.
References
J.D. Alois (2015).China Releases Draft Peer-to-Peer lending rules. Asks for Comment. Crowdfundinsider
Grace Zhu (2015).China Lays Out Rules for Peer-to-Peer Lending Platforms. WSJ.com
Photo credit to: Manuel Joseph.
 | About the author - Irene Tordera Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives. During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem and she works also for the European Crowdfunding Network. |
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