[SHANGHAI] China's banking regulator laid out planned restrictions on thousands of online peer-to-peer (P2P) lenders, pledging to "cleanse the market" as failed platforms and suspected frauds highlight risks within a booming industry.
Online platforms shouldn't take deposits from the public, pool investors' money, or guarantee returns, the China Banking Regulatory Commission (CBRC) said on Monday, publishing a draft rule that will be its first for the industry.
The thrust of the CBRC's approach is that the platforms are intermediaries - matchmakers between borrowers and lenders - that shouldn't themselves raise or lend money. It rules out P2P sites distributing wealth-management products, a tactic that some hoped would diversify their revenue sources.
"The rule is quite strict," Shanghai-based Maizi Financial Services, which operates a P2P site and other investment platforms, said in a statement. "The industry's hope of upgrading itself with wealth management products and adopting a diversified business model is completely dashed."
The banking regulator issued its plan at the same time as the central bank put out a rule to tighten oversight of online-payment firms.
The looming clampdown - the regulator asked for feedback by Jan 27 - comes as the police probe Ezubo, an online site that raised billions of dollars from investors according to Yingcan Group, a company which provides industry data. It also follows a stock boom and bust that was fueled by leverage, including some channeled through online lenders.
China had 2,612 online lending platforms operating normally as of November, while another 1,000 were "problematic," the CBRC said.
Firms such as Tiger Global Management, Standard Chartered Plc. and Sequoia Capital are among those to invest in the industry, which China initially allowed to develop without regulation.
Under the planned rule, P2P platforms will need to register with local financial regulators and cannot help borrowers who want to raise money to invest in the stock market.
"Many online lenders have strayed from the role of information intermediary," the CBRC said in a separate statement, adding that it wanted to protect consumers and "cleanse the market."
In September, the Supreme People's Procuratorate said an explosion in financial crimes included criminals exploiting the anonymity afforded by P2P lending platforms, the official Xinhua News Agency reported.
In the draft rule, online platforms need to publicly disclose information on their borrowers, the projects that money is going into, and associated risks - along with information on the total amount of loans brokered and the proportion outstanding to the largest borrower.
Separately, the central bank is tightening oversight of online-payment firms such as Alibaba Group Holding Ltd's finance affiliate. They numbered as many as 270 in August.
Under a rule to take effect July 1, three categories for online payment accounts will be based on levels of security. Customers with at least five methods of verification or who are verified face-to-face can open the most comprehensive type of account, allowing annual online or mobile payments of as much as 200,000 yuan (S$43,392) per person.