China tightens noose on P2P lenders

PEER-TO-PEER (P2P) lending sites are getting a fresh round of scrutiny as Chinese authorities are keen on protecting citizens’ interests.

The Internet Lending Financial Risk Management Working Leadership Group, along with the China Banking and Insurance Regulatory Commission, have jointly released a document, detailing a checklist of 108 queries that P2P lenders will be subjected to.

Regulators are hoping the checklist will force some firms to exit the business, given the rising risk posed by a high number of failed P2Ps.

According to Bloomberg, who has obtained the original documents, the checks will include self-review by P2P firms and inspections by local financial regulators. The document also stated that all checks must be completed by the end of this year

P2P platforms have been increasingly under pressure over the past couple years as Chinese regulators continue to clamp down on financial risks.

However, P2P firms have been feeling more of the pinch in the past few months since the banking regulator issued an unusual warning, advising savers to be prepared to lose all their money invested in high yield products.

In China, P2P platforms facilitate loans from individual investors and borrowers willing to pay high interest rates. According to the latest figures by online lending consultants WDZJ, there are about 30 million registered users as of 2017. Bloomberg reported figures close to 50 million.

To date, WDZJ reported that there are over 300 failed P2P lenders this year, bringing the total number of failed lenders to well over 4000. This includes platforms that have ceased or bailed operations, as well as problem platforms that are under investigation.

Thousands of investors have lost their money due to poor management (and fraud) of these failed operators.

With the checks, P2Ps will have to fulfill certain criteria, including: whether platforms raised money from investors for their own use; or investing for other projects or lending to borrowers; offered implicit guarantees on product principal and return; provided illegal loans to controlling shareholders or affiliates; and if they distributed products by other financial institutions.

Firms that comply with the requirements can then connect to a national product and information registration system, which will allow businesses to have better credit checks on borrowers.

All of them will be subjected to a trial run before being permitted to apply for official business registration.

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