Caixin
Mar 17, 2018 04:54 AM
FINANCE

Central Bank Slaps Record Fine on Minsheng Bank

The People's Bank of China (above) has stepped up scrutiny of online payments and clearing market as part of efforts to rein in internet financial risks. Photo: VCG
The People's Bank of China (above) has stepped up scrutiny of online payments and clearing market as part of efforts to rein in internet financial risks. Photo: VCG

China’s central bank handed out its biggest ever fine to China Minsheng Bank, the country’s largest privately owned bank, for breaches in payment and clearing rules, as regulators stepped up a crackdown on financial market irregularities.

The People’s Bank of China said in a statement published on its website on Friday that it issued a warning and 163 million yuan ($25.8 million) fine to the Xiamen branch of Minsheng Bank. It is the heaviest fine levied by the central bank in the industry.

Ping An Bank, a smaller joint-stock commercial lender, was also fined 13.3 million yuan for violating rules of clearing services, the central bank said in the same statement.

The central bank launched inspections on the two banks’ payment clearing business between July and September 2017. Violations were found in the banks’ operations of clearing and yuan settlement services, as well as business with nonbank payment institutions, according to the statement.

A source close to the central bank told Caixin that the regulator has halted payment clearing services at Mingsheng Bank’s Xiamen branch after a July inspection. The branch was found to have “serious violations,” as it offered certain payment clearing and settlement services without a necessary license, the source said.

Minsheng Bank set up the payment clearing center at the Xiamen branch in 2015, offering online and offline clearance for yuan and foreign currency-based transactions. But in practice, the bank has handled payment clearance and settlement directly for dozens of third-party payment providers, skipping China UnionPay — the official interbank payment clearing and settlement platform, according to the source.

“The center not only served payment companies but some small banks, making itself a quasi-UnionPay platform to handle cross-institution clearance,” said the source.

The center’s clearing process lacked transparency and allowed unauthorized institutions to provide payment services. “It engaged in nearly all possible violations in the payment clearing market,” the source said.

The central bank’s inspection on Ping An Bank found similar misconduct but in a smaller scale, said sources close to the matter.

Minsheng Bank said it has rectified practices according to the central bank’s requirements and closed the clearing center at Xiamen branch. The bank pledged to step up internal scrutiny and management on online payment related businesses.

Financial regulators have tightened oversight in the country’s booming online payment market since last year, as part of a broader campaign to rein in risks of internet-based financial activities.

In late July, a new clearinghouse nexus was set up and designated to clear transactions for the country’s 54 trillion yuan ($8.1 trillion) third-party payment market. Regulators required all banks and third-party payment companies to connect with the platform in order to combine all market players under a standard set of clearing protocols and rules and bring the transactions under the central bank’s oversight.

The central bank said in the Friday statement that it will toughen regulations on the payment and clearing market and punish future violations severely.

Contact reporter Han Wei (weihan@caixin.com)

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