China Clamps Down on Online Asset Management Businesses
China is intensifying its battle against financial risks brewed by the rapidly growing internet finance and asset management sector, imposing a ban on unlicensed online businesses.
China’s top internet finance watchdog banned unlicensed companies from issuing and selling asset management products on the internet. All online asset management companies without a proper license should clean up their existing businesses by the end of June, said the circular by the Leading Group of Internet Financial Risks Remediation.
The sale of online asset management products without a license could be deemed as illegal fundraising, illegal acceptance of deposits or illegal issuance of securities, the document stated.
For years, Chinese investors, mainly small retail customers, have poured trillions of yuan into lightly regulated asset management products offered by banks, insurers, brokerages and other institutions.
Many of such products have been sold through small online lending platforms and wealth management sites, which offer high yields to lure investors. The funds are then used to invest in stocks, bonds, debts and other riskier assets. The stock market turmoil in 2015 and spreading fear of bond defaults have exposed the sectors’ risks.
Regulators have stepped up oversight of the online asset management business as a key part of the campaign against financial risks that began in 2016. Last July, the Internet Financial Risks Remediation Group issued a notice asking online platforms to conduct checks on their irregular business practices with various financial exchanges. Since then, the financial arms of JD.com, Tencent and Ping An Insurance have pulled all exchange-traded asset management products from their platforms.
But Caixin has learned that some online platforms have been trying to circumvent the regulations by spinning off their asset management business to a separate platform to continue selling asset management products.
The latest notice stated that such spinoff platforms are considered part of their parent online lenders and should also clean up their existing businesses.
The move came as the market waits for the release of highly-anticipated rules drafted by top financial regulators for the asset management industry. The rules will develop a tough and unified regulatory framework for the industry.
The new rules, approved at a meeting of top policymakers last week, haven’t been published in detail. The rules are expected to close loopholes that allow regulatory arbitrage, cutting excessive leverage and curtailing shadow banking in a market that was worth 102 trillion yuan ($15 trillion) at the end of 2016.
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