Next Step to Regulating P2P Lending Platforms — Figuring Out Who Owns Them

Months into the crisis in China’s online lending industry, regulators want to know who actually owns the country’s peer-to-peer (P2P) lending platforms.

The National Internet Finance Association of China (NIFA) issued a notice on Monday designed to help it keep tabs on key stakeholders in China’s online P2P lending platforms as financial and legal difficulties continue to engulf the business.

The effort to bring greater clarity to the workings of P2P platforms comes after hundreds of online platforms have encountered financial and legal troubles in the last few months. In July, at least 165 P2P platforms had difficulties meeting cash-withdrawal demands, saw their owners abscond with investor funds, or were investigated by police, according to a report by internet lending research firm Wangdaizhijia. The number was nearly triple that in June, Wangdaizhijia said.

The NIFA’s notice stated that P2P platforms will have to publicly disclose within 48 hours any changes in ownership that gives them a new de facto controller or if any shareholder takes a stake of 5% or more. The disclosure must be displayed prominently on the platform’s website and mobile app and must be submitted for placement on the NIFA’s own platform.

The notice also stipulated that when such changes in ownership occur, the platform must provide the NIFA with the shareholders’ relevant financial details and sources of funding, and also provide an analysis of the changes’ potential effect to the company’s shares, together with an outline of the platform’s efforts to ensure compliance with regulations.

Several high-profile scandals have come about because of the lack of clarity in P2P ownership structures. Investors lost money when Beijing-based iqianbang.com closed down last month after account discrepancies emerged in its financial data and caused panic, with problems compounded by the company’s former chairman owning 79% of shares in the platform through a complicated network of companies.

The NIFA was founded in December 2015 with the support from China’s central bank and financial regulators. Its members include banks, securities brokerages, insurers, fund houses and online-payment service providers.

Slowing economic growth and a cash squeeze exacerbated by the government’s crackdown on off-balance-sheet banking causes panic among P2P investors. Some reportedly took to the streets last week to protest in Beijing’s financial district, where the country’s financial regulators are based.

In one of the biggest scandals to hit the industry, Shanghai-based Zillion Holdings was found to have illegally raised more than 38 billion yuan ($5.5 billion) through P2P platforms and other outlets since December 2012. The man behind the company, Wu Zaipin, has since disappeared.

Authorities are also attempting to crack down on borrowers who deliberately default on their payments in the hope that the platform will collapse. Earlier this month the central government’s Office of the Leading Group for the Special Campaign Against Internet Financial Risks ordered local authorities, which are responsible for supervising P2P lenders registered in their areas, to compile and submit lists of borrowers who have defaulted on loan repayments since the beginning of July.

Contact reporter Ke Dawei (daweike@caixin.com)