Exclusive: P2P Registration System May Roll Out in Second Half

China is expected to start a long-expected pilot program for registration of the country’s remaining peer-to-peer (P2P) online lending platforms in a national monitoring system during the second half of this year, knowledgeable individuals told Caixin.

Two central government watchdogs — the Office of the Special Rectification Work Leadership Team for Internet Financial Risks along with the P2P Internet Lending Risk Specialist Rectification Team — met last week with regional financial regulators, soliciting opinions on the monitoring and registration of P2P platforms.

The regulators aim to start registration in pilot cities in more developed areas in the second half and complete the national registration system by 2020, a person attending the meeting told Caixin.

China’s P2P industry became the focus of a crackdown on internet financial risks that started in 2016 as lax supervision and fraud exposed a string of scandals and led to the collapse of hundreds of platforms. P2P online lending platforms bypass the traditional credit system by matching up individual borrowers and lenders. The industry peaked in late 2015 with more than 3,300 platforms in operation, according to the P2P research firm Wangdaizhijia.

As a result of the crackdown, more than two-thirds of the P2P platforms shut down. As of March, the remaining 1,021 P2P platforms had a total outstanding balance of 764.6 billion yuan ($113.8 billion), down 3.09% from the previous month, data from Wangdaizhijia shows. Provinces outside Guangdong, Beijing, Shanghai, Zhejiang and Shandong now each have fewer than 30 platforms, while some western provinces each have no more than 10, according to Wangdaizhijia.

Some regional officials complained that the proposed registration timetable might be too tight, according to the person who attended the meeting with regulators. P2P platforms will have to meet certain requirements to be registered in the system, the person said.

Different requirements on registered capital, risk reserves and lenders’ risk compensation will be applied to regional and national platforms, the person said. Regulators have proposed requiring that national platforms have paid-in registered capital of at least 500 million yuan ($74.5 million) and regional platforms at least 50 million yuan, several industry participants told Caixin.

The registered capital must be shareholders’ own money and can’t be entrusted or leveraged funds, these people said.

Provincial financial regulators will be responsible for the registration and supervision of regional P2P platforms in the provinces. Operations, lenders and borrowers of such regional platforms will be limited to the same provinces where they are registered.

Registration of national platforms with borrowers and lenders located in more than one province will be subject to approval by the central financial regulator before they can be registered with and supervised by provincial regulators.

Analysts said the registration system could mean a further restructuring of the country’s surviving P2P industry.

Currently most big players in the P2P lending sector are in cities such as Beijing, Shanghai, Guangzhou and Shenzhen with strong funding, while platforms in the central and western regions are mostly smaller, said Chen Wen, deputy secretary-general of China Research Base for Industrial Finance at the Chinese Academy of Social Sciences, a government-backed think tank.

Restrictions on regional platforms will force the operations of smaller players to further shrink, and some smaller platforms might collaborate or jointly form chains of platforms under a single group, Chen said.

An industry participant told Caixin that the funding and lending restrictions on regional platforms aim to prevent a spillover of financial risks and to facilitate supervision by local regulators.

But some said it could be a challenge to identify whether a lender or borrower is located in a certain province.

“Should lenders and borrowers be identified based on their ID cards, cell phone numbers, bank accounts or residences?” Chen said. “These technical issues still need to be addressed.”

Contact editor Han Wei (weihan@caixin.com)