Privately Offered Fund Managers Accused of Illicitly Engaging in Peer-to-Peer Lending
China’s fund management industry association said it will focus on regulating privately offered fund management firms in the second half of 2019, as it accused some firms of illicitly providing peer-to-peer (P2P) lending services amid a nationwide crackdown on the sector.
Some privately offered fund managers use the capital intended for external investment on themselves or illegally operate P2P lending businesses, according to a Wednesday release (link in Chinese) by the Asset Management Association of China, an industry organization backed by the China Securities Regulatory Commission. Some privately offered fund managers lure clients with high interest rates, only to pool the clients’ funds rather than conducting specific investments as planned, even though they are not allowed to create such “fund pools.”
The overall quality of privately offered fund management firms is “not high,” as quite a few firms have been hiding their illicit businesses such as illegal fundraising, the association said.
Some privately offered fund managers have played a significant role in the country’s recent plague of P2P defaults, according to lists of deregistered firms published by the association earlier this year.
Privately offered fund management firms in China are allowed to accept investment from no more than 200 qualified individual investors, and must raise funds in private, according to official regulations (link in Chinese). Engaging in P2P lending would easily break both of these rules.
At the end of June, asset management companies registered with the association were managing a total of 50.2 trillion yuan ($7.1 trillion), of which 13.31 trillion yuan was managed by privately offered fund management firms, the association’s data (link in Chinese) showed.
P2P lending, which used to be a boon for individuals and businesses in urgent need of money, has come under intensified government scrutiny in recent years amid a spate of fraud cases, which were in part due to slack supervision.
Shanghai Kuailu Investment Group Co. Ltd., along with its affiliates, illegally raised more than 43.4 billion yuan from the public through its once-high profile P2P lending platform, causing nearly 40,000 people to take financial losses of more than 15.2 billion yuan, the Shanghai High People’s Court said in early July.
In July, regulators overseeing the country’s internet finance sector said at a meeting that they would allow a small number of qualified P2P lending firms to apply for consumer finance or online microlending licenses. However, until now, no P2P lender has gained approval to transform itself into a consumer finance or online microlending company.
Contact reporter Liu Jiefei (firstname.lastname@example.org)
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