Caixin
Dec 31, 2020 05:17 PM
FINANCE

Securities Watchdog Builds Up List of Fintech Providers as Supervision Tightens

The regulator is concerned about the risks that could arise from the wide application of third-party information technology services in terms of compliance and data security.
The regulator is concerned about the risks that could arise from the wide application of third-party information technology services in terms of compliance and data security.

A unit of fintech giant Ant Group Co. Ltd. is among 52 companies added to a list being compiled by China’s stocks watchdog to comply with the new Securities Law which tightens supervision of information technology widely applied in the country’s securities sector.

Ant Wealth (Shanghai) Financial Information Services Co. Ltd. and the 51 other institutions included in the second batch of additions are classed as information technology (IT) service providers. Their names were published in a list (link in Chinese) released by the China Securities Regulatory Commission (CSRC) on Dec. 24. The new companies bring the total number on the list to 92.

The revised Securities Law, which took effect on March 1, requires firms offering services to the securities industry –– including accountancy, credit ratings and law firms, and IT system service providers –– to file details of their business operations with the CSRC. The watchdog introduced a specific regulation (link in Chinese) effective Aug. 24 requiring institutions developing and operating important information systems for the industry to put on record (备案) details (link in Chinese) including their assets and liabilities, revenue, qualifications in the IT field and an introduction to their main business, products or services.

Shanghai-based Ant Wealth operates a wealth management platform that provides technology services allowing investors to link up with financial institutions to make investments, manage transactions and check information, according to its service agreement (link in Chinese). Ant Wealth sells its services to financial institutions, including securities firms, who pay fees to use its platform and technology with the aim of leveraging the vast consumer database of Alipay, Ant Group’s ubiquitous third-party payment platform, to attract customers and expand their business. Alipay had more than 711 million monthly active users on its platform as of June.

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The securities market relies heavily on IT systems, and the increasing application of technologies such big data, cloud computing and artificial intelligence over the past few years has reduced costs and improved efficiency, a CSRC official said at a news briefing (link in Chinese) on Oct. 23. However, the regulator is concerned about the risks that could arise from the wide application of third-party information technology services in terms of compliance and data security, the official said.

In one high-profile security breach that emerged in April, a number of investors said (link in Chinese) their stock accounts on a third-party stock trading platform owned by Shenzhen-listed Hithink RoyalFlush Information Network Co. Ltd. had been stolen. However, the company denied that there were any issues with its software and service and blamed the breach on a lack of security awareness among investors.

On Aug. 14, the CSRC released a draft regulation (link in Chinese) governing the activities of third-party IT service providers in the securities sector and clarifying the boundaries of cooperation between them and the brokerages they serve. It limits any provider without a financial license to only offering IT services and bars them from getting involved in any securities business activities. In an accompanying statement, the regulator said (link in Chinese) it was worried that the companies could use the technology to illegally carry out securities business and illegally obtain data of investors’ accounts and trading activities.

The filings will also help regulate the securities IT industry and could lead financial institutions to gravitate toward the more professional IT service providers who are in compliance with the regulations, an analyst at state-owned Vanho Securities Co. Ltd. wrote (link in Chinese) in a recent report.

Contact reporter Luo Meihan (meihanluo@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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