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China introduces new regulations to crack down on misdemeanors among P2P lenders

2019-11-29 15:39 Friday

Regulators in China have introduced new rules for peer-to-peer lenders in a bid to tighten the guidelines in the financial and digital credit markets in the country.


The new directives mean that from now on P2P lenders will be required to share all of their borrowers' credit history with state-run credit reference centers.

The move comes as the latest attempt to tighten the regulations in the country in order to mitigate risk, corruption, fraud, and other financial crimes within the internet-based lending platforms.

A notice, posted earlier this month, called for all such lending institutions to report operations data to credit reference agencies controlled by the People's Bank of China, according to the official press release.

China's peer-to-peer firms have been involved in all manner of misdemeanors, including misallocating funds and mass criminal enterprises such as Ezubao – a 50bn yuan fraud where convictions ranged from illegal possession of weapons to undocumented border crossings.

In the first years of the country's P2P surge, local regulators took a hands-off approach. But once fraud erupted and victims became vocal, what was then called the China Banking Regulatory Commission drafted a regulation that gave oversight to local authorities.

The latest statement was released under the headline "Notice Concerning Strengthening P2P Online Lending Sector Credit Systems Establishment." It instructs all peer-to-peer lenders to submit their details to the Credit Reference Centre of the People's Bank of China.

The rule requires lending firms to give out information that includes their online lending rates, to the relevant finance agencies, organizations and data gatherers. In addition, P2P online lenders must disclose relevant information to Baihang Credit.

Baihang is the country's officially recognized and licensed agency for personal credit.

The agencies will gather the details of P2P online lenders regardless of whether they are operational or not. The rules also come with fresh penalties for borrowers who default on their loans. The penalties include, among others: higher rates on future loans as well as limits to accessing insurance services.

In the past few years, China's P2P lending industry has been left reeling from different financial malpractices. A common example includes borrowers who default, which is one of the main reasons regulators have decided to reinforce the institution of the credit system in this way.

With tighter rules in place, it is hoped that lending firms will benefit from protection and eventually reduce unnecessary risks that might come their way. Speaking about the new rule by the bank, Li Aijun, the dean of Internet Finance Law Research Institute at China University of Political Science and Law, said: "This move could reduce the risk of control and operations cost of online lending platforms, and protect the right of Lenders."

According to the announcement, China supports credit reference agencies gaining access to P2P online lending platforms and collecting, maintaining, processing, and distributing credit data to 3rd parties based on the regulations and laws.

Although P2P lenders elsewhere around the globe have been viewed with skepticism because of how they mix small-time investors and higher-risk loans, in China the market was seen as helping to plug a gap left by the nation's bigger lenders.

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