China’s new P2P lending regulations put in place a negative list

The China Banking Regulatory Commission (CBRC) together with three Chinese ministries on Wednesday jointly published the “interim procedures on peer-to-peer (P2P) lending platforms”, setting caps on the amount of individual loans.

The procedures reiterate P2P platforms’ status as an information intermediary, rather than as a credit intermediary between individual lenders and borrowers. They regulate P2P businesses from three aspects:

1. A negative list included, prohibiting 13 kinds of activities by P2P platforms, such as founding capital pools, absorbing public savings, and selling financial products.

2. Platforms need to manage the money of clients and that of platforms separately, and to deposit clients’ money with a third-party financial institution within the banking system.

3. The procedures cap the amount of individual loans. An individual can borrow no more than RMB 200,000 (USD 30,072) on one P2P platform and a maximum of RMB one million in total on multiple platforms.

According to the CBRC, as of June, China has 2,349 P2P platforms under regular operation, with outstanding loans at RMB 621.26 billion in total. These two figures represent a YoY increase of 49.1% and 499.7% respectively.

The CBRC also pointed out that in addition to the 2,349 platforms, there are 1778 with problems, which accounts for 43.1% of all platforms.

China’s P2P business was not strictly regulated when the industry first appeared. Bloomberg reported in February this year that Ezubao, once one of China’s largest P2P platforms, was found to be a Ponzi scheme. Over 900,000 victims lost a total USD 7.6 billion.

As a consequence, China’s listed P2P platform CreditEase (NYSE: YRD) stock slumped, ending the day 22.01% lower.

(Top photo from Baidu Images)

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