China regulator calls on internet platforms to review their fintech compliance

The China Banking and Insurance Regulatory Commission (CBIRC) has stated that all domestic internet platforms offering fintech services need to internally assess and address any regulatory shortcomings, per Reuters.

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These services include online microlending, insurance, wealth management, and trusts. The CBIRC added that it will soon directly investigate whether these often large firms are correctly licensed and to ensure they are not unfairly advantaged against smaller fintechs.

• Chinese regulators are again cracking down on internet platforms looking to offer fintech services, in a bid to curb monopolistic practices and enhance competition.
• This follows years of fintech regulatory overhaul in the country.
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The CBIRC announcement follows years of fintech regulatory overhaul in the country, which crescendoed with the halting of Ant Group’s IPO last November:

• National regulatory efforts in the fintech space first focused on culling illegal activity to better protect consumers. China banned cryptocurrency trading in 2018 in response to associated fraud and pyramid selling. It has also imposed new commercial bank-like capital requirements on peer-to-peer (P2P) lenders, causing the number of P2P platforms in the country to crater from 6,000 in 2016—40% of which were Ponzi schemes—to just 29 in 2020.
• Ant’s IPO suspension highlights regulators’ increasing focus on promoting competition and a level playing field in China’s fintech space. Regulators postponed Ant’s world record-breaking IPO in November due to undisclosed regulatory changes causing the fintech to be noncompliant. China is also targeting Ant’s parent company Alibaba and fellow tech giant Tencent to crack down on activities that may violate antitrust laws, such as their monopolization of consumer data. Removing such competitive moats should allow smaller fintechs to more easily challenge their market dominance.

Rising fintech adoption amid the pandemic will spur further national regulatory initiatives, improving the competitiveness of China’s already advanced fintech ecosystem. Global fears of infection have pushed financial services online to better reach consumers: Sixty percent of financial regulators globally have seen an increase in digital payments and remittances, for example.

This growing fintech use is likely pushing China’s regulators to investigate and better understand major fintechs’ activities, and the CBIRC’s director has warned that these giants should prepare to face more regulation. New measures that impose licensing requirements and prevent larger players from so easily expanding into all fintech segments, as seen with Ant Group, will help newcomers enter the market and usher in a more competitive national fintech ecosystem, helping China remain a leading fintech hub.

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