The central bank is weighing plans to regulate the nation’s booming internet finance sector to head off risks.
The People’s Bank of China said Wednesday in its annual report that the explosion in internet financing raises three risks, the first of which is the lack of clear legal status of the institutions offering the services. The bank said the business scope of the providers is not well defined, opening up a “gray area” for some firms to engage in illegal fundraising.
Second, the online peer-to-peer (P2P) platforms providing the services do not have a system to protect customers’ money, raising specter of embezzlement. A number of P2P websites like Taojindai and Youyiwang have already been shut down at huge loss to investors.
The bank also said that some internet financing companies have adopted controversial and risky trading models to expand their business. But not all have reliable checks on customer identity and verifiable trading records. This could provide fertile ground for illegal activities like money laundering, it said.
Online financing has taken off on the mainland since 2013, when Alibaba launched its Yu’E Bao product money market-style fund. The fund had more than 43 million customers with more than 429 billion yuan (US$70 billion) in investments by the end of last year.
There are now more than 350 active P2P platforms together doing more than 60 billion yuan in transactions. Three small loan companies affiliated with Alibaba had 12.5 billion yuan in loans on their books by the end of last year, and the overall bad debt ratio was 1.12 percent, according to the report.
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