Calls grow for stricter China internet finance rules

Industry executives are calling for stricter regulation of China’s internet finance industry – even those who would be directly affected, such as peer-to-peer lenders, which are increasingly moving into the wealth management business.

The development and regulation of financial technology in general was one of the hot topics at the Boao Forum for Asia yesterday.

Ezubao – set up as a P2P firm, but which emerged as a ponzi scheme and was shut down by police in late January – was a focus of one panel at Boao, with speakers keen to see a clear regulatory framework for this segment. Draft rules for online lending had been announced in late December, but with no proposed timeline as to when they would be finalised.

“First, we need industry players to discipline themselves; second, we need regulations,” said Yang Fan, the head of Iqianjin, a P2P lending platform set up in 2013.

In a report issued for the forum, the BR Internet Finance Research Institute highlighted several flaws of the current regulations, such as the low barrier for setting up new P2P firms, ambiguous rules and ineffective communication by regulators. The report said it expected more strict rules this year due to the industry’s increasing risks and complexities.

In a separate panel, Zhang Shishi, chief executive of Renrendai, a P2P platform founded in 2012, stressed the importance of online lenders using regulated custodians.

But it is illegal fundraising activities – not P2P firms per se – that are the problem, said Xie Ping, former executive vice-president at sovereign wealth fund China Investment Corporation.

A related topic of discussion at Boao were robo-advisers.

In light of the boom in internet financing platforms, some Chinese fund houses are exploring the possibilities of robo-advice for mutual fund investment, note industry players. But this is difficult in China, as the investment industry does not have a broad product range – particularly in respect of overseas funds – to help provide portfolio diversification, say market participants. 

Moreover, Levin Zhu, the former head of China International Capital Corporation (CICC), stressed the importance of humans in investing. Computers are well suited to the practice of portfolio theory, he noted, “but does it mean that your investments could be automated?”

He also argued that financial firms would need human talent to analyse and assess big data, due to the limitations of technology.

There had been rumours that Zhu had planned to start his own internet financing firm after exiting CICC in October 2014, but he denied this.