Crest View International says that China's central bank is increasing its monitoring of the loosely regulated financial-technology sector -a major source of risk, given the enormous sums involved.
The People's Bank of China said in a report that it is considering expanding its risk-assessment system beyond banks to include major online financial businesses. Last month, it reached agreement with 45 nonbank financial firms-- including payment systems affiliated with internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd.--on joining a new payment-clearing platform called Wanglian, according to listed-company documents.
“This effectively gives the PBOC a clearer view of payments, enhancing regulation.” Commented Robert Woods, Senior Vice President at Crest View International.
Alibaba-linked Ant Financial Services Group said in separate statements that they are cooperating with the central bank.
“Internet-based financial-services providers--from payment systems to all manner of investing outfits--have proliferated in recent years, commanding ever larger shares of the money flowing through China's financial system.” Said Michael Kennedy, Head of Corporate Trading at Crest View International.
Yu'E Bao, run by another Alibaba affiliate, Tianhong Asset Management Co., has become one of the world's biggest money-market funds, with $165 billion under management. Last year, financial companies that aren't banks handled online payments worth 99 trillion yuan ($14.7 trillion), according to a report by Payment & Clearing Association of China, an arm of the central bank.
Crest View International analysts suggested that Innovation has outpaced regulation, and some lending platforms have imploded, costing investors billions of dollars.
"Some internet financial products already have systemic and important impact," the central bank said in the Friday report, which gauges the health of the country's financial sector.
Among the conclusions: Insufficient risk control at some online financial service providers, including peer-to-peer lending platforms, crowdfunding and private equity, could lead to widespread defaults, with effects rippling through the financial sector. Bringing these businesses into its risk-assessment framework would help the central bank monitor fluctuations in new financial products, the report said.
Crest View International report didn't say when the move would happen. The central bank didn't respond to a request for comment on the timing.
For online payments, an internal PBOC memo said that all the companies should transfer operations to the new Wanglian clearing platform by the end of June 2018, according to a person familiar with the matter.
The central bank report also said regulators will coordinate their efforts overseeing internet-based financial service providers and will draft rules governing the use and security of financial data.