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Here Are Some of China’s New Rules on P2P Lending

This picture taken on Dec 17, 2015 shows the logo of peer-to-peer lender Ezubao at their padlocked office in Hangzhou, in China's eastern Zhejiang province. Chinese authorities have arrested 21 people on suspicion of defrauding around 900,000 people of more than 50 billion yuan ($7.6 billion), state media reported, after an online peer-to-peer lender turned out to be a giant Ponzi scheme. Ezubao offered investors annual returns of between nine percent and 14.6 percent on various projects, the official Xinhua news agency reported -- far more than currently offered by Chinese banks' wealth management products.  CHINA OUT     AFP PHOTO / AFP / STR        (Photo credit should read STR/AFP/Getty Images)


The government is trying to clean up the giant $60 billion sector.

China announced new rules on Wednesday to tighten regulation of the country’s $60 billion peer-to-peer lending sector, which has been dogged by scandals and fraud due to loose oversight.

Among the rules, P2P platforms will not be able to take public deposits, nor create asset pools, nor provide any forms of guarantee for lenders, according to a joint document issued by the China Banking Regulatory Commission (CBRC), Ministry of Public Security, Cyberspace Administration of China and the Ministry of Industry and Information Technology.

The document was distributed ahead of a news conference in Beijing.

Under new rules, P2P firms will also not be able to sell wealth management products, nor issue asset-backed securities and firms will have to use third-party banks as custodians for investors’ funds.

The new regulations follow the April passage of a plan by the State Council, China‘s cabinet, to clean up the country’s rapidly growing but loosely regulated online financial sector, which is causing growing financial risks and potential social unrest.

first appeared at Reuters

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