China’s FinTechs Will Be Subject To New Capital Requirements

Chinese regulators continue to tighten rules for financial technology companies. On Tuesday (March 3), a top official said that FinTechs will be required to meet new capital requirements by the middle of next year, Reuters reported.

“As long as internet platforms conduct financial operations, the requirement of capital adequacy ratio on them should be the same as financial institutions,” said Guo Shuqing, head of the China Banking and Insurance Regulatory Commission. “Starting a business needs capital, so does starting a financial business,” he added at a news conference.

Shuqing said that micro-lenders, consumer finance firms and banks operated by internet platforms should all have adequate capital, just like other financial institutions (FIs).

This year, Chinese regulators have moved away from their former laissez-faire approach, Reuters noted. Instead, they are formulating and implementing new rules for FinTechs that have been taking on the functions of operating like a bank — such as making loans. In a notice last month, the banking commission said commercial banks now have to jointly contribute funds to issue online loans with a partner.

One casualty of regulators’ actions was the much-ballyhooed $37 billion initial public offering (IPO) planned by Ant Group for late last year. It was called off by regulators in the eleventh hour.

A central issue for regulators has been ensuring that FinTechs and FIs keep money on hand in case borrowers default on loans; another issue has been a concern over monopolistic behavior. Last month, China’s State Administration for Market Regulation (SAMR) published new guidelines to strengthen anti-monopoly restrictions on Big Tech platforms.

Reuters reported that the new guidelines build on a draft law published in November, clarifying the “monopolistic practices” that the market regulation agency plans to target. The guidelines aim to prevent companies from price-fixing, manipulating the market using algorithms and restricting technologies. It added that the guidelines would “stop monopolistic behaviors in the platform economy and protect fair competition in the market.”