Regulators tell Ant Group to focus on payments, innovation while rectifying other services
China’s top financial regulatory authorities, including the central bank, jointly interviewed Alibaba Group’s fintech offshoot Ant Group on Saturday, in a follow-up to the high-profile antitrust probe into the e-commerce giant that aims for a new starting point for the country’s platform economy.
The regulators pinpointed a raft of major problems faulting the Alipay operator, such as defiance of regulatory and compliance requirements, and urged rectification of its key businesses as part of the nation’s broad efforts to put fintech firms and online platform operators on track for more sustainable innovation.
The banking and insurance regulator, the securities regulator and the foreign exchange regulator also joined the People’s Bank of China (PBC), the country’s central bank, in the interview.
The Communist Party China (CPC) Central Committee attaches high importance to the regulation and healthy development of fintech and financial platforms. A slew of important decisions have been made at recent key gatherings, including the Central Economic Work Conference held from December 16 to 18, with regards to strengthening anti-monopoly policies and preventing the unchecked expansion of capital, according to a statement the central bank released on its official website on Sunday, citing deputy PBC governor Pan Gongsheng as saying.
Financial regulators should sternly crack down on violations of laws and rules, toughen curbs on the unchecked expansion of capital, and safeguard fair competition and financial market order, reads the statement.
New starting point
Ant Group, since its founding in 2014, has played an innovative role in developing fintech, improving the efficiency and inclusiveness of financial services. As an influential company in the arena of fintech and the platform economy, it must consciously abide by national laws and rules, incorporate its growth into national development and earnestly undertake corporate social responsibilities, the central bank said in the statement.
It reiterated that the Saturday interview was intended to urge Ant to implement financial regulatory requirements, hold onto fair competition and protect consumers’ legitimate rights, thereby regulating the operation and development of financial businesses.
The interview, the second in less than two months, was preannounced on Thursday when the country’s top market regulator said it had launched an antitrust probe into Alibaba.
Ant’s actual controller Jack Ma Yun and its management were summoned for regulatory talks in early November right ahead Ant’s planned dual listings in Shanghai and Hong Kong, which soon put the mammoth IPOs to a halt amid regulatory toughening.
The market watchdog in East China’s Zhejiang Province, where Alibaba’s headquarters is located, revealed that an investigation team from the State Administration for Market Regulation arrived on Thursday at Alibaba to open a probe and the on-site investigation was completed on the same day.
Fang Xingdong, founder of Beijing-based technology think tank ChinaLabs, predicted that more working groups would inspect certain circles of Alibaba’s ecosystem on issues related to abusing its market position and “disorderly expansion of capital.”
“Data security and protection, as well as media and public opinion, could be the areas of focus,” Fang told the Global Times on Sunday, noting that such an investigation would be conducive for the group’s long-term development.
“For the platform economy, strengthening anti-monopoly supervision does not bring about a ‘winter’ for the industry, but rather a new starting point for better and healthier development,” the country’s flagship newspaper People’s Daily said Friday in the second of the two widely circulated commentaries on Alibaba’s anti-monopoly case the paper published in two consecutive days.
Financial regulators pointed out an array of major problems confronting Ant’s current operations that include its poor governance mechanisms, weak legal awareness, defiance of regulatory and compliance requirements, and illegal regulatory arbitrage.
Among other issues pinpointed are the firm’s practice of taking advantage of market leadership to exclude peer operators, damage caused to consumers’ legitimate rights and resultant consumer complaints.
Ant to embrace makeover
The regulators called on Ant to rectify its key businesses. Specifically, the operator of Alipay, one of the nation’s two largest digital payment apps, is urged to return to its payment origin, improve trading transparency and prohibit unfair competition practices. The overhaul also requires Ant to be a lawful license holder, operate personal credit services in line with laws and regulations and protect individuals’ data privacy.
Baihang Credit, the nation’s first licensed personal credit agency, was launched in 2018 by the National Internet Finance Association of China and eight other market entities, including the credit rating operations of Ant and Tencent Holdings.
A financial holding firm also needs to be set up to strictly implement regulatory requirements, ensure capital adequacy and the compliance of affiliated trading, according to the PBC statement, adding that Ant ought to improve corporate governance and rework offending financial activities such as loan extensions, insurance and wealth management in accordance with prudent regulatory needs. Ant is also required to launch its securities and fund business in a law-abiding manner.
“Ant needs to fully realize the seriousness and necessity of the rectification and draw up a timetable for the rectification plan and its implementation,” the central bank addressed.
A few hours after the PBC statement, Ant said it will set up a rectification work team under the guidance of the regulators to implement the interview’s requirements and regulate operation and development of financial businesses.
Vowing to hold onto the principle of serving the real economy and the general public, the fintech giant said on Sunday it will improve its corporate governance, comb through relevant businesses and mechanisms, improve legal awareness and increase compliance.
It has immediately embarked on the formulation of a rectification plan and timetable, and will seek regulatory guidance throughout the course, per Ant.
There will be a number of “adjustments and deductions” on Ant’s major business scope on the heels of the talks, some of which were already underway, analysts noted.
“There is one underpinning principle: All of Ant’s businesses must be centered on the theme of serving the real economy. So, some that are alienated from the real economy could be cut,” Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Sunday.
The group must draw clearer lines between its different businesses, according to Dong. For example, those business concerning specific financial services like deposits, insurance, and funds need to gain related licenses.
In addition, the credit lines of its main consumer-focused micro-financing products, Huabei and Jiebei, could be lowered so as to fend off the risks of over-leveraging, Dong said.
“It is likely that the group could cut commission fees and interest rates to the benefits of its consumers,” Dong added.
Ant’s cooperation with certain local banks and financial firms, which could drive up the latter’s cost of securing deposits and poses some compliance issues, could also be suspended to diversify financial risks, observers said, while urging the group to improve transparency and report to supervision departments regularly.
Analysts rebut claims that such a supervision mechanism would rein in China’s booming fintech innovation. Some compared the new rules as a new start – setting up a “fence” that will help the industry’s sound long-term development.
“There is a delay on China’s supervisory mechanisms on fintech and anti-monopoly compared with how the US and European regulators act. The Ant case shows that Chinese regulators are becoming more proactive,” Dong said, “Yet they’re measuring the line very carefully and not taking a ‘one-size-fits-all approach’.”
In the future, the orientation of China’s financial regulation will resolutely break the monopoly, investigate and correct unfair competition practices to maintain fair market competition order, per the Sunday statement.
In addition, Chinese regulators will insist that all financial activities be supervised in accordance with laws and regulations, and all financial activities must be licensed to operate, and there will be “zero tolerance” for all kinds of illegal activities.
The central bank acknowledged in the statement that both fintech and online platforms are new concepts, and they tend to innovate and evolve in a rapid manner, with a lot of new characteristics. It also vowed that it will continue strengthening international regulatory cooperation to promote the sound development of fintech and the financial system.
Photo taken on Oct. 26, 2020 shows Ant Group logo on the buildings of Hangzhou headquarters in Hangzhou, east China’s Zhejiang Province. (VCG)
