The shock suspension of the Ant Group Co (螞蟻集團) US$35 billion initial public offering (IPO) is just the beginning of a renewed campaign by China to rein in the fintech empire controlled by Jack Ma (馬雲).
Authorities are now setting their sights on Ant’s biggest source of revenue: its credit platforms that funnel loans from banks and other financial institutions to millions of consumers across China, people familiar with the matter said.
The China Banking and Insurance Regulatory Commission (CBIRC) plans to discourage lenders from using Ant’s platforms and has already asked some to ensure their portfolios are compliant with stringent draft regulations announced on Monday, said the people, who asked not to be identified as they were discussing private information.
The proposed measures, which call for platform operators to provide at least 30 percent of the funding for loans, would render many of Ant’s existing transactions non-compliant. The company currently keeps about 2 percent of loans on its own balance sheet, with the rest funded by third parties, or packaged as securities and sold on.
The full scope of China’s plans for Ant is unclear and it is possible that lenders could continue to work with the company once it complies with regulators’ requests.
Any suggestion that banks would stop using its platforms is “unsubstantiated,” Ant said in a response to questions from Bloomberg.
“Ant will continue to support bank partners to make independent credit decisions, and leverage Ant’s technology platforms to serve consumers and small businesses,” it said.
The CBIRC did not immediately respond to a request for comment.
“From the perspective of regulators and investors, they all need Ant to provide a better disclosure on the colending business,” said Chen Shujin (陳姝瑾), Hong Kong-based head of China financial research at Jefferies Financial Group Inc (富瑞金融). “Ant needs to be aligned with regulations going forward and show that its business model can help lower borrowing costs for the economy rather than raising them with some kind of monopoly.”
China halted Ant’s IPO on Tuesday after summoning Ma to a meeting on Monday to outline an array of concerns and new regulations.
The Chinese government is tightening its controls on Ant and other fast-growing financial firms after years of allowing them to operate without the capital and leverage requirements imposed on banks.
Authorities have not yet provided much detail about what prompted the turnabout on the IPO, beyond saying that it could not go ahead because of a “significant change” in the regulatory environment.
The halt came after Ma criticized the nation’s financial system and questioned global regulatory models at a conference last month, calling banks “pawn shops.”
China is still a “youth” and needs more innovation to build an ecosystem for the healthy development of local industry, Ma said.
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