China announced new rules on Wednesday to tighten regulation of the country’s US$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, create asset pools or provide any form of guarantee to lenders, according to a joint document issued by the China Banking Regulatory Commission, 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 the new rules, P2P firms will also not be able to sell wealth management products or issue asset-backed securities. P2P companies will also 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. It is blamed for causing growing financial risks and potential social unrest.