Online finance firms face scrutiny

Ambitions of mainland e-commerce companies lead to calls for more regulatory oversight

PUBLISHED : Thursday, 13 February, 2014, 1:24am
UPDATED : Thursday, 13 February, 2014, 1:24am

Mainland e-commerce firms' rising ambitions in wealth management and lending have sparked risk concerns, with analysts calling for joint efforts by the financial authorities to strengthen regulation.

Zhao Xijun, a finance professor at Renmin University in Beijing, said the major concern was the fluctuation in returns offered by the investment products, which are launched by e-commerce companies that team up with financial institutions such as fund-management firms and insurers.

"The returns will depend on the investment performance of those financial institutions, and can fall short of investors' expectations," he said.

The mainland's leading internet company, Tencent, which runs popular mobile chat application WeChat, last month launched a new asset management platform, Licaitong, operated by its third-party payment unit Tenpay. By using the Licaitong platform, WeChat users can put money directly in a fund managed by four fund management companies that Tencent is co-operating with. The seven-day annualised yield was set at more than 7 per cent when Licaitong was launched,

Similar products hit the market in June when another e-commerce giant, Alibaba, launched Yu E Bao, which is managed by its online-payment affiliate Alipay in co-operation with Tianhong Asset Management. The fund's seven-day annualised return on Tuesday was 6.263 per cent, according to Alipay's website.

Zhao said internet-based financing was complicated because e-commerce firms could co-operate with different financial institutions which were regulated by different authorities.

"When those e-commerce companies are working with fund-management firms, the securities regulator should supervise," he said. "It would be the insurance regulator's issue if they worked with insurers. Unified regulation will be difficult, and it needs joint efforts by the four financial regulators to cope with the risk-management problem."

With lending and payment businesses being the two other pillars of internet-based financing, Zhao said efforts by the banking regulator would be needed to manage liquidity risk.

Unlike banks, which had set capital requirements, the rules governing the internet-based financing sector were not mature and that would pose higher liquidity risks, he added.

The Wall Street Journal reported on Tuesday that the People's Bank of China, working with the mainland's banking, securities and insurance regulators, was planning measures to protect consumer information and ensure adequate disclosure about investment products.

Officials were also responding to collapses among a separate group of small internet-based lending firms, the report said.

Chen Xingyu, a Shanghai-based analyst with Philip Securities, said collaboration among financial regulators was particularly needed on information disclosure.

"For some investors, they may not know what exactly they are buying via those online platforms," he said.