Eyes are always set at the prize company in China for digital financial services Ant Financial Group, affiliate of Alibaba and leader of the market in China through its Alipay platform and linked investment platform. In 2016 Ant Financial Group has retained the interest of observers privately raising a record breaking 4.5 billion USD in April and following up with a series of acquisitions and expansion to different jurisdictions, latest being its bid on Thailand’s Ascend Money reported this week.
Once a part of Alibaba, Ant Financial was spin off before the highly anticipated US listed IPO of Alibaba in 2014, under claims of restrictions of foreign investment pursuant to Chinese law and concerns over regulatory compliance in China for digital financial services. Two years after, the regulatory landscape continues to quickly change and the wall preventing participation of foreign companies and service providers continues to crumble.
Chinese regulation on financial services is scattered over different regulatory bodies, overriding general regulations, pilot programs with a series of exceptions, specific regulations if any product being traded has a foreign exchange element and further specific regulations or guidelines for types of companies providing financial services eligible to have foreign shareholders. It is not a simple effort to understand the opportunities at hand, but the pace of change and regulatory development has been remarkable.
On fintech and digital platforms for financial services, it is still certainly a largely unregulated subject, making it also harder for the entry of new players, especially foreign companies or partially foreign owned Chinese companies.
Until recently the matter was largely regulated by the general applicable rules allied with the insufficient PBOC’s Administrative Measures for Payment Services by Non-Financial Institutions of 2010 and the Measures and Guidelines of China Banking Regulatory Commission of 2006 on electronic banking. Entities regulated by China Securities Regulatory Commission to provide asset management, fund management and other financial services clearly lacked a reliable regulatory framework to operate through similar internet platforms.
On 18 July, 2015, several central government ministries and commissions jointly issued the Guideline on the Promotion of the Health Development of Internet Finance. The intention of these guidelines was to assert the governmental promotion and incentive of digital financial services and innovative platforms, while also establishing regulatory competences between different commissions. The competence was separated as follows:
- People’s Bank of China – internet paying services;
- CBRC – online lending services;
- CSRC – investment fund management, equity crowd funding;
- As well as special mentions to the Ministry of Industry and Information Technology, the telecommunications departments for website registrations and the State Council Internet Information Office.
China is moving very quickly to regulate all matters of financial services, at an impressive pace over the last decade. Similarly with digital financial services, the expectation now should be that each competent regulatory body will continue to clarify and issue more regulations and guidelines on the relevant subjects.
There are more and more opportunities of entry in the Chinese market of financial services, digital or otherwise, for well informed and prepared foreign players and we are under a quick development that increasingly allows for full compliance of foreign invested companies with local regulatory commissions.
Opportunities are abound both for direct service providers targeting the Chinese market, as well as technology providers that may find in China a very welcoming destination (shockingly so) for technology innovation in financial services. For the latter, careful consideration of the obligations of their eventual Chinese clients towards China Securities Regulatory Commission and China Banking Regulatory Commission should be paramount to provide technology solutions that fits the market and allows for both international standards of digital financial services as well as local compliance.
Even the most discussed company in the digital financial services in China seems to be taking a close look at these developments, after being subject to a spin off from Alibaba in 2014 with claims of regulatory concerns, an international IPO of its own for Ant Financial Group seems to be coming sooner rather than later.