Along the years the Chinese regulatory bodies manifested a changing and mutable approach to peer to peer. Ab origine, the initial attitude was to leave this industry unregulated following the principle “first develop, then regulate” in order to avoid market regulations to impede the growth of this sector. The immediate consequence of this regulatory vacuum was the uncontrolled proliferation of online lending platforms without any pre-registration control, in fieri controls and capital rwequirements. This is the reason why this industry was labelled as the “wild west of finance” since the absence of laws combined with the illegal behaviours of operators, accentuated the risk associated to this activity.
The initial attitude left then room for a mild regulatory approach manifested in policy documents about the risks of Fintech and, in particular, peer to peer online lending. The main risks concerned frauds (e.g. Ezubo), money laundering and the legal essence of peer to peer online lending platforms which were increasingly acting as credit intermediaries providing guarantees to investors with a clear financial risk of undermine investors funds and affect Chinese financial stability. A siginidicant step is represented by the issuance of The Guidelines for the sound development of Internet finance by the PBOC and other 9 ministries (includinf CBRC, MoF, MIIT and CIRC) in August 2015.
The approach deducted from this policy document is balanced, prudential, but encouraging. inter alia, the guidelines encouraged the simplification of bureaucratic procedures and fiscal beenfits for the fintechs with the aim of boosting financial inclusion of SMEs and private individual. Nonetheless, considering the risks associated with this sectors, the guidelines endorsed the cooperation between traditional FIs and new fintech operators with the former provide services (e.g settlement services, account custody etc) for the development of the latter. Moreover, it is encouraged the cooperation between insurance companies and fintechs for the provision of accurate risk management services in order to prevent collapses, defaults and liquidity problems.
In the guidelines there is also the definition of the regulatory bodies and their areas of competence: in particular the CBRC is responsible for the online lending. Following the same path, other two measures were implemented: the first one was the “Notice on strengthening risk prevention on campus loans” issued by the CBRC and the Ministry of education in order to prohibit the aggressive advertisement of online lending platforms to college students and to spread a deeper awareness in students when apply for a loan. The second measure was implemented by the Supreme court in September 2015, which is the “Guidance on private lending” which provides for a law-based protection for a lender which lend with an interest rate under 24%, and declare the illegality of an annualized interest rate above 36% thus allowing the borrower to ask back the exceeding part paid.