FinTech: China Tightens Antitrust Regulatory Screws On Fintechs

January 22, 2021 | FinTech, Latest News, News, Regulations

Rules published Wednesday may give the regulators more teeth, if approved.

The People’s Bank of China published a draft set of rules on Wednesday for anti-trust regulation of the non-bank payment providers in the fintech sector. The draft is in the public opinion domain until February 19. (NIKKEI Asia) The rules, if approved, could damage the valuations of fintechs such as the Ant Group.

Prevention of systemic financial risks and monopolies

The central bank said in a statement that the rules sought to strengthen financial regulation.

They were also intended to prevent systemic financial risks.

It said they would serve to “strengthen anti-monopoly measures in the payments field, clearly define the scope of the market and the standards for determining market dominance, and maintain fair competition and market order.”

The draft rules ratchet up the regulatory heat on China’s massively sized fintechs and tech giants such as the Ant Group’s Alipay and WeChat Pay.

PBOC Deputy Gov Pan Gongsheng said on December 27 that the regulators would break up monopolies and ensure fair competition in the fintech industry. Earlier, the State Administration for Market Regulation launched an investigation into the Alibaba Group (NYSE: BABA) for monopolistic practices in its eCommerce operations.

Payment companies such as  Ant Group – what is a monopoly?

The draft rules specify what constitutes a monopoly:

  • Any nonbank payment provider with a market share of 50% in electronic payments, including online and mobile banking payments;
  • institutions that hold a combined two-thirds of market share; or
  • institutions that account for 75% of the market.

Other stipulations cover compliance with money laundering and terrorism financing regulations.

Actions for contravention

According to David Yin, vice president at Moody’s Financial Institution Group, the proposed rules empower the authorities to take various actions against entities that violate the anti-monopoly provisions of law.

The whiplash from the government could include:

  • A “regulatory” interview
  • An investigation by the State Council’s antitrust enforcement agency
  • In the case of a “monopolistic” finding, corrective actions such as suspension or break-up of the entity

Impact on the Ant Group

According to a Bloomberg article cited by The Indian Express, the new proposals could adversely impact the valuation of the Ant Group.

Bloomberg Intelligence said the value of Alipay, the payment unit of the Ant Group, could be halved. In that event, the valuation of Ant could plunge below 700 billion yuan (about $108 billion).

That’s about a third of the massive $320 billion valuation of Ant around the time of its ill-fated IPO.

Crackdown not aimed at specific firms

Reuters reported that Liang Tao, vice chairman of the China Banking and Insurance Regulatory Commission, said at a briefing in Shanghai today that the new antitrust rules were not aimed at a specific company.

“Antitrust measures are not targeting private enterprises, nor targeting one particular firm,” he said.

He added that the rules were well received by some in the industry.

Related Story: Of Jack Ma’s Foot-in-Mouth, Irate Chinese Regulators, And A Non-Starter $37B IPO

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