China Orders 13 Tech Companies to Overhaul Fintech Operations

China’s financial regulators summoned 13 tech companies Thursday including Tencent Holdings Ltd. and ByteDance Ltd., imposing a raft of requirements on their financial businesses in an expanded effort to rein in the fast-growing fintech sector.

Earlier this month, financial regulators met with Jack Ma’s Ant Group Co., outlining a rectification plan consisting of similar requirements for the company to follow, including correcting unfair competition practices in its payment business, breaking down the information monopoly and applying to become a financial holding company.

The latest meeting with more internet companies signals that regulators are expanding the campaign to rein in tech titans’ aggressive foray into the financial sector. The government has grown increasingly concerned over the companies’ expanding influence over every aspect of Chinese life as well as the vast amounts of data they’ve amassed through providing services like online shopping, chatting and ride-hailing.

“China’s fintech industry participants will have to adjust to tighter regulations that will have a broader and stronger oversight, leading to a period of moderating fintech growth and investment in the sector,” Yan Li, an analyst with Moody’s Investors Service, said in a report. The new regulations and rules will bring risks for fintech companies “as the tightened regulatory environment would require significant changes to the business models of their financial services businesses.”

China has rolled out a stream of regulations and rules targeting the tech sector, including measures to curb market concentration in online payments and prevent big tech companies from abusing their market dominance.

Companies called to the meeting Thursday also included the financial units of Baidu Inc., JD.com, Meituan, Didi Chuxing, Sina Corp., Suning.com and Lufax Holding Ltd., according to a statement (link in Chinese) published by the People’s Bank of China.

Pan Gongsheng, a deputy governor of the central bank, chaired the meeting, with representatives from the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange.

Regulators issued a list of requirements regarding big internet companies’ financial service operations, including stricter scrutiny of shareholders and transactions with connected parties, stricter compliance when listing abroad and curbs on information monopolies and the gathering of personal data.

Companies must obtain licenses to launch financial services, sever “improper links” between their payment services and other financial products, comply with rules when making investment in financial institutions and restructure their financial assets into holding companies to bring the businesses under proper supervision, the regulators said.

The meeting followed a series of regulatory measures targeting Ant, which scrapped a planned record initial public offering amid a tightening regulatory environment.

The rectification order will dramatically revamp Ant’s business and put it under similar supervision as a bank. The overhaul means Ant will have to cut off any improper linking of payments with other financial products including its Jiebei and Huabei lending services, blowing up a model in which the company used the digital payment function as a port of entry to attract users into more lucrative areas such as consumer lending.

Luo Meihan and Bloomberg contributed to this story.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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