What’s new: China is tightening its grip on local financial institutions that offer services without a proper license, a move that could significantly reduce the number of such firms, currently estimated at more than 30,000, people familiar with the matter told Caixin.
The National Financial Regulatory Administration, the China Securities Regulatory Commission, and the State Administration for Market Regulation have jointly issued a notice instructing local authorities to strengthen scrutiny of local financial organizations, eliminate those entities that do not comply with the rules and strictly control the approval of new ones, Caixin has learned.
The regulators also urged localities to restrict cross-region operations of such organizations, regulate their leverage and financing sources and effectively strengthen consumer protection.
In response, authorities in some provinces and cities have already stopped the approval of new establishments and equity changes for such organizations, according to several local financial regulatory officials.
Why it matters: There are 11 types of institutions regulated by local authorities that engage in quasi-financial activities without holding a financial license. These include microloan companies, financing guarantee firms, regional equity markets, pawnshops, financial leasing companies, commercial factoring companies, local asset management firms, investment companies, rural credit cooperatives, social crowdfunding platforms and various local trading venues.
Currently, the number of such organizations exceeds 30,000, with microloan companies, financing guarantee companies, pawnshops, financial leasing companies and commercial factoring companies accounting for the largest share.
The notice mandates that the number and types of these organizations must decrease, with no new additions. It also calls for the expedited removal of non-compliant institutions, aiming for their complete exit within three years.
“With the implementation of the notice, the most immediate effect will be a significant reduction in the number of local financial organizations,” said one local financial regulatory official.
Contact reporter Han Wei (weihan@caixin.com)
