Ant’s consumer finance unit approved, but regulatory scrutiny remains
Published: Jun 03, 2021 09:24 PM
Photo taken on Oct. 15, 2020 shows the headquarters of Ant Group in east China's Hangzhou city.Photo:Xinhua

Photo taken on Oct. 15, 2020 shows the headquarters of Ant Group in east China's Hangzhou city.Photo:Xinhua

Chongqing Ant Consumer Finance Co, a subsidiary of Ant Group, was approved by the local banking and insurance regulator in Southwest China's Chongqing Municipality on Thursday to open. The new fintech company will operate small loan companies' consumer credit businesses.

The move marks a major gain for the embattled firm that has come under strict scrutiny; however, Ant Group's regulatory troubles are far from over, analysts warned.

The move will be positive for Ant Group, which is overhauling its problematic financial business after regulatory discussions, to carry out rectification requirements for its consumer credit business, according to a statement on the website of the Chongqing banking and insurance bureau on Thursday.

Putting all relevant fintech businesses under comprehensive supervision also marks an important step in carrying out the central government's top agenda on strengthening financial supervision and preventing financial risks, the statement said.

Analysts said that the approval shows Ant has obtained a license to operate its financial business, which will make it subject to stricter supervision. 

But it also sends a signal that China is not adopting a one-size-fits-all approach to the fintech industry - rather, the government will allow and encourage technological innovation in the financial sector, on the basis of ensuring security and stability first. 

Industry insiders said that despite the approval, it is far too early for Ant to talk about its IPO, as the company has not completed the rectification ordered by regulators. 

"The rectification involves a wide range of areas and will take a long time, from one to five years. Even when the rectification is completed, the re-listing process will not be short," a marketing director of a fintech firm told the Global Times on Thursday on condition of anonymity. "The newly approved consumer finance company has only solved the problem of an excessive leverage ratio and legitimate lenders."

The registered capital of the new company is 8 billion yuan ($1.25 billion), and Ant Group's contribution accounts for 50 percent. Other shareholders include Nanyang Commercial Bank, Cathay United Bank and Chinese battery maker CATL. 

Preparations for the new company began on September 14, 2020 upon the approval from banking and insurance regulators. The approval was issued on Thursday after investigation in accordance with the law, which found it met the requirements, according to media reports. 

The new subsidiary, as a licensed financial institution, shall accept supervision according to the law and strictly abide by relevant regulations, an official of China's national banking and insurance regulator said.

According to the official, Ant Group shall complete rectification work on Huabei and Jiebei, its two major consumer loan products, within six months after the opening of Ant Consumer Finance. 

The two products will become the new fintech subsidiary's exclusive consumer loan products, and other financial institutions shall no longer issue consumer loans - which are based on the data provided by Ant Group - under the names of Huabei and Jiebei.

Ant Group is also required to take effective measures to ensure that consumers can fully understand the name of the loan service provider when applying for credit, and that they won't be confused with other brands.

"Once it opens, Ant Consumer Finance Co should carry out internet loan business in strict accordance with the prescribed capital contribution ratio, concentration rules and quota limit," the official said. 

"Huabei and Jiebei have been included in the consumer finance company, which means enhanced compliance and more constraints," the director said.

The new firm shall also disclose basic information about loan applicants, loan conditions, actual annual interest rates, annualized comprehensive capital costs, as well as principal and interest service arrangements to protect customers' right to know and right to choose.

In response to the approval, Ant told the media that the group was actively undertaking rectification to satisfy consumers' demands.

"Ant has a lot of business lines. The businesses outside the approved scope at present are still not in compliance, which needs to be adjusted," Wang Peng, assistant professor of the Gaoling School of Artificial Intelligence at Renmin University of China, told the Global Times on Thursday.

As part of a multifaceted rectification plan, Ant Group is transforming itself into a financial holding company, after China's top financial regulators summoned the fintech giant in April over its serious, problematic financial business practices.

For the whole industry, China will manage and regulate internet finance companies and fintech companies according to the standards of financial companies, in a bid to prevent systemic financial risks, Wang said.