Zhejiang banking regulator bans online deposit products

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After China’s largest fintech companies removed savings products linked to regional banks from their online platforms, a local regulator explicitly ended deposit activities managed jointly between the online platforms and commercial banks.

In a notice released Thursday, the Zhejiang Office of the China Banking and Insurance Regulatory Commission (CBIRC) expressly requires that all types of banking institutions under its jurisdiction not accept deposits through third-party internet platforms or by cooperating with other third-party intermediaries. . Existing depot products will be immediately withdrawn from the market and the cooperation will be terminated, the regulator said.

The regulatory move came after the country’s dominant online fintech platform, Ant Group Co. Ltd. and the financial services of tech giants Tencent Holdings Ltd., JD.com Inc., Baidu Inc., Didi Chuxing Technology Co. Ltd., Meituan, Xiaomi Corp. and Lufax Holding Ltd., which is backed by financial conglomerate Ping An Insurance (Group) Co. of China Ltd., stopped offering products that allow consumers who use their online platforms to make deposits with physical lenders.

Through joint deposit offerings, banks provide products and services, and online fintech platforms provide product information and the purchasing interface. Small regional lenders are limited in where they can do business by regulations that only allow them to operate within the geographic area covered by their license. Fintech companies and their online platforms, which operate across the country, have allowed banks to bypass these limits. By partnering with fintech companies that have huge user bases nationwide, banks can solicit high-yield, fixed-term deposits from savers across the country.

Chinese regulators have stepped up their scrutiny of FinTech companies this year, especially since Ant Group Aborted IPO in early November, as the government continues its campaign to contain risks in the financial sector. Regulators fear that these joint deposit products will use non-transparent means to increase the interest rates they pay – by shortening the maturities of term deposits or by issuing coupons and cash rewards – and they abuse the labels “deposit insurance” in marketing.

In an article published in November, the new central bank financial stability director, Sun Tianqi, called for an update on risk management and regulation of online deposit products. Earlier this month, Sun told a fintech forum that such activity is essentially “driving a car without a license.”

The rise of online deposit products has disrupted regional banks’ deposit markets, increased their lending costs, increased the vulnerability of bank debt structure and put more pressure on their liquidity management, said the Zhejiang regulator in the notice.

Most online deposit products have terms of three or five years. The highest annualized interest on a three-year deposit product is 4.125%, while the highest five-year yield is 4.875%, near the upper limit of central bank guidelines, Sun wrote (link in Chinese) last month.

The Zhejiang regulator requires banks to strictly follow the relevant provisions limiting interest rates on deposits. It prohibits them from shortening the maturities of term deposits or issuing interest coupons or cash rewards to effectively increase deposit interest rates. And the regulator said banks cannot lower the minimum threshold for large certificates of deposit through group sales.

In addition to banning internet deposits, the regulator has also banned banks from cooperating with banknotes intermediaries.

Contact journalist Denise Jia ([email protected])

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