(Yicai Global) Dec. 27 -- Shanghai regulators are working to reduce external risks arising from credit businesses that banks and third-party platforms jointly operate, institutions told Yicai Global.
Local authorities have issued a draft of the Notice on Standardizing Cooperative Credit Business of Banks and Third-party Platforms in Shanghai to tackle risks, bring core loan management business back to the banking system and regulate cash loans.
The document prohibits banks from providing capital to peer-to-peer borrowing businesses and institutions without lending qualifications. It bars banks from outsourcing their core businesses, including those covering risk control and collection.
Consumer finance companies, of which banks are shareholders, source most of their funds from the banking system, and banks will become warier of such groups, directly increasing pressure on new loan investors, an executive of a consumer finance company with shares held by a bank told Yicai Global.
Risk control, which is the most central part of credit businesses, should again be in the hands of the banking system, said Toproperty founder and Chief Executive Sheng Jieli. The city aims to regulate the activities of loan facilitation banks -- banks that cooperate with consumer finance companies or cash loan firms, Sheng said.
Consumer finance groups and banks will need to establish product research and development systems and post-loan risk control systems once the new regulations are in place and management costs are set to increase dramatically. Some groups may not have the capacity to manage risks on their own.