China announced new rules on Wednesday to tighten regulation of the country’s $60 billion peer-to-peer lending sector, which has been dogged by scandals and fraud due to loose oversight.
Among the rules, P2P platforms will not be able to take public deposits, nor create asset pools, nor provide any forms of guarantee for lenders, according to a joint document issued by the China Banking Regulatory Commission (CBRC), Ministry of Public Security, Cyberspace Administration of China and the Ministry of Industry and Information Technology.
The document was distributed ahead of a news conference in Beijing.
Under new rules, P2P firms will also not be able to sell wealth management products, nor issue asset-backed securities and firms will have to use third-party banks as custodians for investors’ funds.
The new regulations follow the April passage of a plan by the State Council, China‘s cabinet, to clean up the country’s rapidly growing but loosely regulated online financial sector, which is causing growing financial risks and potential social unrest.