Ant Group and Tencent have recently been fined billions of yuan, generating significant attention. On the evening of July 7th, the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission jointly announced that most of the prominent issues related to platform companies’ financial services had been rectified, and the focus of financial regulators had shifted from concentrated rectification to normalized supervision.
Along with the completion of the rectification, massive fines were also announced. Ant Group and its subsidiaries were fined a total of 7.123 billion yuan (RMB), including the confiscation of illegal gains, while Tencent received a penalty of nearly 3 billion yuan from the central bank.
This event is seen as a significant milestone in the development of financial regulation and platform-based financial services in China. The fines indicate the conclusion of the platform financial rectification and the establishment of a normalized regulatory system for platform finance.
What does the “billions of fines” signify? With the completion of the rectification of platform-based financial services, what will be the future direction of regulation? Through interviews with various parties, we can understand the financial regulatory signals conveyed by the fines imposed on Ant Group and Tencent.
Question 1: What did Ant Group and Tencent do wrong?
Answer: Violations of account regulations and infringement of consumer rights.
Both platform companies received significant fines, and the amounts are not insignificant. What did they do wrong? According to regulatory announcements, Ant Group accumulated fines exceeding 7.123 billion yuan, primarily related to investor protection and intermediary services (including selling insurance, wealth management, funds, and internet deposits) in the payment sector.
For example, the central bank’s penalty information reveals that Alipay, a subsidiary of Ant Group, committed seven violations, including violations of payment account management regulations, settlement management regulations, regulations on preventing new types of telecom network-related crimes, failure to fulfill customer identification obligations as required, and transactions with unidentified customers. The total amount fined was over 3 billion yuan. Additionally, Ant Group was fined 175 million yuan for violating relevant regulations on corporate governance and related-party transaction management.
Furthermore, the public information released by the China Banking and Insurance Regulatory Commission indicates that Ant Group was fined over 3.762 billion yuan for infringing on consumer rights (including misleading financial marketing practices and infringement of consumer information rights, failure to inform certain customer groups of repayment requirements) and engaging in banking and insurance business activities in violation of regulations (engaging in insurance agency and brokerage businesses, participating in the sales of individual pension management products, bank wealth management products, and internet deposit products).
According to the decision of the China Securities Regulatory Commission, Ant (Hangzhou) Fund Sales Co., Ltd. was fined 73.68 million yuan.
Tencent also received regulatory penalties. Tencent’s subsidiary, WeChat Pay, was warned by the central bank and had illegal gains amounting to 566 million yuan confiscated, with a fine of 2.427 billion yuan, due to violations of institutional management regulations, merchant management regulations, settlement management regulations, payment account management regulations, and other illegal and non-compliant behaviors that endangered the stable operation of payment institutions, harmed customer rights, or jeopardized the payment service market. They also failed to fulfill customer identification obligations among the 11 violations.
It is worth noting that the financial regulatory authorities emphasized that these penalties were specifically targeting past-year violations. Wang Pengbo, a senior analyst at Borui Consultancy, believes that these penalties reflect the principle of “punishing past violations.” As the rectification progresses, both institutions have improved compliance, leading to stable and orderly business operations.
In addition to Ant Group and Tencent, the financial regulatory authorities have also recently imposed administrative penalties on Postal Savings Bank of China, Ping An Bank, PICC Property and Casualty Company, and Tencent’s financial subsidiary. “This demonstrates the consistency of regulation, treating all institutions equally,” said Dong Ximiao, Chief Researcher of Zhongtai Securities.
Question 2: How should we interpret the severity of these penalties?
Answer: The magnitude of the fines is related to the scale of their business operations.
The attention drawn to the size of the fines imposed on the two major platform companies raises the question of how to interpret the severity of these penalties. According to Wang Pengbo, the significant amounts are primarily due to the high market share of these two companies in the domestic market, rather than indicating a regulatory intent of “heavy punishment.”
Wang Pengbo points out that the financial regulatory authorities primarily based their penalties on laws such as the People’s Bank of China Law, Anti-Money Laundering Law, Banking Supervision and Management Law, Insurance Law, Securities Investment Fund Law, and Consumer Rights Protection Law. The high amounts of fines are mainly due to the wide range of business operations and their large scale.
Taking Ant Group as an example, Alipay has over 1 billion active annual users and 80 million cooperative merchants, occupying 55.4% of the mobile payment market share in China. Yu’e Bao is the world’s largest money market fund, managing over 1.7 trillion yuan in assets. Huabei and Jiebei are China’s largest consumer credit platforms, serving over 500 million users. According to Ant Group’s IPO prospectus, their revenue in 2019 exceeded hundreds of billions of yuan, and their net profit for the first nine months of 2020 alone exceeded 20 billion yuan.
Question 3: What reforms have Ant Group implemented?
Answer: This “Ant Group” is no longer the same as before.
In the official announcement, the regulatory authorities also declared that most of the prominent issues related to the financial business operations of platform companies have been rectified.
Based on the requirements from three years ago, the Ant Group’s reform initiatives included five aspects: correcting unfair competition in payment services, breaking information monopolies, restructuring Ant Group as a financial holding company, implementing strict regulatory requirements to control high leverage and risk contagion, and proactively reducing liquidity risk in important fund products such as Yu’e Bao.
During the same period, Tencent, Du Xiaoman Financial, JD Finance, and other 13 internet platform companies were also summoned for discussions, and their financial business operations entered a phase of centralized rectification.
In the industry’s view, over the past three years, the Ant Group has experienced three rounds of discussions and delayed its initial public offering (IPO). It has undergone a thorough transformation. This “Ant Group” is different from the previous one.
According to publicly available information, one important aspect of the reforms is segregation. Firstly, at the business level, Ant Group underwent surgical separation and disposition of risks by dividing financial services from technology services, with financial services required to comply with regulations. In September 2020, the establishment of Chongqing Ant Consumer Finance Co., Ltd. (referred to as Ant Consumer Finance) was approved by the China Banking and Insurance Regulatory Commission (CBIRC). In June 2021, Ant Consumer Finance was officially established as the 29th domestic consumer finance company approved by the CBIRC.
After the establishment of Ant Consumer Finance, it took over the business of Huabei and Jiebei, which were originally operated by small loan companies. The significance of this adjustment lies in the clear regulatory authority of these two products, which now fall under the supervision of the CBIRC, making the supervision more transparent. Subsequently, Ant Group closed its mutual aid platform, Xianghubao, in December 2021. In April 2022, Ant Group implemented segregation measures with Webank.
Secondly, at the corporate structure level, Alibaba and Ant Group began to separate at the group level. In July 2022, Alibaba disclosed in its 2022 financial report that the management team members from Ant Group, including Eric Jing, Simon Hu, and Zeng Songbai, no longer served as Alibaba partners. At the same time, it was reported that the internal transfer channels between Alibaba and Ant Group had been canceled, and personnel movements would follow regular resignation procedures. In addition, Alibaba announced the formal termination of data-sharing agreements with Ant Group.
Apart from the internal separation within the group and the separation from the Alibaba ecosystem, another significant change is the addition of independent directors. In June 2022, Ant Group added two independent directors, Yang Xiaolei and Shimei Lun, reducing the number of shareholder representatives on the board from three to two.
Entering 2023, the structural changes within Ant Group reached a climax. On January 7th of this year, Ant Group announced a series of adjustments to its board of directors and shareholders. After the adjustments, Jack Ma’s voting rights decreased from 53% to 6%, and he no longer possessed actual control over Ant Group. Ant Group no longer has a controlling shareholder. At the same time, the group will introduce a fifth independent director, achieving a majority of independent directors on the board.
In the industry’s view, before the reforms, the Ant Group was involved in various financial and technology sectors, engaging in cross-industry operations. However, with the completion of the reforms, the Ant Group will focus on “finance as finance and technology as technology.” Financial services will be subject to regulation, while technology innovation continues to develop.
In addition to Ant Group, the other 13 platform companies have also been actively conducting self-inspections and implementing reforms. Some payment institutions have opened application scenarios to other payment companies, achieving interconnection with offline payment barcodes and commercial banks. Personal credit businesses have been further regulated, and credit operations must be conducted through licensed credit institutions. Some platform companies have established independent financial business management departments to improve the management of related transactions. Third-party platform deposit businesses have been suspended, and internet loan businesses have been regulated. The effectiveness of the reform measures is gradually becoming apparent.
Question 4: What is the future direction for the business development of Ant Group?
Answer: The progress of establishing a financial holding company and obtaining licenses for businesses such as credit reporting may accelerate.
“The transition from centralized rectification to normalized supervision of platform companies’ financial businesses is one of the key pieces of information released in this announcement,” says Wang Pengbo. In his view, for Ant Group, this signifies that with the completion of centralized rectification, predictability will increase and unpredictability will decrease, providing clearer guidelines for future business development.
What does the transition from centralized rectification to normalized supervision mean for Ant Group? “After entering normalized supervision, Ant Group’s application process for licenses such as credit reporting and financial holding companies may expedite,” says Dong Ximiao. With the completion of centralized rectification, Ant Group’s overall business will enter a normal development trajectory.
Establishing a financial holding company is one of the regulatory requirements for Ant Group’s reform. Prior to the rectification, Ant Group had obtained multiple financial licenses through shareholding and acquisitions, including banking licenses held by Webank, fund licenses held by Tianhong Fund and Ant Fund Sales, insurance licenses held by Zhongan Insurance, Cathay Insurance, Xinxin Life Mutual Insurance, Shanghai Ant Yunbao Insurance Agency, and Ant Insurance Agency, and third-party payment licenses held by Alipay. Huabei and Jiebei held licenses for small loans and consumer finance. In addition, in 2019, Ant Group obtained a virtual banking license in Hong Kong, and through the establishment of joint ventures, it could participate in the pilot business of fund advisory services for individual investors.
“Ant Group holds multiple financial licenses, and the regulation of financial companies has shifted from the People’s Bank of China to the China Banking and Insurance Regulatory Commission. It is not yet clear how the regulatory authorities will oversee the unique situation of Ant Group as a financial holding company,” says Yin Zhentao. However, it can be foreseen that Ant Group already essentially qualifies as a financial holding company, and with the completion of centralized rectification, the approval process for related licenses may accelerate.
Question 5: Will Ant Group resume its IPO?
Answer: The possibility of Ant Group resuming its IPO within the next 2 to 3 years is relatively low.
After the issuance of the penalty to Ant Group, Alibaba’s stock, which holds a 33% stake in Ant Group, experienced a rise. With the completion of Ant Group’s concentrated rectification, whether it will resume its IPO has become a focus of market attention. However, industry insiders and experts interviewed believe that it is still too early to discuss Ant Group’s resumption of IPO at this stage.
According to Wang Pengbo, after completing the rectification, Ant Group needs time to verify its business model in accordance with the new regulatory requirements.
Furthermore, at the beginning of this year, there was a change in the actual controller of Ant Group, with Jack Ma no longer being the actual controller. According to the current requirements for A-share listed companies, the actual controller of main-board listed companies cannot undergo changes within three years prior to an IPO, while the requirements for the Science and Technology Innovation Board (STAR Market) are two years, and for Hong Kong stocks, it is one year. Therefore, in the short term, the possibility of Ant Group resuming its IPO is relatively low.
Dong Ximiao also believes that both the imposition of a fine and a change in the actual controller objectively limit the process of Ant Group’s IPO. “The possibility of Ant Group resuming its IPO within the next 2 to 3 years is relatively low.”
Question 6: What is the regulatory attitude towards platform companies?
Answer: A normalized regulatory system for platform finance is established.
As a representative of the platform economy, the completion of Ant Group’s rectification holds significant significance as a directional indicator. “This is a landmark event. The fine clearly indicates the conclusion of the rectification of platform finance and the establishment of a normalized regulatory system for platform finance,” said Yin Zhentao.
Wang Pengbo believes that the enforcement of penalties in this case is of great importance for the development of China’s financial technology industry. “It delineates the boundaries between legality and illegality, regulates market order, and in the future, financial technology will operate in a more compliant framework, balancing compliance and innovation for a healthier and more sustainable development.”
In the announcement, the financial regulatory authorities also stated that in recent years, they have insisted on balanced development and regulation, established a sound governance system for the platform economy, and introduced a series of institutional measures, laying the foundation for the development and regulation of financial businesses of platform companies, promoting the standardized and healthy development of the platform economy.
So, what directions are released through the rectification and regulation of platform companies such as Ant Group and Tencent? Dong Ximiao believes that three signals are being released:
Strengthening functional and behavioral regulation: Implementing unified or relatively unified regulations for similar businesses conducted by different types of financial institutions, focusing on the business activities conducted by financial institutions themselves, and achieving comprehensive regulation of the financial system.
Emphasizing consistency in regulation: Regardless of whether it is a platform company or a financial institution, if they engage in the same business, they will be subject to the same regulations, preventing regulatory arbitrage and promoting fair and equitable market competition.
Enhancing regulation while promoting innovation: Platform companies such as Ant Group and Tencent have indeed had many problems due to their rapid growth in the past, but it is also necessary to recognize that they are closer to the market and users, and have relatively strong innovation capabilities. They play a positive role in promoting inclusive development, financing for small and micro enterprises, and employment. Therefore, it is important to further stimulate their innovative vitality, enhance international market competitiveness, and fully play their role while promoting regulated development.
In the announcement, the financial regulatory authorities stated that they will fully, accurately, and comprehensively implement the new development concept, focus on improving the level of normalized regulation of platform companies’ financial businesses, bring all types of financial activities under regulation in accordance with the law, ensure that similar businesses are subject to the same regulatory rules, and achieve fair regulation. They will adhere to the principles of “two unwavering,” implement financial policy measures to promote the healthy development of the platform economy, support and encourage platform companies to continuously enhance financial inclusiveness, promote technological and financial innovation, enhance international financial competitiveness, and better serve the real economy and people’s livelihood needs.
Question 7: Will Alipay users be affected?
Answer: No.
The recent penalties imposed on Ant Group and Tencent have raised concerns among users of Alipay. However, it should be clarified that the penalties mentioned in the announcement pertain to the closure of “Xianghubao” and not to Alipay itself. The penalties will not result in the revocation of Alipay’s payment business license, and users of Alipay can continue to use the service without any impact. Source