SHANGHAI -- China will require nonbank payment apps such as Ant Group's Alipay to report new products and stock market listings to authorities, seeking to regulate a fast-expanding financial technology sector that has become a vital part of the way Chinese pay for transactions.
The People's Bank of China, the central bank, will implement the new disclosure measures on Wednesday. The directives require operators to report about significant business matters before and after the fact.
Initial public offerings and capital increases have been categorized as significant matters, along with rollouts of new products and services. Partnerships with a non-Chinese company to provide an international payment service also fall under the regulations.
For IPOs, the measures apply to overseas listings via variable interest entities, which has become an avenue of choice for the Chinese tech industry. Openings of offshore locations and outbound investments over certain amounts are required to be reported as well.
Every disclosure must be filed either 5 or 30 business days beforehand, depending on the business decision.
In addition, major data breaches and money laundering incidents are required to be reported within two or 24 hours upon initial discovery, depending on the case. Those that fail to comply will be penalized by the People's Bank of China.
The central bank previously rolled out a set of administrative measures for nonbank payment services in 2010. But the rapid development of smartphone payments and other fintech innovations have outstripped the reach of the rules. Authorities have required Ant Group, the financial arm of tech conglomerate Alibaba Group Holding, to submit to comprehensive monitoring and licensing requirements.
Smartphone payment services, such as Alipay and Tencent Holdings' WeChat Pay, play such an integral role in Chinese society that some shops refuse to accept cash. The tougher restrictions on payment service companies aim to prevent a major glitch in the digital transactions, as well as safeguard personal data, in the interest of maintaining stability in the financial system.
Meanwhile, the new rules detailing the important matters to be disclosed are far-reaching. Although companies are only required to report major activities, the measures essentially open the door for the People's Bank of China to have deeper involvement in business management.
The fintech services have been groundbreaking in linking consumer finance with payment transactions, asset portfolios and credit reporting. The new reporting rules could potentially create hurdles in developing similarly innovative services.
Financial authorities have toughened restrictions on payment providers in the name of stabilizing the financial system and safeguarding consumers. In July, the People's Bank of China slapped fines totaling 15.26 million yuan ($2.35 million) on China Payment & Clearing Network. The mid-tier payment service provider was cited for deficiencies in confirming customer information.