China’s financial regulators and Ant Group, controlled by Chinese billionaire Jack Ma, have agreed a plan to overhaul the planet’s largest financial technology company, according to people familiar with the matter.
The scheme involves Ant Group placing its major businesses into a financial holding company overseen by Beijing-based watchdogs, including its fabulously lucrative credit origination platform, its investment technology unit and its budding insurance operations, the people familiar said.
An official announcement could come as early as next week, but its timing is dependent on formal sign-offs in Beijing. An agreement between Ant Group
and the regulators would lift a cloud of uncertainty hanging over the firm’s day-to-day operations and from across the fintech industry. However, more robust regulations and higher compliance costs will curb growth at one of the world’s most valuable unicorns.
Regulators abruptly shelved Ant Group’s US$34.5 billion dual listings in Shanghai and Hong Kong on November 3, over concerns that the Hangzhou-based firm posed a systemic risk to the country’s financial system and was in breach of consumers’ privacy. Soon afterwards, Beijing unleashed a raft of new fintech regulations and an antitrust inquiry into the country’s technology sector.
Ant Group, which operates the ubiquitous Alipay mobile payments platform, has been preparing to restructure its businesses to comply with the new rules since even before launching its initial public offering (IPO). An Ant Group spokesman declined to comment on the firm’s discussions with regulators.
Ant Group said in its IPO prospectus that it planned to use a subsidiary, Zhejiang Finance, to satisfy a requirement by regulators outlined on September 11 that fintech companies set up a financial holding company and apply to the central bank to do so by November 1.
Housing its financial operations in the holding company would mean they would be subject to rules similar to commercial banks, such as on how Ant Group sources and uses funds, maintaining a fat capital buffer, putting in place risk management systems and showing that it can protect consumers’ data from hacks and leaks.
A slew of new rules governing fintech means Ant Group is likely to apply for additional licences or reapply for existing licences when the final version of China’s fintech regulatory overhaul is published.
Ant Group named Li Chen as its chief compliance officer in November, a person familiar with the matter said earlier.
Beijing relies heavily on state-controlled banks to steer its still-developing economy, and China’s financial watchdogs are familiar with how to regulate traditional lenders. In the eyes of these regulators, keeping a closer eye on Ant Group and treating it more like a bank than a technology platform reduces the threat of disruption and stops the upstart from exploiting loopholes in their web of control.
Signs of a growing understanding between Ant Group and regulators have emerged over the past month. Yi Gang, the governor of China’s central bank, the People’s Bank of China (PBOC), hinted on January 26 that Ant Group could be allowed to pursue an IPO once it fully complies with the country’s laws and has addressed customer complaints.
Alibaba Group Holding, which owns a third of Ant Group, said on Tuesday that due to significant changes in the fintech regulatory environment in China, Ant Group is in the process of developing its rectification plan. Alibaba also owns the Post.
“Ant Group’s business prospects and IPO plans are subject to substantial uncertainties. Currently, we are unable to make a complete and fair assessment of the impact that these changes and uncertainties will have on Alibaba Group. We will update the market once Ant Group has completed the relevant regulatory procedures for its rectification plan,” it said.
Ant Group had set up a working group to rectify its business practices and was drawing up a timetable for the changes under the guidance of regulators, Chen Yulu, a deputy governor of the PBOC, said on January 8.
When Ant Group’s size and influence in financial services became clear during its IPO marketing and road show, regulators fretted that any disruption in its services could pose a systemic risk to China’s financial stability and undermine the country’s sprawling banks.
Regulators also fretted that an influx of foreign investors into Ant Group’s capital structure would make it harder to control, according to people familiar with the matter at the time.
Ant Group’s slick mobile payment app, Alipay, has more than 1 billion users, making it the world’s most popular app outside social-media network.
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