China’s Ant Group Co. is planning to transform itself into a financial holding company regulated by China’s central bank, subject to stricter capital constraints and regulatory rules that could curb revenue and profit growth, according to The Wall Street Journal.
Ant Group’s restructuring plan could be finalized by the Chinese New Year holiday in mid-February this year, but is still under consideration and will eventually need to be approved by the Financial Stability and Development Commission, led by Vice Premier Liu He, people familiar with the matter told The Wall Street Journal.
Ant Group has been trying to portray itself as an Internet technology company, with Alipay as its core, to build an ecosystem containing payments, credit, wealth management, insurance and other diversified businesses. If fully transformed into a financial holding company, Ant Group would face strict regulations similar to those governing the banking industry, and its growth and profitability would be challenged.
In addition, the restructuring plan may help eliminate the possibility of regulatory arbitrage for Ant Group. Eswar Prasad, former head of the International Monetary Fund (IMF) in China, told the Wall Street Journal that the new structure will make it harder for Ant Group to shuffle between subsidiaries and transfer risks to more loosely regulated divisions to cover up risks.
Prasad added that financial regulators previously feared that regulatory arbitrage allowed Ant Group to paint a picture of an overall strong financial position, masking the financial risks posed by the new business.
Ant Group has been in trouble and under increasing regulatory pressure since its planned initial public offering (IPO) was shelved last year. Last December, four Chinese regulators interviewed its executives. Pan Gongsheng, deputy governor of China’s central bank, criticized Ant Group for “flouting” regulatory compliance requirements and “violating regulatory arbitrage.
On Jan. 20, Ant Group’s controller Jack Ma reappeared after months out of the public eye, and on the same day China’s central bank released a draft of regulations for non-bank payment institutions for comment.
Yi Gang, the governor of China’s central bank, was asked at the World Economic Forum on Tuesday whether China’s other financial regulator had made a mistake in approving Ant Group’s initial public offering in the first place. Yi said for a moment that it was a “complicated issue” and that the company would have to address monopoly and privacy issues before things could hopefully get back on track.
Sources close to the matter also told the Wall Street Journal that Ant Group is working to separate customer data currently shared by various business units and introduce regulations common to the banking industry.
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