Regulator aims to tighten up risk, govern sales amid rapid growth

The China Securities Regulatory Commission said on Friday it will draw up special regulations governing online sales of financial instruments and mandating tighter risk controls for money market funds.

Zhang Xiaojun, a spokesman for the agency, told a news conference that regulators have taken note of the fast growth of Yu'ebao, an investment service offered by Tian Hong Asset Management and online payments provider Alipay (a division of Alibaba Group Holding Ltd).

Zhang reiterated that these online funds are an innovation that helps promote interest rate liberalization and the rapid development of the Internet.

"Yu'ebao is a convenient account value-added service, and it is a hybrid innovation of the third-party payment business and money market fund products," Zhang said.

In the business model of Yu'ebao, Alipay is neither involved in specific fund sales nor the investment processes.

It only introduces clients to fund products through the broad Internet platform.

China's money market funds have exhibited sound and accelerating development, which can help satisfy the financing needs of small and medium-scale investors, according to the CSRC.

In addition, the financial innovation can help improve the capital structure of the fund industry and raise the proportion of direct financing.

"But we have also noticed some illegal promotion and advertising activities by fund management companies.

"Some of them don't fully disclose potential risks to investors and some don't have quality risk management systems," said the spokesman.

The CSRC reminded investors that money market fund products are different from bank deposits and don't guarantee particular investment returns.

"So we need to tighten supervision of money market funds to better protect investors' interests and prevent systemic risks," said Zhang.

The relatively high return rates offered by the new Internet financial products have attracted a fast-growing group of investors. According to Zhou Xiaoming, vice-general manager of Tian Hong, Yu'ebao had more than 81 million accounts as of Wednesday.

Total deposits stood at more than 400 billion yuan on Feb 14, up from 250 billion yuan on Jan 15.

Meanwhile, there's been sometimes heated discussion about the potential risks of these new innovations to China's financial system.

Niu Wenxin, the executive editor of CCTV's Stock Information Channel, penned a piece calling Yu'ebao "a vampire feeding on the blood of banks" and urging the authorities to ban it.

But on Sina.com, an online survey found that 91.6 percent out of 49,097 respondents opposed a ban.

On Wednesday, Yu'ebao reported its seven-day average annualized return rate was 6.093 percent, compared with its highest level of 6.763 percent on Jan 2.

A similar financial product provided by Tencent Holdings Ltd's WeChat cut its seven-day average annualized return rate to 6.196 percent. That rate peaked at 7.902 percent on Jan 29.

Meng Jing contributed to this story.

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