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Exclusive: Ping An-backed Lufax to ditch P2P lending on regulatory woes - sources

By Cheng Leng, Engen Tham

BEIJING/SHANGHAI (Reuters) - Lufax, one of China’s largest online wealth management platforms that is backed by financial giant Ping An Insurance (601318.SS), plans to exit its once-core peer-to-peer lending (P2P) business, three sources with direct knowledge of the matter told Reuters.

The move by Lufax to exit P2P, in which companies gather funds from retail investors and loan the money to small corporate and individual borrowers, is due to regulatory hurdles, two of the sources said, and comes amid China’s crackdown on the business to contain broader financial risks. The sources said they did not know exactly when Lufax’s P2P business would be shuttered, or how the outstanding business will be handled, but added that the company has already started the process of applying for a licence in consumer finance, a business which it intends to focus on. A ditching of the P2P business and a focus on consumer finance could smoothen the path for Lufax to again pursue a stock market listing.

The startup postponed a Hong Kong float slated for the first half of 2018 amid uncertainty over China’s consumer lending regulation, sources have said. Formally known as Shanghai Lujiazui International Financial Asset Exchange, Lufax was set up in 2011 as a P2P platform by Ping An (2318.HK). P2P boomed in China - becoming far bigger than the rest of the world’s combined P2P lending - until regulators took notice three years ago as claims of frauds surfaced, and as part of a wider Beijing-directed crackdown on potential bubbles in the financial system. Lufax’s move to ditch its P2P business comes after it struggled to meet requirements since 2016 for P2P lenders to register with local authorities, two of the sources said.

Tougher regulations introduced in 2017 require P2P firms to record the flow of funds between various parties and accounts, provide reports on online deposits and establish an accounting system with well-defined and standardized fund deposit clearing. Lenders, borrowers and guarantors also need to be registered. The sources said that financial regulators, including the China Banking and Insurance Regulatory Commission (CBIRC), told Lufax that it would be hard for the firm to register as a P2P lender with the local authorities in the near future.

When asked to comment, Ping An Group and Lufax said the P2P business of Lufax is run in accordance with regulatory requirements and “the online business is operating normally and existing products and customer rights are not affected”. The CBIRC did not immediately respond to a request for comment. The sources declined to be named because they were not authorized to speak publicly.

CONSUMER FINANCE Lufax’s P2P staff will be incorporated into a new department focusing on consumer finance, one source said. That focus will involve the company using the group’s banking unit, Ping An Bank (000001.SZ), as the hub, another source said. Consumer finance - the business of lending for the purchase of products including mobile phones, electronics and home appliances - is growing fast in China with 24 companies licensed currently, according to data from CBIRC.

Lufax has already diversified into wealth management products, although such products under its management shrank by 20% to 369.41 billion yuan ($53.72 billion) in 2018 as new rules curbing leveraged investments were introduced, according to Ping An’s annual report.

Outstanding loans on the balance sheet of Lufax reached 375 billion yuan by the end of 2018, up 30% from a year earlier. In December, Lufax raised $1.33 billion in a funding round from a dozen investors that valued it at $38 billion prior to closing.

Reporting by Cheng Leng in BEIJING and Engen Tham in SHANGHAI; Editing by Jennifer Hughes and Muralikumar Anantharaman Our Standards:The Thomson Reuters Trust Principles.


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