HONG KONG (Reuters) – Chinese authorities are preparing to fine the Jack Ma Ant Group more than $1 billion, six sources with direct knowledge of the matter said, paving the way for an end to the fintech firm’s two-year regulatory overhaul.
Five of the sources said the People’s Bank of China (PBOC), which has been leading the revamp of Ant after the Chinese company’s $37 billion initial public offering was botched at the last minute of 2020, is the regulator preparing for the fine.
Three of the sources said the central bank had informal contacts with Ant about the fine over the past few months. A source said it plans to have further discussions with other regulators about renewing Ant later this year and announce the fine as soon as possible in the second quarter of next year.
Ant’s fine could help pave the way for the company to secure a long-awaited financial holding company license, strive to grow again, and eventually revive its plans for a public market launch.
Ant’s fine would be the largest regulatory penalty levied on a Chinese internet company since passenger service major Didi Global was fined $1.2 billion by a Chinese cybersecurity regulator in July.
Last year, e-commerce giant Alibaba Group, a subsidiary of the financial technology company, received a record fine of 18 billion yuan ($2.51 billion) for antitrust violations.
The sanctions are part of Beijing’s sweeping crackdown on the country’s tech giants that have slashed hundreds of billions of dollars in valuations and slashed revenues and profits.
But in recent months, Chinese authorities have softened their tone on tough measures related to technology amid efforts to boost an economy battered by the COVID-19 pandemic.
One source said the fine will likely focus on Ant’s alleged violations of “uncontrolled expansion of capital” and corresponding financial risks caused by the former freelancer.
Ant and the People’s Bank of China did not respond to Reuters requests for comment.
All sources spoke on condition of anonymity because they were not authorized to speak to the media.
Chinese authorities abruptly backtracked on Ant’s IPO, which was set to be the world’s largest, in November 2020 shortly after the billionaire founder Ma publicly criticized the Chinese regulatory system for stifling innovation.
In the months since, regulators have set out to rein in Ma’s empire, starting with an antitrust investigation into Alibaba. Ma, one of China’s most successful and influential businessmen, has largely kept a low profile since the crackdown.
Regulators have also pushed Ant, whose business extends to payments processing, consumer lending and distribution of insurance products, to revamp its business structure and bring it under tighter regulatory oversight.
Ant has officially been undergoing a business overhaul since April last year, which includes transforming itself into a financial holding company, subject to rules and capital requirements similar to those of banks.
The overhaul includes merging Ant’s two profitable microfinance businesses into a consumer finance unit and sharing its trove of data on more than 1 billion users with state companies, a move expected to limit its profitability and valuation by shrinking some of its business.
Four of the sources said Ante’s sentence is unlikely to be completed until China appoints a number of senior officials to the State Council and other government bodies next year.
While China’s ruling Communist Party ended its twice-decade congress and central leadership reshuffle last month, top positions in the cabinet and government bodies are still subject to the changes, which usually happen at the annual meeting of parliament in early March.
The central bank chief, Yi Gang, 64, is likely to step down as he approaches the official retirement age of 65 for minister-level officials.
China’s State Council Information Office, which handles media inquiries for the government, did not respond to a request for comment.
Before the dust of Ant’s IPO, the central bank officially released rules to regulate the country’s huge and often complex financial firms, as part of its efforts to rein in systemic financial risk.
It has so far agreed to set up three such companies, including China CITIC Financial Holdings.
Two of the six sources and a separate person said the local branch of the central bank in the eastern city of Hangzhou, where Ant is headquartered, received the company’s request to set up a financial holding company in June.
The sources added that it is unlikely that the People’s Bank of China (PBOC) will officially reveal the app until Ant finishes revamping it.
(Reporting by Julie Zhou in Hong Kong; Additional reporting by Xu Jing in Beijing; Editing by Sumit Chatterjee and Muralikumar Anantharaman)
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