Six sources with first-hand familiarity with the situation stated that Chinese authorities are prepared to punish Jack Ma’s Ant Group more than $1 billion, which would put a stop to the fintech business’s two-year regulatory makeover.
Five of the sources identified the regulator preparing the fine as the People’s Bank of China (PBOC), which had been pushing the makeover at Ant since the firm’s $37 billion IPO was abruptly scrapped in 2020.
Three of the people claimed the central bank is in informal contact with Ant regarding the issue over the recent months. One of them said it intends to continue talking with other regulators regarding Ant’s redesign later this year and publish the penalty as early as the second quarter of the following year.
A penalty against Ant might make it easier for the business to obtain a license as a financial holding company, pursue expansion once more, and finally rekindle its intentions for a public markets debut.
Since Didi Global, the world’s largest ride-hailing operator, was penalized $1.2 billion by China’s cybersecurity authority in July, Ant’s fine would be the greatest regulatory sanction imposed on a Chinese internet company.
The e-commerce giant Alibaba Group (9988.HK), a subsidiary of the fintech company, was fined a record 18 billion yuan ($2.51 billion) for anti-trust violations last year.
Alibaba’s U.S.-listed shares decreased by 1.2% in early trading.
The fines are a part of Beijing’s extensive campaign against the nation’s internet giants, which has reduced their value by hundreds of billions of dollars and reduced their revenues and profits.
However, in an effort to support an industry that has been harmed by the COVID-19 outbreak, Chinese officials have recently toned down their rhetoric over the IT crackdown.
Another source said Ant’s claimed offences regarding a disorderly growth of capital and the associated financial concerns its erstwhile unrestrained operations have produced will likely be the subject of the penalties.
Requests for comments about Ant and the PBOC were not answered.
Since none of the sources had permission to speak to the media, they all agreed to speak on the basis of anonymity.
In November 2020, shortly after Ant’s wealthy founder Ma openly denounced China’s regulatory framework for limiting innovation, Chinese authorities abruptly cancelled Ant’s IPO, which was expected to be the largest ever.
Regulators began reining in Ma’s network in the months that followed, beginning with the antitrust investigation against Alibaba. Ma, one of the most prominent and wealthy businesspeople in China, has generally avoided the spotlight since the crackdown.
The regulators additionally pressured Ant, whose activities include the distribution of insurance products, consumer financing, and payment processing, to redesign its organisational structure.
Since April of last year, Ant has been officially undergoing a significant business transformation, which involves converting into a financial holding company subject to regulations and capital requirements akin to those for banks.
The overhaul includes merging Ant’s two highly profitable microloan companies into a consumer finance component and giving state firms access to its vast database of user information on more than 1 billion people. These changes are expected to reduce Ant’s profitability and appraisal by scaling back some of its operations.
According to four of the people, the punishment for Ant won’t likely be decided until after China names a number of prominent officials to the State Council as well as other government agencies early in the next year.
Top positions at the cabinet and other government bodies are still open for change, which typically happens at the annual conference of parliament in early March. Although China’s dominant Communist Party completed its twice-decade congress and unified command reshuffle last month, this is still a time when major changes are typically made.
Yi Gang, the head of the central bank, is expected to retire at age 64, the statutory retirement age for minister-level officials.
A request for comment was not answered by China’s State Council Information Office, which manages media inquiries for the cabinet.