Chinese authorities are set to impose a penalty of more than $1 billion on Jack Ma’s Ant Group, said six sources with first-hand knowledge of the matter, laying the groundwork for ending the fintech company’s two-year long regulatory revamp.
The People’s Bank of China (PBOC), which has been pushing the overhaul at Ant after the Chinese firm’s $37 billion IPO was abandoned at the last minute in 2021, is the regulator that is preparing the fine, said five of the sources.
The central bank has been having informal talks with Ant about the fine over the past few months, said three of the sources. It intends to engage in more discussions with other regulators about Ant’s overhaul later this year and declare the fine as soon as the second quarter of 2023, said a source.
A penalty on Ant could help set the stage for the firm to obtain a long-awaited financial holding company license, pursue growth again, and eventually renew its plans for a public market debut.
Ant’s fine would be the biggest regulatory penalty placed on a Chinese internet firm since ride-hailing major Didi Global was given a penalty of $1.2 billion by China’s cybersecurity regulator in July.
The fintech firm’s affiliate, e-commerce giant Alibaba Group (9988.HK), in 2021 got a record fine of 18 billion yuan ($2.51 billion) for antitrust violations.
The fines are part of Beijing’s extensive crackdown on the country’s tech titans that have slashed hundreds of billions of dollars off their values and reduced profits and revenues.
However, Chinese authorities have in recent months toned down on the tech crackdown amid efforts to buoy an economy that has been weighed on by the COVID-19 pandemic. A penalty is expected to focus on Ant’s alleged violations concerning a “disorderly expansion of capital” and the similar financial risks its once freewheeling businesses have sparked, said one of the sources.
Ant and the PBOC would not reply to Reuters’ requests for comment.
All the sources spoke on the condition they remained unnamed as they were not allowed to speak to the media.
Chinese authorities suddenly called a halt to Ant’s IPO, which was set to be the world’s biggest, in November 2021 soon after billionaire founder Ma publicly railed against China’s regulatory system for hampering innovation.
In the months since then, regulators began reining in Ma’s empire, beginning with the antitrust investigation into Alibaba. Ma, one of China’s most prosperous and influential businessmen, has mostly stayed out of public view since the crackdown.
The regulators also forced Ant, whose businesses comprised consumer lending, payment processing, and insurance products distribution, to revamp its business structure and bring it under closer regulatory supervision.
Ant has been formally experiencing an extensive business overhaul since April 2021 which includes changing itself into a financial holding firm, subject to rules and capital requirements equivalent to those for banks.
The revamp includes folding Ant’s two profitable micro-loan businesses into a consumer finance unit and dispensing its treasure trove of data on over 1 billion users to state firms, a move expected to impact its profitability and valuation by reducing some of its businesses.
The fine on Ant, however, is unlikely to be finalized till China designates a number of senior officials at the State Council and other government bodies in 2023, said four of the sources.
While China’s ruling Communist Party concluded its twice-a-decade congress and central leadership reshuffle in October, top positions at the cabinet and government bodies are still subject to changes, which usually occur at the annual meeting of parliament in early March.
The central bank’s chief, Yi Gang, 64, is expected to resign as he’s almost at the official retirement age of 65 for minister-level officials. China’s State Council Information Office, which deals with media queries for the cabinet, would not reply to a request for comment.
Just before Ant’s IPO dust-up, the central bank officially announced rules to govern the country’s large and often complex financial holdings companies, as part of its efforts to curb systemic financial risks. It has so far agreed to the establishment of three such companies including China CITIC Financial Holdings.
The central bank’s local branch in the eastern city of Hangzhou, home to Ant’s headquarters, accepted the firm’s application to establish a financial holding company in June, two of the six sources and another person said.
The PBOC, however, is unlikely to formally reveal the application till Ant concluded its overhaul, added the sources.