China cracks down on online financing in bid to protect investors

The new draft rules for online financing firms aim to better protect investors

China published new draft rules for online financing firms in a bid to better protect investors after an inquiry earlier this month into suspected illegal activities by the country's biggest peer-to-peer (P2P) firm unnerved the investment community.

Online platforms will not be allowed to pool investors' money, illegally raise funds or harm the public interest, according to the rules released by the China Banking Regulatory Commission (CBRC) on Monday.

The draft rules outline 12 prohibited actions including concealing risks of financial programmes and using ambiguous language or other fraudulent methods to sell products.

The CBRC is seeking opinions until Jan. 27, 2016 on the draft rules and did not disclose a timeline for the launch of the final version.

At the end of November, China had 2,612 P2P platforms in operation, acting as agents for more than 400 billion yuan ($61.66 billion) worth of loans, according to a statement released with the draft rules.

More than 1,000 P2P platforms - about 30 percent of all P2P platforms - were "problematic", the statement said.

Beijing-based Ezubao, which grew into China's biggest P2P lending platform before it was shut earlier this month, is being investigated for suspected illegal activities.

Ezubao attracted more than 70 billion yuan from about 800,000 people in 31 provinces after its creation in 2014, before police sealed the company's offices and seized assets earlier this month.

China's fast-growing $2.6 trillion wealth management product industry has been plagued with challenges, with 287 Chinese P2P firms shutting down last year.