THE fast development of Internet finance in China is driving an increase in cases of illegal fund raising, a situation that could worsen if regulation does not catch up, a senior official at the country’s banking sector watchdog said yesterday.

    Liu Zhangjun, a director at the China Banking Regulatory Commission (CBRC) in charge of combating illegal fund-raising, said some of the recent cases have been disguised as normal online financial services, requiring tighter scrutiny.

    He particularly singled out cases conducted in the name of “crowd funding” and “P2P lending,” two types of Internet finance that are gaining increasing popularity among China’s vast number of depositors.

    “As Internet finance is developing rapidly, many illegal funding activities are moving from offline to online,” Liu told a media briefing jointly held by the Ministry of Public Security and the Supreme Court.

    “Some lawbreakers are seeking loopholes left by a regulatory vacuum and blurred legal boundaries for new forms of financing,” he added.

    The government has consistently taken a very harsh stance towards illegal fund-raising, a term usually used to describe deposit-taking from the public by people without licenses to do so, because it can lead to financial market disorder and threaten social stability.

    China has already established an inter-ministry task force to tackle the problem, and Liu said an investor education campaign will be rolled out this May to guide the public to effectively identify and resist illegal fund-raising.

    In 2013, Chinese public security bureaus across 31 provinces found more than 3,700 cases of illegal fund-raising, recouping losses amounting to 6.4 billion yuan (US$1 billion), the CBRC said at the briefing.

    It did not say how many of the cases were linked to online financial services.

    The government has been seeking to tread a fine line between controlling risk and encouraging financial innovation to ensure stability in the financial sector while not killing off momentum for long-awaited reforms.(SD-Agencies)