The Legal Risks Of Chinese Peer-to-peer Lending Platform And Its Supervision

In recent years, the online Peer-to-Peer (P2P) lending with its obvious advantages isdeveloping rapidly in China. The P2P platform works as an intermediary whichprovides the capital supply and demand information for borrowers and investors. Ithelp to solve the problem of domestic microfinance. Meanwhile, some drawbacksalso emerge in the process of rapid development of P2P industry. The risks in thepopular debt transfer mode, guarantee mode and small credit mode reveal thatfrequent innovation in the business mode in P2P industry has already led to adeviation from the core value of P2P. Some P2P lending platforms not only changedtheir role as providing services without participating in transaction, but also promisedinvestors high returns. The illegal fund-raising and financial fraud acts in the platformoperation have touched the regulatory red line. Yet the P2P platform is still out of thesupervision category. Protecting the interests of investors, encouraging financialinnovation and preventing excessive negative externalities of P2P industry shall be thefocus of regulators.This paper includes four parts. The First Part is an outline of P2P lending byintroducing the meaning, development and the characteristics of P2P lending. The P2Plending is a product of financial innovation. It is originated in Britain and grown in the United States. It prompts the interests of wide range of groups and makes thetransaction flexible and efficient with high-yield and high-risk coexisting.In the Second Part, the author compares several typical P2P lending platforms, such asZopa in Britain, Lending Club and Prosper in the United States and PPDAI, YIRENDAI, Lufax and Youli Platform in China, and analyses the operations of these fourmain modes. The legal relationship among the P2P lending in each model andpossible reasons behind the difference in operation mode in China and other countriesare also discussed in this part.In the Third Part, the author analyzes the major type of risks in P2P lending platformin China and makes further discussion regarding the specific risks under the P2Pplatforms with different businesses mode mentioned in the Second Part.In the Fourth Part, by drawing from the regulatory methods in the UK and US, theauthor presents several proposals to improve the regulation of P2P Lending platformin China.