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Alibaba's Ant Group Buckles Under Regulatory Pressure, Agrees To Organize As Financial Holding Company

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Alibaba's Ant Group Buckles Under Regulatory Pressure, Agrees To Organize As Financial Holding Company

Alibaba Group Holding Limited's (NYSE: BABA) Ant Group subsidiary has yielded to regulatory pressure and agreed to organize itself as a financial holding company.

What Happened: Following an ultimatum from the People's Bank of China, Ant, a fintech company, said it will become a financial holding company that falls under the purview of the Chinese central bank.

The company will now be regulated more like a bank, which would mean adhering to additional capital requirements and more guidelines that impact its multiple lines of business. 

Ant said it would take measures to safeguard personal information in order to improve data security and prevent abuse. It also agreed to improve corporate governance.

The clampdown will impact its operations and profitability.

The central bank has also required the company to end unfair competition and monopoly in its payment business and also cut the outstanding value of its money market fund Yu'ebao.

Ant's businesses include Alipay, China's largest digital payments company, an open insurance marketplace and the Anti Fortune asset management and retirement planning platform. It has also launched financial products such as Yu'ebao.

Ant's surrender signals a victory for regulators that are checking the entry and rampant growth of technology firms into the financial sector and curbing monopolies in the online arena.

Late last year, regulators poured cold water on parent Alibaba's plan for Ant's $34-billion initial public offering.

The decision was attributed to the determination that the proposed offering may not meet the Chinese stock exchange's listing requirements after Alibaba's Jack Ma and other executives were summoned by regulators.

Related Link: Why Is Alibaba Stock Surging Despite $2.87B Antitrust Fine?

Why It's Important: The development comes close on heels of regulators imposing a $2.8-billion fine on Ant's parent Alibaba for violating anti-monopoly law.

The company was slammed by the State Administration for Market Regulation for using data and algorithms to strengthen its own position in the marketplace.

With the regulatory risk now behind it, Alibaba expressed relief. In a statement, the company said it accepts the penalty with sincerity and will ensure compliance. 

The magnitude of the fallout for Alibaba remains to be seen.

BABA Price Action: Alibaba shares were trading 8.26% higher at $241.79 at last check Monday. 

Related Link: Alibaba's Stock Is Entering Make It Or Break It Time

Ant Group founder Jack Ma. Benzinga file photo by Dustin Blitchok.

 

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