According to six sources with direct knowledge of the situation, Chinese authorities are preparing to levy a fine of more than $1 billion on Jack Ma’s Ant Group, putting an end to the fintech company’s two-year regulatory overhaul.

According to five of the sources, the regulator preparing the fine is the People’s Bank of China (PBOC), which has been driving the revamp at Ant since the Chinese firm’s $37 billion IPO was canceled at the last minute in 2020.

According to three of the sources, the central bank has been in informal communication with Ant about the fine for several months.

According to a source, it plans to hold more discussions with other regulators about Ant’s revamp later this year and announce the fine as soon as the second quarter of next year.

A fine against Ant could pave the way for the company to obtain a long-awaited financial holding company license, resume growth, and eventually resurrect its plans for a public market debut.

Ant’s fine would be the largest regulatory penalty imposed on a Chinese internet company since China’s cybersecurity regulator fined Didi Global $1.2 billion in July.

The fintech firm’s affiliate, e-commerce behemoth Alibaba Group (9988.HK), was fined a record 18 billion yuan ($2.51 billion) for antitrust violations last year.

The penalties are part of Beijing’s sweeping crackdown on the country’s tech behemoths, which has reduced their values by hundreds of billions of dollars and reduced revenues and profits.

However, Chinese authorities have softened their stance on the tech crackdown in recent months as part of efforts to support an economy battered by the COVID-19 pandemic.

According to one of the sources, the fine will likely focus on Ant’s alleged violations relating to “disorderly capital expansion” and the resulting financial risks caused by its once freewheeling businesses.

Because they were not authorized to speak to the media, all of the sources spoke on the condition of anonymity.

Soon after billionaire founder Ma publicly criticized China’s regulatory system for stifling innovation, Chinese authorities abruptly canceled Ant’s IPO, which was set to be the world’s largest, in November 2020.

In the months since, regulators have begun to rein in Ma’s empire, beginning with the antitrust investigation into Alibaba. Ma, one of China’s most successful and powerful businessmen, has largely avoided public scrutiny since the crackdown.

Ant, whose businesses include payment processing, consumer lending, and insurance product distribution, was also pushed by regulators to revamp its business structure and bring it under tighter regulatory supervision.

Since April of last year, Ant has been formally undergoing a massive business transformation, which includes transforming itself into a financial holding company, subject to the same rules and capital requirements as banks.

Ant’s two profitable micro-loan businesses will be folded into a consumer finance unit, and its treasure trove of data on more than 1 billion users will be shared with state firms, a move that is expected to reduce its profitability and valuation by curtailing some of its businesses. more info

According to four of the sources, the penalty against Ant will not be finalized until China appoints a number of top officials to the State Council and other government bodies next year.

While China’s ruling Communist Party completed its twice-decade congress and central leadership reshuffle last month, top positions in the cabinet and government bodies are still subject to changes, which usually occur during the annual meeting of parliament in early March.

Yi Gang, the central bank’s chief, is expected to retire as he approaches the official retirement age of 65 for minister-level officials.

A request for comment was not responded to by China’s State Council Information Office, which handles media inquiries for the cabinet.

As part of its efforts to rein in systemic financial risks, the central bank officially issued rules to regulate the country’s vast and often complex financial holding companies just before Ant’s IPO squabble.

It has already approved the formation of three such companies, including China CITIC Financial Holdings.

According to two of the six sources and a separate person, the central bank’s local branch in the eastern city of Hangzhou, home to Ant’s headquarters, received the firm’s application to establish a financial holding company in June.

According to the sources, the PBOC is unlikely to formally disclose the application until Ant completes its revamp.

(Adapted from Reuters.com)