China is tightening oversight of online lending and digital marketing of financial products. By strengthening licensing requirements, lowering financing costs and improving information disclosure, authorities aim to better protect consumers and preserve financial stability.

As the digital transformation of the financial industry accelerates, the internet has become an increasingly important channel for marketing financial products, and has given rise to a range of irregularities.

Dong Ximiao, deputy director of the Shanghai Institution for Finance and Development, said key problems include misleading marketing that conceals risks, persistent illegal financial activities promoted through livestreams and short videos, and growing disorderly competition and unclear division of responsibilities between third-party internet platforms and financial institutions.

To better protect the legitimate rights and interests of financial consumers and investors, China released measures for the administration of online marketing of financial products on April 24.

Under the new rules, financial institutions and third-party internet platforms entrusted by them, must conduct online marketing activities strictly within the scope of businesses approved by financial regulators. They are prohibited from providing marketing services or convenience for illegal financial activities.

Regulators stipulated that third-party internet platforms may not subcontract or indirectly subcontract entrusted financial business to other institutions. Financial institutions with geographic operating restrictions are only allowed to provide products to customers in their registered regions where they have branches.

Regulators also require that online marketing of financial products must not contain false or misleading information. Promotional phrases such as "low risk", "high returns" and "low interest rates" are prohibited because of their potentially misleading nature. In addition, nonbank payment institutions are no longer allowed to directly display loan or wealth management products within payment tool options, a move aimed at cutting improper bundling between credit products and payment scenarios and reducing inducements to borrow.

The measures further stipulate that employees of non-financial institutions may not market financial products through livestreams, short videos or WeChat official accounts.

Dong said the latest round of internet finance regulation features unified standards for similar online and offline businesses to curb regulatory arbitrage, stronger accountability for financial institutions, tighter market-entry requirements for third-party internet platforms, enhanced disclosure of financing costs, and stricter rules governing marketing and cooperation practices.

These measures are designed to build a comprehensive internet-finance governance system with clear responsibilities and accountability. The goal is to correct information asymmetry, protect consumer rights and interests, create a fairer, more transparent and healthier internet-finance ecosystem, said Dong.

China's online loan-facilitation market is estimated to have exceeded 6 trillion yuan ($884.4 billion), involving not only major internet companies but also a large number of small and medium-sized online platforms. Dong warned that if risks are not accurately identified and properly priced, concentrated exposure of nonperforming loans could undermine financial stability.

"The measures require third-party platforms to redirect users to self-operated platforms run by financial institutions to complete transactions, while prohibiting platforms from participating in core sales processes such as contract signing and fund transfers," he said.

Wang Pengbo, chief analyst at market consultancy Botong Analysys, said third-party internet platforms must use only financial institutions' approved marketing content, strengthen qualification checks and content monitoring, and refine recommendation algorithms by providing non-personalized recommendations and opt-out options.