The regulation seems to have come from the CBRC and covers companies that use words like 'investment, wealth management, lease financing, shares, assets' etc. to describe themselves in their business scope, which is fairly broad. New registrations in Shanghai, Beijing and Shenzhen have all been frozen for now. This wouldn't affect existing internet finance companies, as long as they are registered properly as internet finance companies, which may not always be the case - many might be registered as just plain technology firms, and it wouldn't affect companies outside of these traditional centers.
The move comes only a few weeks after the government promulgated more detailed regulations on P2P lending and mobile payments and is likely part of a continued effort to get to grips with an industry that has really caught regulators by surprise.
Although some may argue that this new regulation is positive in the longer term, it does have the short-term effect of clearly stifling innovation in the financial industry. It also does give incumbents a chance to catch-up. Banks have been struggling to stay relevant as P2P lending sites and the BAT (Baidu, Alibaba, Tencent) have continued to take deposit marketshare away from traditional players. Forward-thinking banks might look at this freeze as an opportunity to consolidate and actually integrate smaller fintech players.
This begs the question as to if this will be a short-term restriction. We actually believe this will be much longer term - at least through 2016. Right now the regulators have bigger problems than how to grow the fintech industry in China. Take for example the US$1trillion drop in foreign currency reserves in the past few months. Or how mainland markets are in turmoil. And economic data has been going from bad to worse. There's very little upside to encouraging fintech for them right now.
That being said, it is also a continued opportunity to change the industry. The BAT have already launched their online digital banks, and although uptake has been somewhat less than spectacular, as they innovate and mature, we should see them drive the industry forward.
Finally, this could be the starkest example globally that we have seen of regulators pushing against fintech. In London, New York, Hong Kong, etc., we have seen governments embrace fintech to varying degrees - allowing it, but still limiting it; over-regulation tends to be one of the biggest complaints of fintech firms in general. Similarly to Bitcoin though, rather than mess around, the Chinese government seems to have cut fintech off at the knees.