The firms at risk are asset management companies that manage private investment trusts and function in a similar way to hedge funds.
According to the South China Morning Post, the move comes as China’s regulators are tightening supervision of the country’s CNY5trn ($771bn) private fundraising industry.
There has been concern that rising cases of fraud and defaults in the asset management sector are a threat to financial and social stability.
Beginning after the Labour Day break (30 Apr – 2 May), the authorities have not specified when the clean-up will be completed.
In an earlier statement, however, Amac had said these companies could re-enter the market and reclaim their qualifications after they meet the compliance requirements.
Illegal fundraising
Following a meeting attended by 14 Chinese ministries and regulators last month, it was announced that the number of illegal fundraising cases jumped 71% in 2015. Cases involving combined investments over CNY100m were up 44% from a year ago.
The authorities committed to overhauling the sector in the second half of the year to assess risk exposure in private asset management, peer-to-peer (P2P) lending, rural cooperatives, private equity, and other financing activities.
Ezubao ponzi scheme
At the start of the year, 21 people linked to P2P lending firm Ezubao were arrested, accused of defrauding around 900,000 investors of CNY50bn.
Over a period of 18 months the finance platform rose from obscurity to become one of the most dominant companies in the industry.
China’s growing middle class has been increasingly attracted to online investment schemes as they seek to increase their wealth.
But authorities have struggled to regulate the country’s wealth management industry.
Nationwide exams
Amac, a self-regulatory authority under the CSRC, has been strengthening registration requirements and held its first nationwide qualification exam for private investment funds practitioners in April.
All fund managers and senior managers of fund companies will have to pass the exam this year or will be prohibited from raising money for private funds from next year.
