To help regulate the online P2P lending industry plagued by fraud and embezzlement, the China Banking Regulatory Commission published the Guidelines on Depositing and Managing Online Lending Capital (in Chinese, Guidelines for short) on February 24. In January this year, 1.8 million registered users were unable to withdraw their funds from platform operated by Qiyuan (short for 北京起源财富网络科技有限公司 or “Beijing Qiyuan Wealth Online Technology Limited” in English). The owner of the company, Fang Fan, embezzled the funds invested in the company’s eight different online lending platforms.

The news was broken by a Qiyuan company executive who issued a statement to say that due to Fang Fan’s mismanagement of funds, the capital of the entire Qiyuan family of companies has been misappropriated. In the aftermath, at just one police bureau in Beijing’s Dongcheng district, several hundred confused and upset investors showed up to file complaints, according to a user of one of the platforms who also visited the police bureau.

The Guidelines is the latest effort by the government to regulate the online P2P lending market which handled RMB 204 billion worth of transactions this February alone. It sets out three major basic principles regarding the safekeeping of the capital gained from P2P lending platforms. The first is that funds invested into the platforms by users must be deposited into commercial banks. The second stipulates that any transaction and reconciliation of the invested funds must be expressly approved and verified by both the debtor and creditor. Lastly, banks and online lending companies must carry out daily reconciliations and keep clear records of the transactions.

Online P2P lending platform Iqianjin CEO (爱钱进) Yang Fan says in an interview (in Chinese) with Stocks Daily that the launch of the Guidelines is a milestone in standardizing and regulating the online lending market and will accelerate the overhaul of the industry. The latest industry report counts 2,912 risky online lending companies and only 1,866 companies still operating in line with regulations, around 40% of the market.

“After competition and elimination, this market would be shared by a few dozen platforms that are mature, out of which BAT-like companies would definitely emerge,” Yang Fan predicts.

Linda Lew is a Beijing-based journalist who covers technology, start-ups and business in China. You can reach her at lindalew at aliyun dot com.