Research on Internal Control for P2P Lending Platform

However, permissive regulatory environment and lacking of self-discipline lead to a rise in illegal activity in the finance industry. The prosperous development of P2P exposes the unregulated operation. According to Liang, Jianfeng, (2017), the China P2P lending industry annual report, the number of P2P lenders peaked at 1931 in 2017, while 517 platforms have collapsed since 2016. That means the number of P2P lenders has been on a unilateral downward trend throughout the year (Liang, Jianfeng, 2017). Some of the P2P lending platforms have had their effective internal control system. Therefore, the above problems, I conduct five ways as follows, raising internal control awareness, perfecting risk response, optimizing the capital process, improving the information disclosure system, and strengthening supervision to solve the problems (You, Chuanman, 2017).

Through the research of PPDAI. COM, internal control can enhance the platforms' ability to withstand changeable risk, hedge against part of high-risk cases, effectively share the risks and make them bearable. Thus, it is essential to improve internal control (Huang, Robin Hui, 2018). Also, the internal control of P2P lending platforms is a systematic project, because it is not the responsibility of one department, on the contrary, it should be traded as having continuity (Tsai, Kellee S, 2015). 1 Background and objectives P2P can be described typically, as a matchmaker between depositors and borrowers but this had turned for some firms which raised deposits from ordinary clients and gave it as loans to corporate borrowers like the land developers (You, Chuanman, 2017). According to Sun, Yuzhong, and Chuncheng Liu, (2016), the Beijing at Ezubao was revealed to have taken up over one hundred billion Yuan by fraud from close to one million investors.

In the mid-2016, the CEO of PPDAI. COM Cliff Zhang advised the mainland stakes to internally control the P2P business policing in the prevention of further failures and in control of the leveraged sector (Ma, Winston, 2017). However, since early 2013, the developing technology in the finance industry has been highlighted by Beijing to play a role in financing the growing small businesses and in supporting the individual consumption. According to a report given by the authority in 2014, over 2349 operating platforms existed in China with a minimum of 621 billion Yuan disbursed loans. These figures have however been increasing throughout the years, however, a shocking percentage of more than 40% of the available platforms were reported to be faced with fraudulence issues (Chen et al, 2015).

This, therefore, provides for an opportunity to research on the matter and this research is based on the same. As described by Li, Jiacheng, et al, (2016), PPDAI is, however, trying to fight this misconception by laying more platforms to offering loans among the Chinese. A need for an improved internal control herein is, therefore, key to better performance when financing small businesses without major collaterals. COM (Chen et al, 2015). 3 Research method A secondary method of obtaining data was mainly used in the research where a collection of web pages on loan listing were searched from PPDAI. COM. These pages were downloaded from the P2P platform's officiated inception (2007 to 2017). Previously written works on PPDAI P2P platforms and internal control systems were also reviewed from the China International Library where all were archived (Meng, F, 2016).

However, due to the failure of the financial systems. A serious aspect of credit misconception and unmet financial demands have been the major problem attacking the Chinese financial institutions. According to a report from the china's Net lending sector in 2017, a decrease of up to 517 operating platforms was witnessed right from 2016. The total number of platforms in china in 2017 amounted to 5923 according to data from OLH out of which 3858 were problematic. The growing P2P lending in china has been accompanied by several operational issues. The PPDAI fact of using Bitcoin instead of banks normally cuts off the operational costs in realization of higher profits. The origination fees charged on customers which a one-time charge contributes in the profit realization. A theoretical review on the internal control for the P2P lending platforms included the calculation of LGD.

According to Dongyu, Chen, et al, (2011), this is the ratio representing the risk of exposure to default loss. The fact that PPDAI issued unsecured loans to the members opened a high probability of default loss. Other institutions later followed and the whole industry had entered the first lane of growth. In 2012, China experienced an exponential growth in diverse areas including the higher numbers of investors, potential borrowers, and better platforms for the business turnover. The income structure of PPDAI according to Zhang, Yuejin, et al. , (2016), went up through revenue generation among different services offered by the firm. P2P platforms have however placed themselves in better positions for information providers and deal makers. COM. 2 Internal control concept Internal control concept includes the basic control tools for achieving a competitive privilege over other competitors.

Controls in the P2P industry were set by the authority which passed several policies in regard to control of unnecessary. China should, therefore, impose an internal auditing requirement which will prevent undue failures. The competition from banks and other institutions requires a better platform which will ensure added advantage. The default frequency may be high for some customers while to other it might be least depending on the situation and circumstance. 4 All-directions risk management theories This theory combines the methods for reducing the undesirable activities in order to cover for any adverse loss emanating from the individual undesired event or activity. This may be done through insurance over different calamities in order for the insurance company to cover any loss in case the event took place.

The theory of risk management can be viewed in all perspectives since adverse events are diverse. It could, therefore, be a financial risk management or even a social risk where there is life endangering. According to Talavera, Oleksandr, and Haofeng Xu, (2018), PPDAI has over sixty-five million registered users in the industry and is also the pioneer in the online consumer market. 1 The history development In the first stage of development 2007 to 2012, this was the starting period to start on the P2P lending; unlike most of the P2P lenders who had just a background of the internet, PPDAI was focused in online credit lending alone. A borrower the provided personal details on a special platform which would later be verified and then the customer would be given a line of credit.

The customer would, therefore, request for a certain amount and he or she would receive the money in the mode of selection (Li, Jiacheng, et al, 2016). In the second stage of development 2010 to 2013, this was a rapid expansion of the regional loans provided by the lending institutions. The borrowers have also increased in the number to a number able to sustain the investors. The profitability of the company is facilitated by the charged fees on members which always ranging from 1% to 3% of the total value deposited in PPDAI. 3 The operating models and operating conditions. The operating model for PPDAI is to pool funds coming from depositors and spending it to other customers in need of money but this time in form of loans.

The operating conditions for PPDAI are that it must verify the personal details before approving a loan to any member (Li, Jiacheng, et al, 2016). P2P poor management may befall the firm and may cause failure. The personnel ethics risk is also a major potential weakness for the PPDAI. COM (Li, Jiacheng, et al, 2016). The risk assessment for PPDAI revealed that the internal risks could be controlled by a series of internal controls. 3 Control Activity According to Li, Jiacheng, et al, (2016) the control action can be described by the action of setting performance indicators to the platform. For instance, PPDAI worked under the structure and model of receiving deposits and advancing them to borrowers as loans. In such a situation, one should first understand environment which consists of the structure, model, and the processes.

2 Risk assessment Risk assessment is one of the key areas one needs to master in order for him to improve on the control system. This could be done by learning the performance measurement system of the company under review and understanding its current PMS. 3 Control Activity The control activity can be described by the action of setting performance indicators to the platform. In such a situation, one should first understand environment which consists of the structure, model, and the processes. 2 Risk assessment Risk assessment is one of the key areas one needs to master in order for him to improve on the control system. This could be done by learning the performance measurement system of the company under review and understanding its current PMS.

3 Control Activity The control activity can be described by the action of setting performance indicators to the platform (You, Chuanman, 2017). This may be implemented by the adjustment of the PMS according to the specifications provided for by the regulatory steer. The research suggests that a P2P lending must be determined by the relative technological developments up to 80% (Tsai, Kellee S, 2015). Technological developments, however, must go with the financial consumer needs. Works Cited “P2P Series Part 3: China's Online Lending Consolidates As Market Grows. ” PIIE, 13 Oct. 2017,piie. wdzj. com/news/yanjiu/52614. html. Dongyu, Chen, et al. "Antecedents of initial trust in the online peer-to-peer lending marketplace. " Journal of Discrete Mathematical Sciences and Cryptography 19. Tao, Qizhi, Yizhe Dong, and Ziming Lin. "Who can get money? Evidence from the Chinese peer-to-peer lending platform.