Tencent Holdings Ltd. widened losses to narrow more than 10% after the Wall Street Journal reported it faced record fines for violating Chinese anti-money laundering rules.
The People's Bank of China found that Tencent's WeChat Pay allowed the transfer of funds for illegal purposes such as gambling, the newspaper reported, citing unidentified people familiar with the matter. The Journal said WeChat Pay was also judged as non-compliant with other regulations that required Tencent to identify users and merchants transacting on the platform.
The potential money-laundering investigation will open a new frontier in Beijing's sweeping crackdown on the Internet industry, an effort that has already wiped out hundreds of billions of dollars in everything from ride-hailing and e-commerce to online education. Tencent itself has so far mostly escaped formal regulatory action. Unlike rivals Alibaba Group Holding Ltd and Meituan, the WeChat operator has not yet been a direct target of any government investigation.
The report comes as Beijing prepares to step up efforts to fight illegal fund flows, aimed at averting systemic risk and shore up the financial industry. In January, the central bank announced that it would launch a nationwide campaign to curb money laundering by 2024.
However, central bank officials discovered irregularities on WeChat Pay, which competes with Ant Group company's Alipay, following the conclusion of regular inspections of the payments platform in late 2021, the Journal reported. Regulators are discussing the size of the impending fine, but it could run up to hundreds of millions of yuan, which is larger than the fines typically imposed in the past.
Tencent's shares closed at their lowest level in nearly two years on Monday. The spread for Tencent's dollar bonds rose 22 basis points to 228 basis points due in 2030, according to data compiled by Bloomberg, a record high and nearly equal to Friday's jump.
The report casts uncertainty over Tencent's rapidly growing fintech division. WeChat Pay is at the heart of the social media giant's businesses, helping fuel transactions within games, mini-programs like food delivery service Meituan and ride-hailing app Didi, as well as more than a billion nationwide The merchant pays for the consumers. By 2021, WeChat Pay handled an estimated 40% of China's mobile payments, second only to Alipay.
Under recently established rules, Tencent is required to restructure its fintech business under a financial holding company similar to that of Alibaba founder Jack Ma's ant. But the relationship between WeChat Pay and the rest of Tencent's finance division could make the separation, which officials have said will have minimal impact on operations, and be more complicated.
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Elsewhere, Tencent is grappling with an increasingly stringent regulatory environment.
Its investment arm could be affected as President Xi Jinping's administration worries about a "disordered expansion of capital". WeChat has drawn scrutiny from regulators for building an attached Internet ecosystem that spans everything from e-commerce to short videos and online payments.
Regulators have imposed strict restrictions on gaming time for minors in the past months, withholding approval of new games. And last year, the country's technology overseer warned Internet firms to stop blocking rival services, prompting WeChat to start allowing external links to apps run by the likes of Alibaba and ByteDance.