China’s regulators may tell Tencent Holdings to house its WeChat Pay in a financial holding company, with potentially new licensing requirements, Bloomberg reported Friday, citing people familiar with the matter.

Tencent, like Ant Group, had been told last year to put its banking, insurance and other financial services into a financial holding company to be regulated like a bank, the report said.

But regulators are now considering requiring WeChat Pay be included in the financial holding company, operating separately from the main social media arm, Bloomberg reported, citing the sources.

WeChat Integration

The report said WeChat Pay is an integral feature of the WeChat superapp, and making it less convenient to use could reduce its appeal.

The news follows a report earlier this week from the Wall Street Journal, citing sources, that Tencent may face a potentially record fine for alleged money-laundering violations by the WeChat Pay network. That news had decked Tencent’s shares, which had already been hurt by China’s tech sector crackdown

The news of the potential ring-fencing of WeChat Pay may be a factor in the drop Friday in Tencent’s share price, which was off around 1.7 percent at 2:00 p.m. HKT.

Halting the Rally?

That comes barely a day after Chinese equities had rallied after government bodies had vowed to provide market support, including progress on issues related to listing on U.S. markets. Tencent's shares are still down around 16 percent so far this year, and off more than 40 percent over the past 12 months.

The mainland began implementing regulations over the past two years, sometimes overdue, on new technology areas which had been allowed to engage in a «Wild East» strategy. Indeed, the public reason Alibaba’s financial arm Ant Group saw its Hong Kong and Shanghai IPO plans squashed at the eleventh hour in 2020 was due to concerns over regulating the company as a financial firm, rather than a technology one – the suspension came just after China drafted new rules for microlending online.

Some of the pressure on Chinese companies came from the Trump administration’s haphazard trade war against China, which included efforts to force the mainland’s companies to delist from U.S. markets. China’s response may have amounted to taking its own ball home from the game, leaving U.S. investment banks without IPO deals from the mainland.