When an Ant is too big to fail

Here's why Ant Group's IPO was pulled on Tuesday: It is one of the most systemically important financial institutions in the world, and at the moment it's barely regulated.

The big picture: Ant provides the technology that powers much of the Chinese economy, from borrowing to saving to investments to insurance. A failure of its systems could have devastating consequences for hundreds of millions of people.

• Chinese regulators told Ant this week that it needed much more regulation, and Ant agreed. But so long as the coming regulatory regime is uncertain, an IPO seems premature.

What they're saying: While the timing of the Chinese government's actions certainly came as a surprise, their substance has been well telegraphed in recent days.

• Chinese Vice Finance Minister Zou Jiayi told a recent conference that fintech must not be allowed to dodge regulation, per Reuters. She pointedly added that winner-take-all monopolies are also bad.
• China’s Financial Stability and Development Committee on Sunday put out a statement about the need to "include all financial activities into the regulatory framework.”
• Chinese bank regulator Guo Wuping similarly wrote on Monday that Alibaba's credit card and loan products are no different from those issued by banks, per the NYT. They therefore should be regulated the same way, he said.

Between the lines: The IPO would probably still have happened on time had it not been for a recent speech by Jack Ma, the founder of Alibaba and Ant.

• Ma railed against financial regulators, said that financial regulation was outdated, and claimed technology companies should not be subject to regulation.
• The irony is that the $35 billion that Ant expected to raise in its IPO would have gone a long way towards assuaging regulators' fears that the company is insufficiently capitalized.

My thought bubble: All banks are technology companies, but in any case technology can break. It's OK if a single computer crashes; it's not OK if a country's entire financial system goes down.

• If a technology company is also a systemically important financial institution, then it needs to be regulated just as assiduously as any other financial-services giant.

The bottom line: The lack of an Ant Group IPO is bad news for global investors who wanted a slice of a fast-growing financial giant, and is also bad news for the nascent Shanghai stock exchange. But if a delay of a couple of months helps to bring pre-IPO clarity with regard to Ant's future regulatory regime, no long-term damage will have been done.