(Yicai Global) Dec. 12 -- Deposits held by bike-sharing firms are largely unsupervised, and groups that do not embezzle them do so out of self-restraint, a Chinese banking industry insider said. A lack of oversight has made the sector risky for consumers.

"The supervision of the platforms that said they set up a dedicated account [for deposits] is not as strict as they have claimed," a banking industry insider said. "The deposit safety depends on self-discipline of the platform."

Most of the major domestic bike-sharing companies have declared that they have cooperated with a bank for deposit safety, but none of them has revealed details about supervision.

"There are no official regulations about deposit safety," the insider said. "Enterprises put users' deposits in the bank and let the bank supervise. Terms are negotiated by both parties. If the company opens a so-called account for deposit, whether the account is only used for refunding deposits depends on the supervision agreement."

A lot of businesses are playing word games with users, a banking industry insider said. Statements such as "will develop" and "including but not limited to" indicate that both parties signed a framework agreement without fleshing out detailed rules and regulations, the insider said. "The banks have the driving force to attract deposits. As long as they are not responsible, they can use vague expressions to walk a fine line."

"How can the bank know that your money was deposited?" the insider asked. "How can the bank know that all your deposits are in this bank? Enterprises can change their channels to deposit funds, and it is beyond our control if the deposits charged the next day go to another bank."

"The key issue is who should be the supervisor," the insider said. "For funds that are supervised by China Securities Regulatory Commission, China Banking Regulatory Commission and Asset Management Association of China at the same time, the bank has an easier time. As for deposits of shared bikes, no regulations about where the money comes from and where it ends up cover the companies involved."

One of the results of the lack of supervision is universal appropriation. "Appropriation of deposits has become a public secret widely known in the industry," a bike-sharing sector insider said.

The funds may go to bike production or company expenses, and enterprises can decide how much money to leave in their accounts -- they could leave 30 percent or 80 percent, the insider said.

"Banks are not likely to initiatively supervise the funds as their purpose is expanding business," the insider said, adding that some banks wanted to work with his company, providing commitments such as financial management, financing for upstream and downstream supply chains and compensation for promotion of credit cards.

"As for the so-called supervision agreement, the approach of supervision is determined by our talks with banks," he said. "We will not deposit funds in banks that impose stricter supervision."

"What is the basis for banks' supervision of enterprises? No official regulatory stipulation is in place at the moment," the bank industry insider said.

Bike-sharing enterprises have a lot of pull as they control where the money goes. Bike-sharing service users risk their deposits over regulatory issues.

Enterprises may borrow deposits even if they are placed in special accounts without appropriation.

"We have learned that a bike sharing firm borrowed CNY100 million with a CNY100 million deposit receipt," the banking industry insider said. "There were indeed CNY100 million in the deposit account [at one point], but the funds had already been loaned out."

"If the deposits are put in basic accounts and general accounts of enterprises, supervision will be more difficult, as they are totally managed by the enterprises themselves," the insider said.

After news that Guangzhou Yueqi Information Technology Co. (Xiaoming Bike) would not refund deposits spread quickly across shared-bike user communities, Hua Xia Bank Co. said that the company opened its settlement account in a branch in Guangzhou as a general deposit account, with all data and formalities following the general standard for such accounts.

"Our bank does not need to perform the third-party supervision," Hua Xia Bank said.