Ant Group's consumer finance unit has won approval to begin operating in Chongqing city, the local banking watchdog said on Thursday.

Details: The consumer finance unit, Chongqing Ant Consumer Finance Co Ltd, has a registered capital of 8 billion yuan ($1.25 billion), according to a statement from the Chongqing bureau of the China Banking and Insurance Regulatory Commission (CBIRC).

It marks a big step since Ant started a comprehensive rectification in April under the guidance of Chinese financial regulators. 

The restructuring, directed by China’s central bank, requiring turning Ant itself into a financial holding firm, and fold its two lucrative micro-loan businesses Huabei and Jiebei, into the new consumer finance firm. It means Ant is subject to tougher regulatory oversight and capital requirements, which will curb its profitability and valuation. 

Citing a regulator at the CBIRC, the Chinese news outlet 21st Century Business reported on Thursday that Ant has to complete the branding restructuring of Huabei and Jiebei within 6 months after its consumer finance firm starts to operate.

Ant will hold a 50% stake in the new entity and contribute 4 billion Chinese yuan ($625.93 million) in registered capital, while Hong Kong-based Nanyang Commercial Bank holds a 15% stake, CBIRC said on Thursday.

Context: Since last year, China has intensified its oversight of the tech sector. At the end of last year, the financial regulators suspended Ant’s $37 billion initial public offerings, claiming that major problems in its business have been identified, and asked the group to come up with a rectification plan and set a timetable as soon as possible to fix the problems.

Alibaba, of which Ant is an affiliate, was hit with a record $2.75 billion antitrust penalty as China tightens controls on the “platform economy”.