Administration of Auto Finance Companies Measures

Repealed on January 24 2008: http://www.chinalawandpractice.com/Article/1898785/Measures-for-the-Administration-of-Auto-Finance-Companies.html

(Promulgated by the People's Bank of China on, and effective as of, October 3 2003.)

PART ONE: GENERAL PROVISIONS

Article 1: These Measures are formulated in accordance with relevant laws and administrative regulations, in order to meet the needs in the development of the auto finance services industry and regulate the activities of non-bank financial institutions that engage in auto finance business.

Article 2: For the purposes of these Measures, "auto finance companies" means non-bank financial enterprise legal persons that have been established with the approval of the China Banking Regulatory Commission in accordance with relevant laws, administrative regulations and provisions of these Measures to provide loans to automobile purchasers and sellers within the territory of China.

Article 3: The China Banking Regulatory Commission is responsible for the regulation of auto finance companies.

PART TWO: ESTABLISHMENT OF, CHANGE IN AND TERMINATION OF ORGANIZATIONS

Article 4: Establishment of auto finance companies shall be subject to the approval of the China Banking Regulatory Commission.

Without the approval of the China Banking Regulatory Commission, no work unit or individual may establish auto finance companies or engage in auto finance business in disguise without authorization, or include such words expressly indicating the engagement in auto finance business as "auto finance" and "auto credit" in the name of the organization without authorization.

Article 5: To invest in the establishment of auto finance companies, an investor shall possess the following qualifications:

(1) it is an enterprise legal person legally established in or outside China:

- it in the case of a non-financial institution, its total assets in the recent year shall amount to at least Rmb4 billion or the equivalent in freely convertible currency, and annual revenue amounts to at least Rmb2 billion or the equivalent in freely convertible currency; or

- it in the case of a non-bank financial institution, its registered capital shall amount to at least Rmb300 million or the equivalent in freely convertible currency.

(2) it has sound business performance and remains profitable in the recent consecutive three years;

(3) it complies with the laws of the place of registration and has a clean record;

(4) its principal capital contributor must be an auto enterprise or a non-bank financial institution:

- "auto enterprise" means an enterprise engaged in the manufacture or sale of whole units of automobiles;

- "principal capital contributor" means a capital contributor whose amount of contribution is the largest and accounts for at least 30% of the total share capital of the proposed auto finance company;

(5) the same enterprise legal person shall not invest in more than one auto finance company; and

(6) other prudential criteria stipulated by the China Banking Regulatory Commission.

Article 6: To establish an auto finance company, the following requirements shall be fulfilled:

(1) it has the minimum registered capital required by the Measures;

(2) it has articles of association in compliance with the PRC Company Law and other relevant laws, and required by the Measures;

(3) it has senior management personnel familiar with auto financing and related businesses;

(4) it has a sound organizational structure, management system and risk control system;

(5) it has business premises, safety preventive measures and other facilities suitable for the business operation; and

(6) other requirements stipulated by the China Banking Regulatory Commission.

Article 7: The minimum amount of registered capital of an auto finance company shall be Rmb500 million or the equivalent in freely convertible currency. The registered capital shall be paid-up money capital.

The China Banking Regulatory Commission may adjust the minimum registered capital according to the development of the auto finance business and the needs of prudential supervision but the amount shall not be less than that stipulated in the preceding paragraph.

Article 8: Establishment of auto finance companies shall cover two stages: establishment preparation and commencement of business.

The Chinese texts of the application materials for establishment preparation and commencement of business submitted by the applicant shall prevail.

Article 9: To apply for establishment preparation for an auto finance company, the principal contributor shall be the applicant and submit the following materials to the China Banking Regulatory Commission:

(1) an application for establishment preparation, which shall include such contents as the name of the proposed auto finance company, the place of registration of the company, the amount of registered capital, capital contributors and their respective amount of contributions, and the scope of business;

(2) the feasibility study report on the establishment of the auto finance company, which shall include such contents as an analysis on the market prospects of the proposed company, future business development plan, management organizational structure, evaluation of the risk control capacity, and the scale of assets and liabilities and the profit forecasts after three years of operation;

(3) the articles of association of the proposed auto finance company (draft);

(4) basic particulars of the capital contributors, including the names, legal representatives, registered addresses, copies of business licences and the business circumstances of the contributors;

(5) contributors' balance sheets, profit and loss statements, and cash flow statements of the past three years audited by official institutions;

(6) a list of persons responsible for establishment preparation and their résumés; and

(7) other documents required by the China Banking Regulatory Commission.

If the applicant is a foreign non-bank financial institution, a written opinion issued by the financial regulatory authority of its place of registration shall be provided when applying for establishment preparation. If the applicant is a non-financial institution, a credit rating report on the applicant of the recent year by a rating institution shall be provided when applying for establishment preparation.

Article 10: The China Banking Regulatory Commission shall render a written reply to approve or not to approve the establishment preparation within six months from the date of receipt of the complete set of application materials for establishment preparation.

Article 11: The applicant shall finish the establishment preparation within six months from the date of receipt of the preparation approval documents from the China Banking Regulatory Commission. If there are proper reasons for extending the preparation period, a written application shall be submitted to the China Banking Regulatory Commission before the expiry of the time limit for preparation. The preparation period may be extended for three months if approved.

If upon expiry of the time limit for establishment preparation or the extension time limit, the applicant has not applied for commencement of business, the original approval for establishment preparation shall automatically be void.

Engagement in business activities in the name of an auto finance company within the establishment preparation period is prohibited.

Article 12: Prior to the expiry of the time limit for establishment preparation or the extension time limit, the applicant shall apply to the China Banking Regulatory Commission for commencement of business and submit the following documents and materials:

(1) a report on the completed establishment preparation and an application for commencement of business;

(2) a capital verification certificate issued by a Chinese official capital verification institution and a name pre-verification registration certificate for the proposed organization issued by the authority for industry and commerce;

(3) the articles of association of the auto finance company;

(4) a list of the proposed senior management personnel and their detailed résumés;

(5) names of the shareholders and their amount of capital contributions;

(6) the ruling system of the proposed business and the internal risk control system;

(7) documents approving the safety inspection and acceptance check of the business premises and other related facilities upon completion issued by the competent authority; and

(8) other documents required by the China Banking Regulatory Commission.

Article 13: The China Banking Regulatory Commission shall render a decision to approve or not to approve the commencement of business within three months from the date of receipt of the complete set of application documents and materials for commencement of business. If the commencement of business is approved, a written notice shall be sent to the applicant and a licence for engaging in financial business specifying the scope of business shall be issued; if the commencement of business is not approved, a written notice shall be sent to the applicant stating the reasons therefor.

The applicant shall register with the department for industry and commerce on the strength of the business licence and obtain an Enterprise Legal Person Licence before operation.

If from the date of obtaining the business licence the auto finance company has not commenced business in three months or has suspended the business on its own for six months after commencement of business without proper reasons, the China Banking Regulatory Commission shall revoke its business licence and make an announcement thereof.

Article 14: Auto finance companies shall not establish branches.

Article 15: The China Banking Regulatory Commission shall implement either a system of qualification approval or record filing on the appointment of senior management personnel of auto finance companies.

The qualifications of the chairman of the board, general manager, deputy general manager, directors and financial controller, etc. of an auto finance company shall be examined and approved by the China Banking Regulatory Commission. The qualifications of relevant senior management personnel and the approval or record filing Measures thereof shall be separately stipulated.

Article 16: An auto finance company shall report to the China Banking Regulatory Commission for approval if it has one of the following changes:

(1) change of company name;

(2) change in registered capital;

(3) change of business premises;

(4) adjustment of the scope of business;

(5) change in the form of organization;

(6) adjustment of the equity structure;

(7) amendment of the articles of association;

(8) change in senior management;

(9) merger or division; and

(10) other matters of change stipulated by the China Banking Regulatory Commission.

Article 17: If an auto finance company terminates operation because it is dissolved, lawfully shut down or declared bankrupt, its liquidation shall be handled in accordance with relevant laws and regulations.

PART THREE: SCOPE OF BUSINESS AND REGULATION

Article 18: With approval, an auto finance company may engage in part or all of the following renminbi businesses:

(1) taking deposits of domestic shareholder work units for a term of at least three months;

(2) provision of loan services for purchase of automobiles;

(3) providing loans for auto dealers for the purposes of procurement of automobiles or operating facilities (including loans for construction of show rooms, purchase of spare parts and equipment repairs, etc.);

(4) transferring or selling auto finance loan receivables;

(5) borrowing from financial institutions;

(6) provision of security for auto loans;

(7) agency services related to auto purchase loan activities; and

(8) other credit services approved by the China Banking Regulatory Commission.

Article 19: The granting of auto purchase loans to natural persons by auto finance companies shall be in compliance with relevant provisions on administration of individual auto finance loans of the relevant regulatory department. The granting of auto loans to legal persons or other organizations shall abide by the requirements of the Lending General Provisions and other relevant provisions.

Article 20: Without the approval of the relevant regulatory department, auto finance companies shall not, without authorization, issue bonds, or provide loans to foreign entities. Relevant provisions on such foreign exchange control matters as administration of currency exchange, remittance of profits out of China, granting of auto consumption loans to non-residents and capital management involved in the establishment or extension of business of auto finance companies shall be jointly formulated by the relevant regulatory department and the state department of foreign exchange administration.

Article 21: Auto finance companies shall implement capital to risk assets ratio controls. The capital adequacy ratio of auto finance companies shall not be lower than 10%. The China Banking Regulatory Commission may increase the minimum requirement on the capital adequacy ratio of an individual company, depending on the risk profile and risk management capacity of the auto finance company. Other specific requirements on the risk control and management of various types of assets shall be separately formulated by the China Banking Regulatory Commission.

Article 22: Auto finance companies shall adopt relevant financial accounting systems for financial enterprises.

Article 23: Auto finance companies shall in accordance with provisions formulate and submit to the China Banking Regulatory Commission balance sheets, profit and loss statements, and cash flow statements and other statements required by the China Banking Regulatory Commission, and submit the financial accounting report of the previous accounting year within three months after the end of each financial accounting year.

Auto finance companies shall not provide financial accounting reports that are false or that conceal important facts.

Article 24: Auto finance companies shall establish and perfect various business management systems and the internal control system with reference to the requirements of the Internal Control Guidelines for Commercial Banks formulated by the People's Bank of China, and report to the China Banking Regulatory Commission before implementation of the systems.

Article 25: Auto finance companies shall voluntarily accept on-site checks and off-site checks carried out by the China Banking Regulatory Commission.

Article 26: The China Banking Regulatory Commission may inquire of the legal representative and other legal management personnel of an auto finance company about problems found in the daily regulation and order such company to rectify the problems within a time limit.

Article 27: Auto finance companies shall establish a regular external audit system and submit an annual audit report signed and confirmed by the legal representative to the China Banking Regulatory Commission within six months after each accounting year.

Article 28: If payment difficulties or other emergencies arise, an auto finance company shall take emergency remedial measures and immediately report to the China Banking Regulatory Commission.

Article 29: If any of the following circumstances arise in an auto finance company, the China Banking Regulatory Commission may, in view of the circumstance, order the company to rectify the situation:

(1) a loss in the current year exceeds 50% of the registered capital or cumulative losses from the past consecutive three years exceed 30% of the registered capital;

(2) payment difficulties; or

(3) other major business risks for which the China Banking Regulatory Commission deems a rectification necessary.

Article 30: The China Banking Regulatory Commission may take the following measures after ordering a rectification of an auto finance company:

(1) request a replacement or prohibit a replacement of the senior management personnel of the auto finance company;

(2) suspend some of the auto finance company's businesses or prohibit the engagement in new businesses;

(3) request an increase in registered capital within a specified time limit;

(4) order the auto finance company to change its equity structure or to carry out other forms of reorganization;

(5) prohibit the distribution of dividends; or

(6) other measures deemed necessary by the China Banking Regulatory Commission.

Article 31: An auto finance company may end its rectification with the approval of the China Banking Regulatory Commission if it satisfies the following conditions after rectification:

(1) recovery of its solvency;

(2) losses are covered; and

(3) major business risks are solved.

Article 32: The rectification period of an auto finance company shall not exceed one year and if the purposes of rectification have not been fulfilled after the period the company shall withdraw from the market in accordance with the law.

Article 33: Auto finance companies may establish an industrial self-disciplinary association to carry out self-disciplinary administration. Activities launched by the self-disciplinary association shall be guided and supervised by the China Banking Regulatory Commission.

PART FOUR: LEGAL LIABILITY

Article 34: Establishment of auto finance companies or illegally engaging in auto finance business without the approval of the China Banking Regulatory Commission shall be banned by the Commission according to law. If a criminal offence is constituted, criminal liability shall be pursued according to law. If a crime is not constituted, the China Banking Regulatory Commission shall confiscate the illegal income and impose a fine of not less than one time and not more than five times of the illegal income; if there is no illegal income, the China Banking Regulatory Commission shall order a correction and impose a fine of not less than Rmb100,000 and not more than Rmb500,000.

Article 35: Inclusion of such words expressly indicating engagement in auto finance business as "auto finance" and "auto credit" in the name of an organization without the approval of the China Banking Regulatory Commission shall be ordered to be corrected by the Commission and fined Rmb1,000.

Article 36: Auto finance companies engaging in financial services beyond the scope approved by the China Banking Regulatory Commission shall be warned, have the illegal income confiscated and be fined not less than one time and not more than five times of the illegal income. If there is no illegal income, it shall be fined not less than Rmb100,000 and not more than Rmb500,000. If the crime of illegal operation or another crime is constituted, criminal liability shall be pursued.

Article 37: If an auto finance company violates relevant provisions hereof by providing a financial accounting report that is false or that conceals important facts, the China Banking Regulatory Commission shall give it a warning, impose a fine of not less than Rmb100,000 and not more than Rmb500,000. If the crime of providing a false financial accounting report or another crime is constituted, the criminal liability shall be pursued.

Article 38: If an auto finance company violates relevant provisions hereof by refusing or obstructing lawful supervision or inspection, the China Banking Regulatory Commission shall give it a warning and impose a fine of not less than Rmb10,000 and not more than Rmb30,000.

Article 39: If an auto finance company violates the provisions hereof, in addition to imposition of a fine in accordance with Articles 34 to 38 of this Part, if the circumstances are serious, the China Banking Regulatory Commission shall revoke the qualifications of the senior management of the company for 1 to 10 years or for life.

Article 40: If an auto finance company violates other laws or regulations of China, the relevant authority in charge shall handle in accordance with the law.

PART FIVE: SUPPLEMENTARY PROVISIONS

Article 41: The Measures apply to the establishment of auto finance companies in the mainland by investors from the Hong Kong Special Administrative Region, the Macao Special Administrative Region or the Taiwan region.

Article 42: The Measures shall be effective as of October 3 2003 and the China Banking Regulatory Commission shall be responsible for interpreting the Measures.