Measures for the Administration of Pilot Consumer Finance Companies

Article 2: For the purposes of these Measures, the term “consumer finance company” means a non-bank financial institution established in the People's Republic of China with the approval of the China Banking Regulatory Commission (CBRC) that does not accept deposits from the public and that, on the basis of the principles of small amount and diversification, extends loans to resident individuals in China for consumption purposes.

Article 3: The words “consumer finance” shall be included in the names of consumer finance companies. No work unit may use the words “consumer finance” in its name without the approval of the CBRC.

Article 4: The CBRC and its agencies shall oversee consumer finance companies and their business activities in accordance with the law.

Part Two: Establishment, change and termination of business

Article 5: A consumer finance company for which an application for establishment is made shall satisfy the following conditions:

(1) having articles of association that comply with the PRC Company Law and CBRC provisions;

(2) having investors that satisfy the prescribed conditions;

(3) having the minimum registered capital specified herein;

(4) having directors and senior management personnel that have the qualifications for their positions and qualified practitioners familiar with the consumer finance business;

(5) having sound corporate governance, internal control, business operation, risk management and other such systems;

(6) having business premises, security measures and other facilities appropriate for its business; and

(7) other prudential conditions as specified by the CBRC.

Article 6: The principal investor in a consumer finance company shall be a domestic or foreign financial institution or another investor approved by the CBRC, and shall satisfy the following conditions:

(1) having at least five years of experience in the consumer finance sector;

(2) having total assets of not less than Rmb60 billion or the equivalent in freely convertible currencies (on a consolidated basis) as at the end of the most recent year;

(3) having a good financial position, and having been profitable (on a consolidated basis) consecutively for the most recent two financial years;

(4) being of good reputation, without a record of major violations of laws or regulations in its operations during the most recent two years;

(5) the source of its funds for the equity stake being genuine and lawful, and not using funds from a loan or funds entrusted by third parties to acquire the equity stake;

(6) giving an undertaking that it will not transfer its equity interest in the consumer finance company for three years (unless ordered to do so by the CBRC in accordance with the law), which undertaking shall be specified in the proposed company's articles of association;

(7) having a good corporate governance structure, internal control mechanisms and sound risk management systems;

(8) satisfying the regulatory requirements of relevant regulatory departments;

(9) in the case of a foreign financial institution, having established a representative office in China for at least two years or having a branch in China, having done sufficient analysis of and research on the China market, and the financial regulator in its residing country or region having established a good regulatory co-operation mechanism with the CBRC; and

(10) other prudential conditions as specified by the CBRC.

Article 7: In addition to satisfying the conditions set forth in Items (3), (4), (5), (6), (7), (8) and (9) of Article 6 hereof, ordinary investors in a consumer finance company shall, if they are financial institutions, have registered capital of not less than Rmb300 million or the equivalent in freely convertible currencies or, if they are not financial institutions, have a net asset ratio of not less than 30%.

Article 8: The registered capital of a consumer finance company shall be one-time paid-in monetary capital, and the minimum amount thereof shall be Rmb300 million or the equivalent in freely convertible currencies.

The CBRC may revise the minimum registered capital depending on the development of the consumer finance business and the requirements of prudential regulation.

Article 9: A consumer finance company may, in line with the growth of its business, establish branches and sub-branches with the approval of the CBRC. The specific conditions for the establishment of branches and sub-branches shall be formulated separately by the CBRC. A consumer finance company may not engage in business outside the administrative jurisdiction where its place of registration is located without the approval of the CBRC.

Article 10: The CBRC subjects the directors and senior management personnel of consumer finance companies to a system for the approval of the qualifications for their positions.

Article 11: A consumer finance company shall report the following changes to the CBRC for approval when they arise:

(1) a change to its company name;

(2) a change in its registered capital;

(3) a change in its equity or equity structure;

(4) a change to its domicile or place of business;

(5) an amendment to its articles of association;

(6) a change in its directors or senior management personnel;

(7) a revision to its scope of business;

(8) a change to its corporate form;

(9) a merger or division; or

(10) another change as specified by the CBRC.

Article 12: A consumer finance company may be dissolved after approval by the CBRC if:

(1) the term of operations specified in its articles of association expires or another ground for dissolution as specified in its articles of association arises;

(2) the organ of authority specified in its articles of association resolves to dissolve the company;

(3) it needs to be dissolved due to a merger or division; or

(4) other statutory reasons.

Article 13: If the business of a consumer finance company is terminated as a result of being dissolved, or being closed down or declared bankrupt in accordance with the law, its liquidation shall be handled in accordance with relevant state laws and regulations.

Article 14: The administrative permission procedures for the establishment, change and termination of business of consumer finance companies and the approval of the qualifications of directors and senior management personnel for their positions shall be handled in accordance with relevant CBRC provisions.

Article 15: If the establishment or change, or the business operations of a consumer finance company involve foreign exchange control matters, relevant state provisions on foreign exchange control shall be complied with.

Part Three: Business scope and business rules

Article 16: Subject to CBRC approval, a consumer finance company may engage in some or all of the following renminbi businesses:

(1) personal consumer durable loans;

(2) personal consumer loans for general purposes;

(3) credit asset transfer;

(4) domestic interbank lending;

(5) borrowing from domestic financial institutions;

(6) issuing financial bonds following approval;

(7) consumer finance-related consulting and agency business;

(8) sale on an agency basis of consumer finance-related insurance products;

(9) investment in fixed-return securities; and

(10) other businesses as approved by the CBRC.

Article 17: A consumer finance company is required to extend personal consumer loans for general purposes to borrowers who have previously applied for consumer durable loans from the company and have a good repayment record.

Article 18: The balance of consumer loans extended to an individual by a consumer finance company may not exceed five-times the borrower's monthly income.

Part Four: Oversight

Article 19: A consumer finance company shall establish and enhance a corporate governance structure and internal control systems, formulate business operation rules and establish comprehensive and effective risk management systems in accordance with relevant CBRC provisions.

Article 20: A consumer finance company shall comply with the following regulatory index requirements:

(1) a capital adequacy ratio of not less than 10%;

(2) percentage of funds borrowed on the interbank market not exceeding 100% of its total capital;

(3) an adequacy ratio of asset-loss provision of not less than 100%; and

(4) an investment balance not exceeding 20% of its total capital.

The method of calculating the relevant regulatory indices shall be carried out with reference to relevant CBRC provisions on the offsite regulatory system for statement indices.

Article 21: A consumer finance company shall establish a prudent asset impairment reserve system in accordance with relevant provisions and make full allocations thereto in a timely manner. No profit distribution may be made until the full allocation has been made to such reserve.

Article 22: A consumer finance company shall establish a risk pricing mechanism for interest rates on consumer loans and, to the extent permitted by laws and regulations, determine interest rate levels for consumer loans based on factors such as funding costs, risk costs, return on capital requirements and market prices so as to ensure that pricing fully covers the risks.

Article 23: A consumer finance company shall establish effective risk management systems and reliable business operation procedures so as to fully identify false application information and prevent fraud.

Article 24: If a consumer finance company has the need to outsource business, it shall formulate policies and administrative rules related thereto, including the business outsourcing decision-making procedure, the evaluation and management of outsourcing agents, measures and contingency plans for controlling the confidentiality and security of business information, etc.

Before a consumer finance company executes a business outsourcing agreement, it shall report to the CBRC the principal risks entailed by such agreement and the corresponding risk avoidance measures taken.

A consumer finance company may not outsource business that is intimately connected with loan decision-making and core risk control technology.

Article 25: A consumer finance company shall establish an information disclosure system with reference to relevant provisions of the Measures for Information Disclosure by Commercial Banks and disclose its financial accounting reports and information on its risk management position, corporate governance, annual material events, etc. in a timely manner.

Article 26: A consumer finance company shall, in accordance with provisions, prepare and submit to the CBRC its financial statements and other statements required by the CBRC.

Article 27: A consumer finance company shall establish a regular external audit system and, within four months after the end of each financial year, submit to the CBRC an annual audit report signed in confirmation by its legal representative.

Article 28: A consumer finance company shall accept monitoring inspections conducted in accordance with the law by the CBRC, and may not refuse the same or interfere therewith.

When necessary, the CBRC may designate an accounting firm to audit a consumer finance company's business position, financial position, risk position, internal control systems and the implementation thereof, etc.

Article 29: A consumer finance company bears an obligation of maintaining the confidentiality of the personal information provided by borrowers, and may not readily disclose the same to third parties.

Article 30: When a borrower fails to repay the principal of and pay interest on a loan as specified in the contract, the consumer finance company shall take lawful means to effect collection, and may not use illegitimate means such as intimidation, threats, harassment, etc.

Article 31: If a consumer finance company violates these Measures, the CBRC may order it to rectify the matter within a specified period of time. If it fails to do so within the specified period of time or if its act seriously jeopardises its sound operations or harms the lawful rights and interests of customers, the CBRC may, depending on the circumstances, take regulatory measures against it such as ordering it to suspend its business and place restrictions on the rights of its shareholders in accordance with laws and regulations such as the PRC Banking Regulation Law.

Article 32: If a consumer finance company is facing or could face a credit crisis, materially affecting the lawful rights and interests of customers, the CBRC may, in accordance with the law, take it over or cause it to undergo re-organisation. If a consumer finance company operates in violation of the law, its operation and management are carried out in an incompetent manner, etc. and failing to close it down would materially jeopardise the financial order and/or harm the public interest, the CBRC has the power to close it down.

Part Five: Supplementary provisions

Article 33: For the purposes of Article 6 hereof, the term “principal investor” means the investor whose investment percentage is not less than 50% of the registered capital of the proposed consumer finance company. For the purposes of Article 7, the term “ordinary investor” means an investor other than the principal investor.

Article 34: For the purposes of Article 16 hereof, the term “personal consumer durable loan” means a loan extended by a consumer finance company through the seller to the borrower for the purchase of the specified consumer durable, such as a household appliance or electronic product, but excluding premises and motor vehicles.

Article 35: For the purposes of Articles 16 and 17 hereof, the term “personal consumer loan for general purposes” means a loan extended by a consumer finance company directly to a borrower for personal and household consumer items such as travel, wedding celebrations, education and renovations.

Article 36: The conditions for foreign investors shall apply to investors from Hong Kong, Macao and Taiwan that establish consumer finance companies.

Article 37: The term “at least” as used herein includes the number or the level.

Article 38: The CBRC is in charge of interpreting these Measures.

Article 39: These Measures shall be effective as of the date of promulgation.