Measures for the Administration of Pilot Consumer Finance Companies

(Promulgated by the China Banking Regulatory Commission on November 14 2013 and effective as of January 1 2014.)

Order of the CBRC [2013] No.2

Part One: General provisions

Article 1: These Measures have been formulated pursuant to laws and regulations such as the PRC Banking Regulation Law and the PRC Company Law in order to promote the development of the consumer finance business and regulate the business acts of 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: For the purposes of these Measures, the term “consumer loan” means a loan extended by a consumer finance company to a borrower for consumption purposes (excluding the purchase of housing and motor vehicles).

Article 4: The words “consumer finance” shall be included in the names of consumer finance companies. No organisation may use the words “consumer finance” in its name without the approval of the CBRC.

Article 5: The banking regulator shall regulate consumer finance companies and their business activities in accordance with the law.

Part Two: Establishment, change and termination of business

Article 6: 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 established effective corporate governance, internal control and risk management systems, and having a management information system that is suitable for its business operations;

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

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

Article 7: The investors in a consumer finance company shall be enterprise legal persons lawfully established in China or abroad, and shall be divided into a principal investor and ordinary investors. The term “principal investor” means the investor that makes the largest capital contribution, the amount of which is not less than 30% of the total share capital of the proposed consumer finance company. The term “ordinary investor” means an investor other than the principal investor.

The principal investor, as described in the preceding paragraph, must be a financial institution in China or abroad, or a non-financial enterprise in China the principal business of which is the offering of suitable consumer loan business products.

Article 8: Where a financial institution serves as the principal investor in a consumer finance company, it 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 five years (unless ordered to do so by the banking regulator 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 prudential regulatory norm requirements of the relevant regulators of the country (region) where it is domiciled;

(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.

Where a financial institution serves as an ordinary investor in a consumer finance company, it shall, in addition to satisfying the conditions set forth in Items (3), (4), (5), (6), (7), (8) and (9), have registered capital of not less than Rmb300 million or the equivalent in freely convertible currencies.

Article 9: Where a non-financial enterprise serves as the principal investor in a consumer finance company, it shall satisfy the following conditions:

(1) having business revenue of not less than Rmb30 billion or the equivalent in freely convertible currencies (on a consolidated basis) during the most recent year;

(2) having net assets of not less than 30% of total assets (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) for the two most recent financial years in succession;

(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 five years (unless ordered to do so by the banking regulator in accordance with the law), which undertaking shall be specified in the proposed company's articles of association; and

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

Where a non-financial enterprise serves as an ordinary investor in a consumer finance company, it shall satisfy the conditions set forth in Items (2), (3), (4), (5) and (6).

Article 10: The principal investor in a consumer finance company may specify in the consumer finance company's articles of association that in the event that the consumer finance company encounters payment problems, it will provide liquidity support; and in the event that a business failure results in losses that erode capital, it will promptly make up the difference.

Article 11: A consumer finance company shall have at least one investor with at least five years of consumer finance business management and risk control experience and whose capital contribution accounts for not less than 15% of the total share capital of the proposed consumer finance company.

Article 12: 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 13: 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.

Article 14: A system for the approval of the qualifications for their positions shall apply to the directors and senior management personnel of consumer finance companies.

Article 15: A consumer finance company shall report the following changes to the banking regulator 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 16: 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 17: 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 18: 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 19: 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 20: Subject to CBRC approval, a consumer finance company may engage in some or all of the following renminbi businesses:

(1) extension of personal consumer loans;

(2) accepting deposits from shareholders' subsidiaries and shareholders in China;

(3) borrowing from financial institutions in China;

(4) issuing financial bonds following approval;

(5) domestic interbank lending;

(6) consumer finance-related consulting and agency businesses;

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

(8) investment in fixed-return securities; and

(9) other businesses as approved by the CBRC.

Article 21: When extending a consumer loan to an individual, a consumer finance company shall not exceed the customer's risk bearing capacity and the borrower's maximum loan balance may not exceed Rmb200,000.

Part Four: Regulation

Article 22: 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 23: A consumer finance company shall comply with the following regulatory norm requirements:

(1) a capital adequacy ratio not lower than the relevant regulatory requirements of the CBRC;

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

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

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

The method of calculating the relevant regulatory norms shall be carried out with reference to relevant CBRC provisions on the offsite regulatory system for statement norms. The CBRC may appropriately revise the foregoing norms based on prudential regulation requirements.

Article 24: A consumer finance company shall establish a prudent asset loss 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 25: 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 26: 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 27: 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 banking regulator the principal risks entailed by such outsourcing 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 28: A consumer finance company shall, in accordance with provisions, prepare and submit its financial statements and other statements required by the banking regulator.

Article 29: 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 banking regulator an annual audit report signed in confirmation by its legal representative.

Article 30: A consumer finance company shall accept monitoring inspections conducted in accordance with the law, and may not refuse the same or interfere therewith. When necessary, the banking regulator may appoint 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 31: 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 32: 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 and harassment.

Article 33: A consumer finance company shall duly protect the rights and interests of finance consumers based on laws, regulations and relevant regulatory requirements of the CBRC, its business handling shall comply with the principles of openness and transparency and it shall fully perform its obligation of informing the borrower so that he/she clearly understands the loan amount, term, price, repayment method, etc., which shall be specified in the contract.

Article 34: If a consumer finance company violates these Measures, the banking regulator 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 banking regulator 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 35: 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 shut it down.

Part Five: Supplementary provisions

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 January 1 2014. The former Measures for the Administration of Pilot Consumer Finance Companies (Order of the CBRC [2009] No.3) shall be repealed simultaneously .