In its public consultation issued on 2 November 2020, the China Banking and Insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBC) sought feedback on the draft Interim Rules on Online Micro-Lending Business (Rules).  The Rules aim to standardise business operation rules for the regulation and development of online micro-lending business.  Online micro-lenders have 1 year to comply with the Rules once they are officially issued.

Definition and Supervision of Online Micro-Lending Business

Under the Rules, “online micro-lending business” refers to the use by micro-lending of big data, cloud computing, Internet platforms and other technical means to analyse and assess the credit risk of borrowers and complete online loan applications, risk audits, loan approvals, loan disbursement and loan recovery processes.  The Rules also require online micro-lending businesses to be carried out in the administrative region of the province where the company is registered.  Prior CBIRC approval is required for business operations across provinces.

Qualification and Operational Requirements

To qualify for operating an online micro-lending business, a company must:

• have a minimum registered paid-in capital of RMB 1 billion (this is increased to RMB 5 billion for companies that provide services across provinces);
• have directors, supervisors and senior management personnel with related experience and no adverse records;
• have a sound organisational structure, internal control and risk management system;
• comply with prescribed business premises, Internet platform, business systems and technical capabilities conditions;
• comply with anti-money laundering and anti-terrorism financing measures; and
• comply with any other conditions that the CBIRC may prescribe.

In conducting business, an online micro-lender must comply with certain operational rules, including:

• determining maximum loan amounts based on a borrower’s income level, overall liabilities, asset status and other relevant factors to ensure that the borrower’s repayment amount does not exceed their repayment ability;
• the purpose of a loan shall be agreed between the online micro-lending company and a borrower and cannot be used for investment products and property purchases or mortgages;
• compliance with rules relating to joint loans; and
• introducing a loan registration system.

Online micro-lenders should also (a) establish a sound corporate governance structure and robust internal control and risk management systems, (b) strengthen equity management, fund management and consumer rights protection, (c) comply with laws on the collection and use of customer information and (d) not induce excessive borrowing. Chinese regulators may pursue individual and/or organisational legal responsibilities for any violation of the Rules.

Controlling Shareholder and Internet Platform Operator Requirements

The controlling shareholder of an online micro-lending company must be a profitable entity (a) that has paid a total tax of not less than RMB 12 million for the last 2 fiscal years, (b) with a capital contribution of not more than 35% to the company’s net assets in the last fiscal year, (c) with a clear development strategy and plan and (d) with a commitment to hold equity in the company for at least 5 years.

Further, the Internet platform operator for an online micro-lending company must (a) hold more than 5% of the shares in the online micro-lending company, (b)be registered in the same province, autonomous region or municipality as the online micro-lending company, (c) be in operation for more than 2 years without any records of violations of certain laws and regulations and (d) not operate in the financial business industry.

For More Information

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Disclaimer: This article is for general information only and does not constitute legal advice.

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