First-step analysis: fintech regulation in China

Financial regulation

Which bodies regulate the provision of fintech products and services?

There is no single regulatory body responsible for the regulation of fintech products and services. Different fintech services and products are regulated by different regulatory bodies. The main regulatory bodies include the People's Bank of China (PBOC), China Banking and Insurance Regulatory Commission (CBIRC) and China Securities Regulatory Commission (CSRC).

Which activities trigger a licensing requirement in your jurisdiction?

The following activities are regulated and require a licence:

• carrying on securities brokerage;
• carrying on securities investment consultancy;
• financial advising relating to securities trading or investment;
• securities underwriting and sponsorship;
• carrying on proprietary account transactions;
• carrying on securities asset management;
• taking in deposits from the general public;
• handling domestic and foreign settlements;
• handling, accepting and discounting of negotiable instruments;
• issuing financial bonds;
• acting as an agent for the issue, honouring and underwriting of government bonds;
• buying and selling government bonds and financial bonds;
• offering and providing discretionary investment management services;
• buying and selling foreign exchange, and acting as an agent for the purchase and sale of foreign exchange;
• carrying on fund management services;
• carrying on fund custodian services;
• carrying on derivative products transactions;
• lending micro loans online or offline; and
• providing consumer finance services.

Is consumer lending regulated in your jurisdiction?

Consumer lending is a regulated activity and is governed by the General Rules of Loans, the Administrative Measures for Pilot Consumer Finance Companies (the Consumer Finance Measures) and the Commercial Bank Law.

The General Rules of Loans require that lenders are approved by the PBOC to engage in lending business, hold a financial legal person licence or a financial institution business licence issued by the PBOC, and are approved and registered by the Administration for Industry and Commerce.

The Consumer Finance Measures regulates the operating activities of consumer finance companies that refer to non-bank financial institutions and do not receive public deposits but provide loans to resident individuals within China for consumption purposes (excluding house and vehicle purchases) under the principle of small sum and dispersion. The consumer finance companies must be approved by the CBIRC.

Are there restrictions on trading loans in the secondary market in your jurisdiction?

Trading loans between financial institutions in the secondary market are subject to regulatory supervision by the CBIRC and the following restrictions:

• the financial institutions must report certain information to the CBIRC;
• the transfer of loans is subject to the consent of the borrower and the guarantor (if any);
• all outstanding principal and interest must be transferred as a whole;
• parties are prohibited from making any direct or indirect repurchase arrangements; and
• if the lender is from a consortium, other members of the consortium shall have the right of first refusal for such a transfer.

Trading loans between non-financial institutions are generally not subject to mandatory regulatory restrictions.

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

The establishment and operation of securities investment funds within China via public and non-public raising of funds is regulated by the Securities Investment Fund Law. The primary regulatory body for funds in China is the CSRC. Generally, the regulation on public raising funds (retail funds) is more detailed and restrictive than for private funds. Retail funds and retail fund managers must be registered with the CSRC. Fundraising, fund custodian and investment activities are strictly regulated by the CSRC. Agencies that engage in sales, sales payment, unit registration, valuation services, investment consulting, rating, information technology system services and other fund services related to publicly raised funds are subject to registration or record filing in accordance with the requirements of the CSRC. Private funds and private fund managers must register with the Asset Management Association of China, an industry self-disciplinary body under the supervision of the CSRC.

Pursuant to article 2 of Securities Investment Fund Law, the definition of collective investment schemes (securities investment funds) are funds managed by fund managers, placed in the custody of fund custodians and used in the interest of the holders of the fund units for investment in securities. Accordingly, peer-to-peer or marketplace lenders or crowdfunding platforms do not fit the definition of collective investment schemes and do not fall into the regulatory scope of the them.

Are managers of alternative investment funds regulated?

Managers of alternative investment funds that raise capital from a number of investors and invest it in accordance with a defined investment policy for the benefit of those investors are regulated. These activities are broadly defined as asset management services, and may be conducted by securities companies, trust companies and fund management companies and their subsidiaries. Managers are subject to different regulatory regimes depending on the specific form of these alternative investment funds.

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

The Interim Measures for the Administration of Business Activities on Online Lending Information Intermediary Agencies (the Online Lending Rules), issued on 17 August 2016 by the CBIRC, specifically target the activities of peer-to-peer lending between individuals through an internet-based platform. The Online Lending Rules require that the peer-to-peer lending platforms register with the local branch of the CBIRC, apply for the applicable telecommunication service operation licence and include serving as an internet lending information intermediary in its business scope, and shall only act as information intermediaries between parties. Peer-to-peer lending platforms must not conduct credit enhancement services, cash concentration or fundraising activities for themselves, or provide security or guarantee arrangements for lenders. The Online Lending Rules also set out detailed requirements for information disclosure, protection of lenders and borrowers and risk control measures.

In the years 2017 to 2019, the Chinese government and relevant regulatory authorities issued various regulations and guidelines governing the peer-to-peer online lending industry. The main purpose was to regulate peer-to-peer industry behaviour and enhance supervision of the industry.

Describe any specific regulation of crowdfunding in your jurisdiction.

The Guideline Opinion on Promoting the Healthy Development of Internet Finance has defined equity-based crowdfunding as public equity financing in small amounts through an internet-based platform. The Opinion provides that equity crowdfunding must be conducted through an agency platform such as a website or other digital medium, and that the CSRC will be the regulatory authority for equity crowdfunding business. In 2016, the CSRC issued an action plan for risk control of equity-based crowdfunding, prohibiting the establishment of private equity funds or public offering of securities through crowdfunding.

In 2014, the Securities Association of China was entrusted by the CSRC to draft a Management Measures for Private Equity Crowdfunding (Trial). The Measures were released for public comment in December 2014. However, the final version of the Measures has not yet been officially released.

Describe any specific regulation of invoice trading in your jurisdiction.

The Chinese Negotiable Instruments Law, issued in 2004, applies to three categories of negotiable instruments including money order, promissory note and cheque. It provides rules for the transfer, endorsement, acceptance and payment of the three negotiable instruments.

However, there is no specific regulation of invoice trading or invoice trading platforms in China. Depending on how the business is structured, a firm that operates an invoice trading platform may be carrying on a number of different regulated activities for which it must have permission.

Are payment services regulated in your jurisdiction?

Payment services provided by non-financial institutions (payment services providers) in China are primarily regulated by the PBOC under the Administrative Measures for the Payment Services Provided by Non-financial Institutions. Payment services refer to any of the following transfer services provided by non-financial institutions as the intermediaries between the payer and the payee:

• online payments;
• issuance of prepaid cards;
• acceptance of payments using a bank card; and
• any other payment services as determined by the PBOC.

A payment service provider is required to obtain a payment service licence issued by the PBOC to provide payment services in China. For cross-border payments, payment services providers will need to obtain a licence from the foreign exchange authority (ie, the State Administration of Foreign Exchange (SAFE)), in addition to the payment licence issued by the PBOC. Non-financial payment institutions must deposit customer reserve funds in accounts with the PBOC or qualified commercial banks to protect the funds.

According to the legislation plan issued by the PBOC on 17 April 2020, the drafting of the ‘Measures for the Administration of Cross-border Payment Services’ has been put on the agenda to further regulate cross-border payment services.

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

There are currently no such laws or regulations in China. On 13 February 2020, the PBOC issued the financial industry standard of the application programming interface secure management specification for commercial banks (not mandatory but recommended). The standard specifies the type and security level of the application programming interface (API) of commercial banks and the security design, deployment,  integration, operation and maintenance, termination and system downline and management, as well as other security technology and requirements. Some media organisations report that the financial authorities plan to launch new regulations and policies for the open banking sector and open API.

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

Yes. In addition to the general insurance laws and regulations, internet insurance companies are obliged to comply with the Interim Measures for the Supervision of Internet Insurance Business and Implementation Rules for the Information Disclosure of Internet Insurance Business issued by the CBIRC. Insurance companies and brokers must be CBIRC-licensed to carry out their business. They are permitted to conduct internet insurance business on their own online platforms or through third-party online platforms (these third-party online platforms are not required to be CBIRC-licensed because all the insurance-related activities are, and must be, conducted by the licensed insurance companies and brokers, instead of the platform operator).

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

Yes. The Administrative Regulations on the Credit Reporting Industry are the primary regulations for credit references and credit information services. The providers of corporate credit information services are subject to filing requirements with the PBOC, while the providers of personal credit information services are subject to prior approval from the PBOC and stricter qualification requirements.

In 2018, the PBOC issued its first (and the only so far) personal credit rating business licence to Baihang Credit Co, Ltd, a newly established company comprising the eight companies in the pilot and the National Internet Finance Association.

Law stated date

Give the date on which the above content is accurate.

26 May 2020.