CBRC Issues Guidelines to Regulate Information Disclosure by Online Lending Agencies

Time:2017-08-28   Source:National Business Daily Reported by Xiao..

CBRC rolled out “one set of measures and three guidelines” in one year, putting an end to the barbarian growth of the online lending sector and subjecting it to stringent regulation. On August 25, CBRC released on its website the Guidelines on Information Disclosure of Business Activities of Online Lending Information Intermediaries (“Information Disclosure Guidelines”), signifying that the “1+3” online lending regulatory framework has basically taken shape.

Reporter: Xiao Le; Editor: Bi Luming

Recently, the China Banking Regulatory Commission (CBRC) released the Guidelines on Information Disclosure of Business Activities of Online Lending Information Intermediaries (“Information Disclosure Guidelines”), prescribing the specific items, disclosure time, disclosure frequency, target groups, and other aspects online lending agencies should make public regarding their business activities.

The Information Disclosure Guidelines constitutes part of the “1+3” online lending regulatory framework, which also comprises the Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries, Guidelines on Registration of Online Lending Information Intermediaries, and Guidelines on Depository Business for Online Lending).

According to the CBRC, the introduction of the Information Disclosure Guidelines marks that the “1+3” regulatory framework has basically taken shape. The document further specifies the rules that shall be observed by the online lending sector, and represents another step in guarding against online lending risks, protecting consumer rights and interests, accelerating the compliance of the sector, and promoting survival of the fittest in the sector.

Given that online lending institutions needs time to sort out information on existing business activities, the Information Disclosure Guidelines allows a rectification period of up to six months.

Unified standards for delayed disclosure

The provisions on delayed disclosure in the Information Disclosure Guidelines have drawn wide attention. According to the provisions, online lending information intermediaries shall disclose, within the first five workdays every month, the amounts and transactions overdue as of the end of the previous month, overdue for above 90 days, and accumulatively repaid on behalf of borrowers.

“Amount overdue” refers to the sum of the principal and interest a lender has not received on time according to the contract, and “receive” means the funds having been transferred to the bank account of the lender; “amount overdue for above 90 days” refers to the principal balance overdue for more than 90 days; “amount repaid on behalf of the borrower” refers to the total amount a third party, neither the borrower nor the online lending agency, has repaid when the borrower defaults or for other reasons.

The National Internet Finance Registration and Disclosure Services Platform launched by the National Internet Finance Association of China (NIFA) earlier requires disclosure of overdue amount, overdue rate of projects, overdue rate of amounts, and number of overdue projects. We found that 49 of the 82 institutions connected to the platform report zero overdue rates of projects and amounts.

“In the past, online lending platforms disclosed overdue loans and bad loans based on self-discipline, and their definitions and calculating methods varied widely. To make the numbers ‘look better’, the accuracy and authenticity of data could not be guaranteed”, said Goodsure CEO Wu Fushen, “the Information Disclosure Guidelines makes it compulsory for lending platforms to disclose the overdue amounts, overdue transactions, and amounts and transactions repaid on behalf of borrowers, and clearly defines the above terms to prevent divergences in the sector.”

Compared to the requirements of the National Internet Finance Registration and Disclosure Services Platform, the indicators for amounts and transactions repaid on behalf of borrowers are added to the Information Disclosure Guidelines, which can reflect the performance of online lending platforms more comprehensively and help investors to make decisions, said General Manager Zhou Zhihan of Kaixin Financial.

Disclosure of related-party loans

According to the Information Disclosure Guidelines, online lending information intermediaries shall, within the first five workdays every month, disclose the balances and transactions of related-party loans as of the end of the previous month.

“Balance of related-party loans” refers to the total balance of loans borrowers with connection relationships with a lending platform have acquired through the platform.

“Connection relationships” refer to the relationships between substantial shareholders, de factor controllers, directors, supervisors and senior executives of an online lending information intermediary and any enterprises and natural persons directly or indirectly controlled thereby or subject to significant influence thereof, and any other relationship that may lead to the transfer of any interests of the platform.

“Principal shareholder” refers to a natural person, legal person or other organization that holds or controls more than 5% of the equity or voting rights of an online lending information intermediary. “Directly or indirectly controlled enterprise” refers to an enterprise in which a person/organization directly or indirectly holds more than 5% of the equity or voting rights.

Fang Song, President of Guangzhou Internet Finance Association, said in an interview that connection relationships need to be disclosed in principle, but that was not explicitly required in the past; for the online lending sector, disclosure of connection relationships is conducive to the implementation of relevant regulatory regulations.

“Disclosure of connection relationships is necessary to ensuring the implementation of the provisions on self-financing and the RMB1 million cap for a single borrower on a single platform”, said Fang Song, “Different borrowers may borrow no more than RMB1 million each, but if there are connection relationships, the total amount can exceed that cap. If the money is borrowed in the name of shareholders or their relatives, that will constitute an act of self-financing. Such behaviors shall be regulated.”

Quicker pace of credit system building

According to the Information Disclosure Guidelines, an online lending institution shall disclose to the lender the basic information of the borrower, including their nature (natural person, legal person or other organization), industry, income, debts and whether they have defaulted in the past six months as shown in their credit report and borrowed on other online lending platforms, before the lender confirms the lending to the borrower.

This provision can prevent multiple borrowings, said Hu Zhihui, CEO of ppdai.com. However, relevant systems have not been put in place to implement the provision, said Fang Song. “There is still no unified credit system in the online lending sector. Most small borrowers of the sector have no records in the credit reference system of the central bank. Online lending platforms generally get access to their information through third-party credit reference agencies. The whole sector is calling for a system to address multiple borrowings and risk spreading.”

He pointed out that the provision of the Information Disclosure Guidelines on disclosure of borrowings on other online lending platforms means that the authorities have put online lending credit system building on the agenda, and substantial progress can be expected in six months.

In addition to pre-loan disclosure, the Information Disclosure Guidelines also stipulates that an online lending institution shall timely disclose to the lender relevant information on loans prior to their maturity, including the use of funds, business performance and financial situation of the borrower, changes in repayment capacity, default by the borrower, appeals and administrative punishments involving the borrower, and any other important information that may influence the repayment.

As for risk management, the online lending sector generally focuses on pre-loan qualification verification and post-loan asset disposal while giving little attention to the use of funds and actual situation of borrowers in the process, thus neglecting the default risks therein. The above provision can protect the right of lenders to stay informed about the use of funds and can promote platforms to strengthen risk control, said Wu Fushen.

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