context: Regulating internet finance ranks high in the 2021 policy agenda. The wild growth of internet consumer loans has worried regulators—economically a ticking bomb and politically a manifestation of rampant consumerism and social stratification. This time clear red lines are drawn on the boundaries of cooperation between banks and internet platforms in the hope of bringing down the overall scale of this business.
A notice on tightening the screws on the internet loan business was released by CBIRC (China Banking and Insurance Regulatory Commission), stipulating
- implementing risk control requirements
- commercial banks must
- carry out internet loan risk management independently
- complete loan risk assessment independently
- it is strictly forbidden to outsource key aspects of pre-loan, in-loan and post-loan management
- commercial banks must
- strengthening the management of the capital contribution ratio
- the capital contribution ratio of the partner institution in a single loan must not be less than 30 percent
- effective 1 Jan 2022
- reinforcing the centralised management of cooperating institutions
- where a commercial bank and a partner institution jointly fund an internet loan, the balance of the bank's loan with a single partner (including its related parties) must not exceed 25 percent of the bank's net tier 1 capital
- implementing total loan quota control
- the balance of internet loans issued jointly by a commercial bank and all cooperative institutions must not exceed 50 percent of the bank's total loan balance
- strictly controlling cross-regional operations
- local corporate banks must serve local customers and not conduct internet loan business across jurisdictions of registration
- exceptions may be made by CBIRC
- effective 1 Jan 2022
- a transitional period has been set for institutions to complete the rectification before 17 Jul 2022
Substantially tightening the requirements of internet lending policies, the Notice is a refinement of existing regulations, notes Dong Ximiao 董希淼 Merchants Union Consumer Finance chief researcher. It aims to implement the central government's requirements on fully regulating fintech and the platform economy, strengthening financial supervision and better preventing financial risks, Dong argues.