China Releases Strict Administration Rules on Financial Leasing Companies
China Banking and Insurance Regulatory Commission has just released the Interim Measures for Supervision and Administration of Financial Leasing Companies (hereinafter referred to as the Measures) on 9 June 2020. The Measures consist of six chapters and 55 articles. The following contents of the Measures have attracted much attention of the insiders.
The financial leasing companies will be divided into three categories, i.e. normal operation category, abnormal operation category and illegal operation category. The abnormal operation category mainly refers to the financial leasing companies with abnormal operations such as lost contact and empty shell.
Lost contact refers to a financial leasing company meeting one of the following conditions:
(1) cannot be contacted;
(2) cannot be found at its registered address;
(3) although the staff of the company can be contacted, they know of no specific plots or the actual controller of the company cannot be contacted;
(4) failed to submit the supervision information in accordance with the regulatory requirements for 3 consecutive months.
Empty shell refers to a financial leasing company meeting one of the following conditions:
(1) failed to submit an annual report for the last year through the National Enterprise Credit Information Publicity System;
(2) no operation in the last 6 months as recorded by the supervision information;
(3) no tax payment record or zero tax filing in the last 6 months;
(4) no social security payment record in the last 6 months.
Abnormal operation companies may be included in the list of supervision after rectification. Those that refuse to make rectification or fail to comply with the requirements after rectification shall be included in the list of abnormal operations. Local financial regulatory authorities shall persuade them to apply for the change of company name and business scope or apply for the voluntary deregistration of the company.
In addition to sorting out the existing financial leasing companies by categories, provincial financial regulatory authorities are required to establish a consultation mechanism with market regulatory authorities and strictly control the registration of financial leasing companies and their branches.
If a finance leasing company wants to change its name, organizational form, registered or operation address, registered capital, equity structure, and etc. it shall fully communicate with the provincial financial regulatory authorities in advance and reach an agreement.
Prudential supervision indicators have been added to guide financial leasing companies to focus on their main businesses and improve their risk prevention and control capabilities. For example:
(1) the proportion of financial leasing and other leased assets shall not be less than 60% of the total assets;
(2) the total amount of risk assets shall not exceed 8 times of the net assets;
(3) investment in fixed income securities shall not exceed 20% of the net assets;
(4) strengthen the management of key tenants, effectively prevent and disperse management risks.
The transition period for compliance is three years. The existing financial leasing companies shall meet the relevant regulatory requirements under the Measures within the transition period.
In recent years, the financial leasing companies in China have grown rapidly. But more than 70% of them are in the status of abnormal operation according to statistics. After the implementation of the Measures, it definately will cause a big reshuffle in China’s financial leasing industry.