CBIRC Releases Rating Measures to Regulate Consumer Finance Firms

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On January 13, CBIRC issued rating measures to regulate the country’s consumer finance companies, effective immediately, as reported by Sina on the same day. Specifically, CBIRC’s rating framework includes five aspects including corporate governance and internal control, capital management, risk management, service quality, information technology management, each having a weight of 28%, 12%, 35%, 15%, 10%, respectively. The banking regulator will rate the nation’s consumer finance firms once a year every April. The higher the rating result, the higher the risk the institution has, thus drawing attention from regulators.

Notably, for consumer finance enterprises that receive the lowest rating, they will face mandatory takeovers by authorities. For companies that fail to get rescued, Chinese regulators will revoke their operating licenses. On the other hand, companies with good ratings are not allowed to promote it in advertisements. Before the COVID-19 outbreak, by 2019, Chinese consumer finance companies had combined assets under management of RMB499bn, growing 38.7% YoY, with a loan balance of RMB473bn, surging 30.5% YoY. Since the public health issue and the slowdown of national economic development, such companies now face lower demand and they are also seeking to make transformations in the online sector.

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