The Interim Administrative Measures for the Business Activities of Peer-to-Peer Lending Information Intermediaries define “peer-to-peer lending” as direct lending/borrowing realized between peers on an internet platform. Peers include natural persons, legal persons and other organizations.
The term “peer-to-peer (P2P) lending information intermediary” means a lawfully established financial information intermediary company that specializes in peer-to-peer lending information intermediary activities. Such an organization provides services such as information gathering, information publication, credit rating, information exchange, lender-borrower matching, etc., through the internet as its main channel to enable borrowers and lenders to realize peer-to-peer lending.
Current regulations and policies on peer-to-peer lending do not directly restrict or prohibit foreign investment in P2P lending intermediaries. This article analyses current legal restrictions on foreign investment in P2P lending intermediaries from the perspective of the qualifications and permits that P2P lending intermediaries are required to secure.
Value-added telecommunication service permit. Pursuant to the Telecommunication Regulations and the Classification of Telecommunication Services (2015), telecoms services are divided into basic telecoms services and value-added telecoms services. Value-added telecoms services are further divided into two categories: Type 1 value-added telecoms services include B11 internet data centre services, B12 content distribution network services, B13 domestic internet virtual private network services and B14 internet access services; and Type 2 value-added telecoms services include B21 online data processing and transaction processing services, B22 domestic multi-party communication services, B23 storage and forwarding services, B24 call centre services, B25 information services and B26 code and protocol conversion services.
When engaging in value-added telecoms services, if the service is to cover two or more provinces, autonomous regions or municipalities directly under the central government, the examination and approval of the State Council’s information industry authority and the securing of a multi-region value-added telecoms service operating permit are required.
If the service is to be limited to one province, autonomous region or municipality directly under the central government, the examination and approval of the telecoms authority of the province, autonomous region or municipality directly under the central government and the securing of a value-added telecoms service operating permit are required.
Such services as information gathering, information publication, credit rating, information exchange, lender-borrower matching, etc., in P2P lending intermediary services mainly involve the B21 and B25 service categories of Type 2 value-added telecoms services. B21 includes transaction processing services, electronic data exchange services and online/electronic equipment data processing services, while B25 information services mainly include information publication platform and delivery services, information search services, information community platform services, instant information exchange services, information protection and processing services.
Relying on a network, a P2P lending intermediary will generally charge a certain consulting fee, service fee, etc., once a lender and borrower that have been brought together establish a lending relationship. Pursuant to the Administrative Measures for Internet Information Services, the securing of a value-added telecoms service permit is also required to provide for-profit internet information services.
Local financial service office recordal/registration. Article 5 of the measures specifies that, within 10 working days after collecting its business licence, a P2P lending intermediary, or one of its branches, that proposes to launch P2P lending information intermediary services is required to carry out, on the strength of relevant materials, recordal/registration with the local financial regulator of the place where it has its business registration. Once it has completed recordal/registration with the local regulator, the P2P lending intermediary is required to apply for the appropriate telecoms service operating permit in accordance with relevant regulations of the competent telecoms authority before it can launch its services.
Restrictions on access by foreign investors. Pursuant to article 6 of the Administrative Provisions for Foreign Investment in Telecommunication Enterprises, the capital contribution to a foreign-invested telecoms enterprise engaging in value-added telecoms services (including wireless paging services in basic telecoms services) by the foreign investor may not exceed 50%.
The Catalogue for Guiding Foreign Investment in Industry (2015) relaxes the restriction on the shareholding percentage of foreign investors in “e-commerce” services in value-added telecoms services. In June 2015, the Ministry of Industry and Information Technology announced that the restriction on the shareholding percentage of foreign investors in online data processing and transaction processing services (for-profit e-commerce) was being relaxed on a nationwide basis to a maximum of 100%. It can be seen that, with the exception of the B21 service category in value-added telecoms services being free of foreign investor access restrictions, all other categories are currently subject to a 50% investment percentage restriction (except in the Shanghai Pilot Free Trade Zone).
Accordingly, when a foreign investor proposes to invest in a P2P lending intermediary, it should be fully aware of the scope of business of the enterprise, and verify whether there are foreign investment restrictions in its value-added telecoms services.
As the determination of the specific contents of the services requires a review by the specific competent telecoms authority, we would recommend that communications be carried out in advance with the competent authority. If there are no foreign investment restrictions on the services, it is additionally necessary to verify in accordance with the requirements of the Administrative Provisions for Foreign Investment in Telecommunication Enterprises whether the foreign investor satisfies the relevant conditions.
With respect to service categories subject to the 50% restriction, a foreign-invested P2P lending intermediary may be established by way of a VIE agreement control model. Enquiries made by the author with relevant telecoms authorities reveal that, in the course of examining value-added telecoms service qualifications, the telecoms authority focuses solely on the applying entity’s equity structure as registered with the administration for industry and commerce (traced back to the natural person shareholders), and ignores whether a VIE model exists.
Zhu Jing is an associate at East & Concord Partners