Preface

On August 17, 2022, the Guangdong Provincial Local Financial Supervision Administration (hereinafter referred to as the “Provincial Financial Bureau”) published the “Implementation Rules for the Supervision and Administration of Financial Leasing Companies in Guangdong Province” (hereinafter referred to as the “Rules”). Since Guangdong Province is one of the provincial administrative regions with the most active financial leasing transaction activities in China, and many of the “top-tier commercial leasing” companies commonly known within China’s financial leasing industry are registered in Guangdong Province, it is foreseeable that the issuance of the “Rules” will inevitably have a profound impact on China’s financial leasing industry, especially on the series of future business activities of financial leasing companies belonging to Guangdong Province. The author believes that the “Rules” and the regulatory rules stipulated therein have constituted and will continue to constitute an important part of the supervision of China’s financial leasing industry.

It is worth noting that before its issuance, the “Rules” went through two rounds of soliciting public opinions (the first round started on May 13, 2021, and the second round on November 19, 2021).

Note: The differences between the two drafts for soliciting opinions and their main contents have been analyzed and explained in detail by the author in two articles: “Interpretation on Guangdong Province’s <Leasing Rules (Second Draft for Soliciting Opinions)>” and “Interpretation on <Implementation Rules for the Supervision and Administration of Financial Leasing Companies in Guangdong Province (Draft for Soliciting Opinions)>”. Both articles have been publicly published, and readers are welcome to search for and refer to them.

That is, more than a year has passed from the date the first draft for soliciting opinions was published to the official publication of the “Rules”. From this, it can be seen that the Provincial Financial Bureau, as the formulating authority, attaches great importance to the regulation and governance of the financial leasing industry in the province, as well as the formulation of the “Rules”, an important industry normative document.

Overall, the main content of the “Rules” is highly consistent with the second draft for soliciting opinions published on November 19, 2021 (hereinafter referred to as the “Second Draft”), with only minor revisions made based on the “Second Draft”. At this time, coinciding with the official release of the “Rules”, the author takes this opportunity to provide personal understanding on several important clauses of the “Rules” for colleagues to refer to and critique!

I. Understanding and Analysis

1. Clarifying the Industry Self-Regulation Responsibilities of the Guangdong Financial Leasing Association

Article 6 of the “Rules” stipulates:

In accordance with laws, regulations, and provisions of the articles of association, the Guangdong Financial Leasing Association shall play the roles of service, coordination, rights protection, and industry self-regulation; assist provincial regulatory departments in carrying out theoretical research, regulatory rating, data reporting, and other work; conduct activities such as industry self-regulatory management, personnel training, and dispute mediation; and guide financial leasing companies to operate legally and compete fairly.

It should be noted that in past practice, the financial leasing industry associations of various provinces, municipalities directly under the Central Government, and autonomous regions (hereinafter referred to as “Provincial Leasing Associations”) have played an important role as bridges and links between financial leasing companies in their respective regions and local financial regulatory departments and other relevant government departments. However, the responsibilities of the various Provincial Leasing Associations have not all been clarified by relevant local financial regulatory laws, regulations, or normative documents.

Note: (1) The Beijing Local Financial Supervision Administration once issued the “Guidelines for the Supervision and Administration of Financial Leasing Companies in Beijing (Trial)” on April 7, 2020 (hereinafter referred to as the “Beijing Leasing Guidelines”). Article 44 of the document stipulated: The Beijing Leasing Industry Association is the self-regulatory organization of the financial leasing industry in Beijing. It performs the responsibilities of self-regulation, coordination, rights protection, and service, and guides financial leasing companies to operate with integrity, compete fairly, and run steadily. However, the “Beijing Leasing Guidelines” were later abolished by the formulating authority on July 15, 2021. (2) Article 65 of the “Implementation Rules for the Supervision and Administration of Financial Leasing Companies in Jilin Province (Trial)”: Local financial regulatory departments should strengthen the vocational capability building of financial leasing practitioners, carry out relevant business training for practitioners, take measures to improve the comprehensive quality of practitioners, and cultivate a group of financial leasing talents with high professional capabilities. Support industry associations in carrying out training, textbook compilation, level evaluation, experience promotion, and business exchanges. Intensify the publicity and popularization of financial leasing concepts and knowledge, continuously improve the social influence and awareness of the financial leasing industry, and create a good social atmosphere for industry development. The author believes that the above document stipulates the scope of work of the industry association from the side but does not explicitly designate the “industry association” as the Provincial Leasing Association. (3) Article 39 of the “Implementation Rules for the Supervision and Administration of Financial Leasing Companies in Yunnan Province (Trial)”: The financial leasing industry association is the self-regulatory organization of the financial leasing industry and a social organization legal person. The lawfully established financial leasing industry association shall play the roles of communication, coordination, and industry self-regulation in accordance with its articles of association, perform the functions of coordination, rights protection, self-regulation, and service, carry out activities such as industry training, theoretical research, and dispute mediation, and assist supervisory and administrative departments in guiding financial leasing companies to operate with integrity, compete fairly, and run steadily. The above provision also does not explicitly designate the “financial leasing industry association” as the Provincial Leasing Association. (4) Article 8 of the “Guidelines for the Supervision and Administration of Financial Leasing Companies in Hunan Province (Trial)”: According to the needs of industry development, the Hunan Financial Leasing Industry Association shall be established in due course according to law to perform responsibilities such as self-regulation, coordination, rights protection, and service, and guide all financial leasing companies in the province to operate with integrity, compete fairly, and run steadily. The author understands that the above provision leaves room at the level of normative documents for the potentially established Provincial Leasing Association. The above provision can be understood as a special provision for the (potentially established in the future) Provincial Leasing Association.

The author believes that the above provisions of the “Rules” have significant and positive implications, mainly in the following two aspects:

(1) Clear Rights and Responsibilities, with Laws to Follow.

Through the clarification of regulatory regulations, the responsibilities and status of the Guangdong Financial Leasing Association have laws to follow. In fact, the author believes that this clarification has the effect of authorization, that is, the Provincial Financial Bureau authorizes the Guangdong Financial Leasing Association to perform the corresponding industry self-regulation functions within the scope stipulated by the “Rules”.

At the same time, it clearly distinguishes the Guangdong Financial Leasing Association from other social organizations and intermediary agencies in Guangdong Province. In other words, compared to other social organizations and intermediary agencies in Guangdong Province, the industry self-regulation functions and status of the Guangdong Financial Leasing Association have been clearly stipulated by the “Rules”.

(2) Clarifying the Definition of Self-Regulation Functions.

Article 6 of the “Rules” stipulates the self-regulation functions of the Guangdong Financial Leasing Association. Industry association self-regulation, broadly speaking, is the self-management of the industry association, which is the essential requirement for the industry association to implement industry autonomy, and it runs through the whole process of the existence and development of the industry association.

Note: Zhao Hai (Executive Vice President of Shanghai Development Zone Association): “Calling for Legislation on the Self-Regulatory Management Functions of Industry Associations at the National Level”, April 14, 2020, published on the Internet.

To enable industry associations to better exert their self-regulation functions, it is exceptionally important to clarify their self-regulation functions through relevant laws and normative documents.

The author believes that the above provisions of the “Rules” are also a detailed reflection of the “Interim Measures for the Supervision and Administration of Financial Leasing Companies” (hereinafter referred to as the “Interim Measures”) issued by the CBIRC.

The “Rules” clarifying the functions and status of the Guangdong Financial Leasing Association is conducive to the subsequent development of relevant self-regulatory management work by the Guangdong Financial Leasing Association. Specifically, the “Rules” clarify the self-regulation functions of the Guangdong Financial Leasing Association, namely playing the roles of service, coordination, rights protection, and industry self-regulation according to law, and carrying out activities such as theoretical research, personnel training, and dispute mediation. At the same time, the “Rules” also emphasize that the Guangdong Financial Leasing Association shall assist provincial regulatory departments in carrying out regulatory ratings, data reporting, and other work, and guide legal operations and fair competition.

2. Relevant Provisions on the Registration of Financial Leasing Companies

Article 8 of the “Rules” retains the relevant provisions from the “Second Draft” that when the municipal regulatory department negotiates with the market supervision department on company registration (the registration of a financial leasing company), they should refer to whether the applicant’s “development strategy and business model are clear and definite, and whether the profitability model is sustainable”. The author believes that the above provision is of great significance. Specifically, there are the following points:

First, regulatory departments will conduct a “substantive review” of the rationality of the development strategies and business models of the proposed financial leasing companies.

In practice, the purposes of some investors in establishing financial leasing companies are diverse. The purpose of some investors in establishing a financial leasing company may not necessarily be to continuously operate a financial leasing company, but may be for other purposes: for example, for some investors with speculative purposes, if their purpose in registering and establishing a financial leasing company is to attempt to buy and sell the “shell” by transferring the equity of the financial leasing company they hold after its establishment, then such transaction activities belong to situations without a clear and definite business model and with an unsustainable profitability model; for another example, some investors who attempt to obtain the so-called “full financial licenses”, if their purpose in registering and establishing a financial leasing company is merely to achieve a “complete” set of “licenses” for “financial institutions”, and they do not have the business planning, personnel, industry knowledge reserves, or industry advantages to carry out financial leasing business, it may be deemed by regulatory departments as a situation without a clear and definite business model and with an unsustainable profitability model.

Second, local financial regulatory departments pay attention to whether the profitability models of newly established financial leasing companies are sustainable.

Combined with industry experience and practices, the author speculates that regulatory departments may comprehensively judge whether the profitability models of the proposed financial leasing companies are sustainable based on various situations, mainly including: whether the proposed main business complies with the provisions of national laws and regulations and whether it belongs to the types of businesses encouraged by the state or the province; the expected revenue level of the proposed business; under reasonable circumstances, whether the proposed financial leasing company can obtain financing, the type or nature of the financing, and the cost of the financing that can be obtained, etc.

3. Prohibitive Provisions on Outsourcing/Transferring Qualifications

Article 12 of the “Rules” retains the provision from the “Second Draft” regarding the prohibition of financial leasing companies in the province from carrying out “outsourcing of core businesses such as credit reviews for businesses involving natural person clients”. The author believes that this provision is, to a certain extent, also a reiteration of Article 5 of the “Interim Measures”. Article 5 of the “Interim Measures” stipulates the business scope that China’s financial leasing companies can engage in by listing them without adding a “catch-all clause”. In other words, if a financial leasing company engages in business that does not fall within the scope listed in Article 5 of the “Interim Measures”, the business lacks compliance.

In addition, Article 8 of the “Interim Measures” also authorizes local financial regulatory departments to add prohibited business types or scopes for financial leasing companies within their purview. The above prohibitive provision of the “Rules” also implements the provision of Article 8 of the “Interim Measures”, detailing and clarifying the “other businesses or activities prohibited by provincial, autonomous region, or centrally administered municipality (hereinafter referred to as provincial) local financial regulatory departments” as stipulated in Article 8 of the “Interim Measures”.

The author believes that the newly added content of the “Rules” addresses the situation existing in practice where some financial leasing companies do not employ a reasonable number of employees themselves, and (or) in fact do not carry out financial leasing business-related work themselves (but the legal relationships and cash flows involving financial leasing in related transactions may be established between these financial leasing companies and the lessees), but operate various business activities through third parties, including actual business development and risk reviews conducted by third parties. This situation constitutes “outsourcing” as stipulated in the “Rules”. In fact, this kind of “outsourcing” is, more or less, a violation involving lending the qualifications and legal entity status of a financial leasing company.

Regarding the aforementioned behaviors of outsourcing or transferring the qualifications of financial leasing companies, not only has the provincial “Rules” explicitly prohibited them, but local financial regulatory departments in other regions (such as Shanghai) also have similar prohibitive provisions.

Note: Article 22 of the “Interim Measures for the Supervision and Administration of Financial Leasing Companies in Shanghai”: Financial leasing companies shall not engage in the following businesses or activities: (1) Illegal fund-raising, absorbing, or absorbing deposits in a disguised form; (2) Issuing or entrusting the issuance of loans; (3) Borrowing or borrowing funds in a disguised form with other financial leasing companies; (4) Directly or indirectly raising funds from the general public through asset securitization, asset management plans, asset transfers (including creditor’s rights or beneficial rights transfers), etc., via online lending information intermediaries, various local trading venues, non-licensed asset management institutions, private equity investment funds, and other institutions (except for equity financing carried out in accordance with the law and situations otherwise stipulated by the state and this Municipality); (5) Lending or leasing financial leasing operation qualifications; (6) Using violence or other illegal means to collect debts or dispose of leased assets; (7) Other business activities prohibited by laws, regulations, and industry regulatory systems.

Moreover, it should be seen that with the successive introduction of laws, regulations, departmental rules, and normative documents regarding data compliance, security, and protection, such as the “Cybersecurity Law”, “Data Security Law”, “Personal Information Protection Law”, and “Administrative Measures for Credit Reporting Business”, China’s data legal system will gradually be perfected. For financial leasing companies that carry out business with individual clients, because they obtain the information of individual clients, they may become responsible entities under the relevant data law systems to varying degrees. If they transfer or transmit the obtained individual client information to third parties, the corresponding data compliance risks are also significant. Data compliance obligations and compliance risks stemming from data laws are a matter worth paying attention to in the future for the financial leasing industry, especially for financial leasing companies mainly engaged in business with individual clients.

4. Clarifying the Scope of Prudential Businesses

Article 13 of the “Rules” retains the relevant provisions from the “Second Draft” regarding businesses or activities that financial leasing companies in the province should carry out prudently.

The “Rules” stipulate:

(1) Carrying out batch business where the end customers are actual natural persons, either independently or in cooperation with third parties such as ride-hailing platforms and automotive service companies. Batch business refers to situations where, within one natural year, the cumulative number of related business transactions or the number of natural person lessees involved exceeds 10, and in the majority of these transactions, the transfer price of a single leased asset is less than RMB 500,000, and the transaction structures are the same or similar.

(2) Cooperating with commercial banks or other financial organizations to carry out rent loans and other businesses with similar functions. Rent loans refer to credit products where, after the signing of the financial leasing contract, the commercial bank provides a loan to the lessee (specifically used to repay the rent under the financial leasing contract), and the lessee fulfills the repayment obligation to the commercial bank according to the provisions of the loan contract.

The above businesses should be carried out prudently following the principles of legal compliance, controllable risks, and clear rights and responsibilities of all parties. Regulatory departments should pay special attention to them and may adopt stricter regulatory measures when necessary.

The first draft for soliciting opinions issued by the Provincial Financial Bureau on May 13, 2021 (hereinafter referred to as the “First Draft”) previously contained the provision: “in cases where the risks of the entire business chain have not been identified, and a legal, authentic, and closed-loop repayment mechanism has not been locked in.” The “Second Draft” subsequently deleted this provision. The “Rules” retain the revision from the “Second Draft” and provide a relatively rigorous definition for the concept of batch business.

Moreover, the “Rules” also explicitly prohibit financial leasing companies in the province from engaging in rent loans or similar transactions with commercial banks, and provide a definition for rent loans. Based on the author’s relevant business experience, in practice, products like rent loans are commonly seen in businesses involving small rental amounts per single transaction, such as automotive financial leasing, where the lessees are mostly natural persons, and the transaction frequency is generally high. Therefore, financial leasing businesses involving rent loans often simultaneously fall under the “batch business” stipulated in the “Second Draft”.

Finally, Article 14 of the “Rules” also stipulates that local financial regulatory departments will pay special attention to financial leasing companies that carry out the above businesses. The author suggests here that financial leasing companies that currently engage in or plan to engage in similar businesses in the future should pay attention to the potentially heavier compliance obligations that may arise, and rectify and adjust their business activities accordingly.

5. Relevant Provisions on the Scope of Leased Assets

First, the “First Draft” previously stipulated: “The leased assets applicable to financial leasing transactions are fixed assets with clear ownership, authentic existence, and capability of generating revenue (including ancillary intangible assets recorded as fixed assets). Unless otherwise stipulated.” Later, the “Second Draft” revised this content, and the “Rules” retained the content of the “Second Draft”, which is specifically as follows:

Leased assets applicable to financial leasing transactions are fixed assets with clear ownership, authentic existence, and capability of generating revenue, except as otherwise stipulated by the state and our province.

Financial leasing companies shall legally acquire the ownership of leased assets, and shall not accept property that has been mortgaged, has disputed ownership, lacks the right of disposal, has been sealed up or detained by judicial organs, or property with flawed ownership as leased assets.

We believe that it is correct for the “Second Draft” and the “Rules” to delete the expression “(including ancillary intangible assets recorded as fixed assets)” from the original “First Draft”.

In accounting, the rules for recording fixed assets are clear and explicit, and there is no need for further explanation or description of fixed assets. Furthermore, in practice, since the financial knowledge and levels of practitioners in different financial leasing companies vary, it is inevitable that some practitioners may fail to accurately understand the accounting treatment rules when recording fixed assets. If the aforementioned content of the original “First Draft” were added to the regulatory regulations, it might instead cause unnecessary understanding obstacles within the industry.

Secondly, regarding the content of the second paragraph of Article 14 of the “Rules”, the author believes:

First, at the legal level, if the lessor fails to legally obtain the ownership of the leased asset, it is generally difficult for the nature of the contract involved in the target transaction to constitute a financial leasing contract. Secondly, at the regulatory level, the “Rules” stipulate that “property that has been mortgaged, has disputed ownership, lacks the right of disposal, has been sealed up or detained by judicial organs, or property with flawed ownership shall not be accepted as leased assets”, highlighting the guarantee function of the leased asset for the rent claims.

The prevailing view holds that the “Minutes of the National Courts’ Civil and Commercial Trial Work Conference”, the “Civil Code”, and the “Judicial Interpretation on the Guaranty System” have reconstructed China’s movable property security right system. Some scholars believe that under the current law, the ownership of the leased asset by the lessor in (some) financial leasing legal relationships is functional ownership (i.e., guarantee function) rather than ownership in the sense of attribution. Under the current law, this kind of ownership by the lessor is an atypical security right. Article 1 of the “Judicial Interpretation on the Guaranty System” also stipulates that this interpretation applies to disputes arising from guarantees such as mortgages, pledges, liens, and sureties. The relevant provisions of this interpretation shall apply to disputes arising from ownership reservation sales, financial leasing, factoring, etc., involving guarantee functions.

Finally, the author also noted the provision of “lacking the right of disposal” in the above clause of the “Rules”.

The author believes that the aforementioned provision may be aimed at the relatively common sub-leasing transactions among financial leasing companies (or between financial leasing companies and financial leasing companies {Note: typically referring to CBIRC-regulated entities versus MOFCOM-regulated entities}) that involve multiple sales of the leased asset (referred to in the industry as “double leaseback”, “sub-leasing”, “sub-leaseback”, and “multiple sales-type sub-leasing”, hereinafter referred to as “multiple sales-type sub-leasing”). From the dimension of flawed ownership of the leased asset {Note: The author believes that even from the dimension that financial leasing companies shall not borrow or lend funds to each other, “multiple sales-type sub-leasing” also carries compliance risks}, it gives a negative opinion at the compliance level.

The reason is that in “multiple sales-type sub-leasing”, the lessee of the second “sale and leaseback” (i.e., the lessor of the first “sale and leaseback”) does not have the right to dispose of the leased asset (or its right to dispose of the leased asset cannot be complete (assuming it can legally obtain the ownership of the leased asset)). This view has also been affirmed by relevant judicial practice. {Note: See Civil Judgment (2021) Hu 74 Min Zhong 323 of the Shanghai Financial Court}. Therefore, if financial leasing companies in the province continue to engage in “multiple sales-type sub-leasing” after the implementation of the “Rules”, there may be significant compliance risks.

6. Relevant Provisions on Related-Party Transactions

The content of the “Rules” regarding financial leasing companies engaging in related-party transactions significantly differs from both the “First Draft” and the “Second Draft”.

It can be seen that both the “First Draft” and the “Second Draft” provided corresponding exemption provisions on the recusal of related parties for transaction activities common in practice where “the lessee is the sole shareholder of the financial leasing company or the transaction is related to all shareholders” or “the lessee is the sole shareholder of the financial leasing company, and the transaction is related to all shareholders or to all personnel of the authorized bodies of the shareholders’ (general) meeting or the board of directors” (hereinafter referred to as “internal business”).

Note: Relevant content from the “First Draft”: When a financial leasing company votes or makes decisions on transactions where the lessee is a related enterprise, personnel related to the related-party transaction shall recuse themselves. However, if the lessee is the sole shareholder of the financial leasing company or the transaction is related to all shareholders, recusal may be exempted, but the shareholder shall not use the related relationship to harm the interests of the financial leasing company.

Note: Content from the “Second Draft”: When a financial leasing company votes or makes decisions on transactions where the lessee is a related enterprise, interested personnel shall recuse themselves. When the lessee is the sole shareholder of the financial leasing company, and the transaction is related to all shareholders or to all personnel of the authorized bodies of the shareholders’ (general) meeting or the board of directors, recusal may be exempted, but the interests of the financial leasing company or non-related shareholders shall not be harmed.

However, the above exemption provisions for internal business ultimately could not be presented in the “Rules”. Article 20 of the “Rules” adopts a provision entirely consistent with Article 13 of the “Interim Measures”.

Note: Article 13 of the “Interim Measures for the Supervision and Administration of Financial Leasing Companies”: Financial leasing companies shall establish a related-party transaction management system. Their related-party transactions shall follow commercial principles, be independent transactions, priced fairly, and conducted on terms no more favorable than similar transactions with non-related parties. When a financial leasing company votes or makes decisions on transactions where the lessee is a related enterprise, personnel related to the related-party transaction shall recuse themselves. Major related-party transactions of a financial leasing company shall be approved by the shareholders’ (general) meeting, the board of directors, or its authorized body. Transactions between a financial leasing company and its established holding subsidiaries or project companies are not subject to the regulatory requirements for related-party transactions in these Measures.

The provisions of the “Company Law” and other relevant laws, regulations, and normative documents have established a complete set of recusal systems when companies engage in related-party transactions. The related-party transaction recusal system is designed to solve the problem of actual controllers, decision-making levels (mainly the board of directors), and management using related relationships to harm the interests of the company or minority shareholders. This system is common in the corporate governance systems and relevant regulatory regulations of financial institutions and listed companies. Article 13 of the “Interim Measures” also determines this system as the compliance obligation of financial leasing companies in corporate governance, business decision-making, and internal control.

The reason the “Rules” ultimately adopted the current provision, the author speculates, may be that the relevant content of the original “First Draft” and “Second Draft” lacked a basis in higher-level laws.

As the author stated in the article “Interpretation on Guangdong Province’s <Leasing Rules (Second Draft for Soliciting Opinions)>”, due to the practical conditions of some state-owned financial leasing companies in China regarding their corporate governance structures and personnel systems, they often have a large number of related-party transactions in practice (especially in the process of carrying out internal business), and the concentration of the company’s business is relatively high. Therefore, perhaps to attempt to solve the practical difficulties of state-owned financial leasing companies in the province, the “First Draft” and the “Second Draft” stipulated the content of the above exemption clauses. From this, it can be seen that the Provincial Financial Bureau has a detailed and comprehensive grasp of the actual situation of the industry. Furthermore, the author highly praises the tremendous efforts and attempts made by the Provincial Financial Bureau in solving the actual difficulties of the industry.

Note: For details, see Huang Enlin: “Interpretation on Guangdong Province’s <Leasing Rules (Second Draft for Soliciting Opinions)>”, November 21, 2021, first published on the WeChat public account of the Guangdong Financial Leasing Association.

7. One of the Focuses for the Construction of the Future Compliance System of Financial Leasing Companies in the Province:

Customer Complaint Mechanism

The “Rules” retain the provision from the “Second Draft” that financial leasing companies should establish and improve mechanisms for handling complaints and disputes. At the same time, it also stipulates that financial leasing companies should establish a customer information protection system, shall not excessively collect customer information during business operations, and shall not illegally collect, use, buy, sell, provide, or disclose it. Lawyer’s analysis:

The author believes that the above provisions will constitute new compliance obligations for financial leasing companies in the province. Financial leasing companies in the province should review whether they have established mechanisms such as a “dispute handling mechanism”, whether there are effective “published complaint phone numbers and other complaint methods”, whether they can achieve “proper handling of and timely feedback on customer complaints”, and whether they have established a “customer information protection system”, comparing these against such compliance obligations.

8. Revision Regarding the Reporting Obligation

Article 31 of the “Rules” stipulates: Financial leasing companies shall establish a major event reporting system. After the following events occur, they shall be reported to the provincial and municipal regulatory departments within 5 working days. The reporting work shall be carried out relying on the provincial local financial organization off-site supervision system (if events occur frequently, they can be reported in batches within the first 5 working days of each month for the relevant situations of the previous month).

(1) Prudent operation businesses or activities involved in Article 13 of these Rules;

(2) Major related-party transactions involved in Article 20 of these Rules;

(3) Major debts with a single amount exceeding 10% of the net assets;

(4) Contingent liabilities such as external guarantees with a single amount exceeding 20% of the net assets;

(5) Major losses or compensation liabilities exceeding 10% of the net assets;

(6) More than 5% of the company’s equity held by any shareholder is pledged, frozen, judicially auctioned, entrusted, set in trust, or legally restricted in voting rights;

(7) The company is publicized for abnormal operation information, or the company and its legal representative, directors, supervisors, or senior management personnel are subjected to administrative penalties;

(8) Failing to operate continuously without justifiable reasons, or intermittently accumulating 3 months of non-operation within 1 accounting year;

(9) Major pending litigation or arbitration with the target amount exceeding 10% of the company’s net assets; (changed from 30% to 10%)

(10) Other situations requiring reporting as stipulated by the provincial regulatory department.

It can be seen that the above provisions regarding the reporting obligations of financial leasing companies have undergone significant adjustments compared to the corresponding content of the “Second Draft”.

For example, the items to be reported have changed from 8 items in the original “Second Draft” to the current 10 items. For another example, for litigation and arbitration involving financial leasing companies, the standard for cases that should be reported according to law has been changed from “major pending litigation or arbitration with a target amount exceeding 30% of the company’s net assets” in the original “Second Draft” to “major pending litigation or arbitration with a target amount exceeding 10% of the company’s net assets”, and so on. It is worth mentioning that, considering that the batch businesses in Article 13 of the “Rules” generally present the characteristics of “small amounts, high frequency, and large volume”, Article 31 of the “Rules” specifically made the provision that “if events occur frequently, they can be reported in batches within the first 5 working days of each month for the relevant situations of the previous month”, in order to avoid causing excessive reporting workload for financial leasing companies in the province whose main business is automotive financial leasing.

Synthesizing the content of this article of the “Rules”, the author believes that compared to the content of the “Second Draft”, the “Rules” have strengthened the reporting obligations for financial leasing companies in the province. The author suggests that financial leasing companies in the province should pay attention to and master the above changes in the “Rules”.

II. Conclusion and Outlook

The author believes that by formulating and introducing the “Rules”, the Provincial Financial Bureau clearly responded to many issues of current concern in the industry, indicated its own regulatory tendencies and attitudes, and to a certain extent, solved some issues of concern to the financial leasing industry in the province.

Here, as one of the legal professionals who participated in the discussion and demonstration of the “First Revised Draft” and the “Second Revised Draft”, the author takes this opportunity to extend sincere gratitude and appreciation for the sense of industry responsibility held by the relevant comrades in charge at the Provincial Financial Bureau.

The author also believes that with the introduction of the “Rules” and other future local regulations, rules, or normative documents in the province regarding the regulatory field of local financial organizations, the regulatory environment, policy tendencies, industry activities, self-regulatory management, and other aspects of financial leasing companies in the province are entering a brand new era. Let us all look forward to it and work together!