Beijing Targets Regulatory Arbitrage by Finance Lease Firms


The China Banking and Insurance Regulatory Commission (CBIRC) is heightening its scrutiny of pawnbroking, finance lease and factoring activities.

CBIRC announced on 7 June that it had sent a directive to its regional office calling for them to arrange for all pawnbrokers, finance lease companies and commercial factoring companies within their respective jurisdiction to register with the “National Finance Lease Enterprise Administrative Information System,” (全国融资租赁企业管理信息系统) the “Commercial Factoring Business Information System” (商业保理业务信息系统) or the “National Pawnbroker Supervisory and Administrative Information System” (全国典当行业监督管理信息系统).

CBIRC called for “the truthful, accurate and complete filing of information, and thorough inspection and confirmation of enterprise information, and the undertaking of full assessments based on actual circumstances.”

One member of the financial lease sector said to Securities Daily that the move was a sign that CBIRC had been officially entrusted by the Ministry of Commerce  (MOFCOM) with regulatory authority over the pawnbroking, financial lease and factoring sectors.

On 20 April 2018 MOFCOM and CBIRC saw the transfer of professional responsibility for the drafting of business regulations and supervisory and regulatory rules for the pawnbroking, financial lease and factoring sectors.

Xu Chengyuan (徐承远), chief analyst with Golden Credit Rating International, said that the sectors had previously been a breeding ground for “regulatory arbitrage” because of inadequate or poorly coordinated oversight by the authorities.

Finance lease companies had often been used by Chinese bank as a conduit for lending, helping them to dodge regulations on their loan scope as well as increase leverage.

Finance lease companies had also provided financing to government platforms in breach of regulations.

“Including finance leases, commercial factoring and pawnbroking firms within financial regulation satisfies the need to ‘strengthen the specialisation of financial regulation, standardise and unify,'” said Xu.

“Strengthening of regulation will be of benefit to preventing regulatory arbitrage by these three types of institutions, standardising the market order and expediting the standardised development of these sectors. ”