Winter is coming? Beijing Banking and Insurance Regulatory Bureau issued a document to regulate the cooperation between banks and financial technology companies

According to Leifeng.com AI Financial Review, on October 12, in order to standardize the cooperative business between banks and financial technology companies and Internet insurance business within its jurisdiction, promote banking and insurance institutions to strengthen risk control and compliance management, and effectively prevent external risk contagion, the Beijing Banking and Insurance Regulatory Bureau issued the "Notice on Standardizing the Cooperative Business between Banks and Financial Technology Companies and Internet Insurance Business" (hereinafter referred to as the "Notice").

The notice first gave a detailed definition of fintech companies:

• Fintech companies (hereinafter referred to as "cooperative institutions") refer to enterprises that cooperate with banking financial institutions in the fields of marketing, customer acquisition, risk control, and operations by exporting technology or providing scenarios .

• Including but not limited to: Internet companies that are engaged in both financial business and technology output; private banks, direct banks, insurance companies, insurance intermediaries and bank-affiliated financial technology subsidiaries that mainly rely on the Internet to conduct business; companies that use new technologies or rely on the Internet to engage in financial-like business, brokerage business, intermediary services and information services; companies that provide data or technical services, etc.

• The scope of cooperative business includes but is not limited to credit, on- and off-balance sheet investments, customer and product promotion, credit cards, payments, data information and technical services.

The notice also provides clear regulatory requirements on information disclosure and cooperation principles when banks cooperate with fintech companies:

• They must not exceed the business scope of commercial banks, and must not circumvent regulatory requirements through external cooperation;

• Improve the approval process. The access of cooperative institutions should be reported to the head office for approval. Unauthorized cooperation is strictly prohibited.

• It is strictly forbidden to cooperate with companies that engage in illegal financial activities in the name of financial technology;

• It is strictly prohibited to cooperate with enterprises that fabricate transaction backgrounds or loan purposes to obtain credit funds;

• It is strictly forbidden to cooperate with enterprises that use illegal means to collect loans;

• It is strictly forbidden to cooperate with companies that steal, abuse, illegally buy, sell or leak customer information in the name of "big data".

The notice also gives clear regulations on online loan business. In addition to requiring prudent handling of credit business for non-local customers and standardized financial marketing and publicity cooperation, the regulatory authorities detailed the cooperation issues of online credit risk control, emphasizing independent risk control and strengthening management and control:

• Strictly implement the principle of independent risk control, and do not outsource core business links such as the "three checks" of loans and risk control to cooperative institutions. Do not make credit decisions directly based solely on the data or credit scores provided by the cooperative institutions. Do not relax risk control due to the introduction of risk mitigation measures such as guarantee insurance and repurchase commitments.

• Strengthen risk control of cooperative products and business models, fully assess risks, and strictly follow approval procedures. Cooperative products and business models should be approved by the head office. Make full use of big data technology, increase risk monitoring and early warning efforts, establish a key risk indicator system, set up an early warning trigger mechanism, dynamically evaluate risk control models, continuously improve product design, optimize business processes, strengthen risk control at key nodes, and strictly prevent large-scale default risk exposure. Explore ways to further verify the authenticity of customer identity intentions through remote video, biometrics, and other means, combine data risk control technology, strengthen abnormal monitoring, and prevent external fraud. Strengthen risk assessment of newly added credit customers, reasonably determine credit limits, and prevent excessive borrowing and repeated credit risks.

From the above content, it is not difficult to see that the recent regulatory authorities' strict crackdown on big data companies is no longer limited to crawler business and illegal data capture, but has begun to attack in the more in-depth field of credit risk control in combination with financial business scenarios. There is no doubt that the entry threshold for financial technology companies to provide credit risk control services to commercial banks will become higher, and the financial risk control industry will usher in a larger-scale big wave of elimination.

In addition, the notice also emphasizes the need to strengthen the compliance review of fund use, strictly check the compliance of fund use, and strictly prevent credit funds from illegally flowing into prohibited areas such as online lending platforms and the real estate market. The industry generally believes that this is a continuation of the previous supervision of various types of routine loans and P2P platforms, and will also have a significant impact on many loan assistance companies.

The following is the full text of the notice:

Notice of the Beijing Banking and Insurance Regulatory Bureau on regulating the cooperation business between banks and financial technology companies and Internet insurance business

Beijing Banking and Insurance Regulatory Commission [2019] No. 310

All state-owned large commercial banks, joint-stock commercial banks, Bank of Beijing, Beijing Rural Commercial Bank, Beijing Zhongguancun Bank, village banks, Beijing branches of city commercial banks, foreign banks, card centers, Beijing branches of insurance companies, head offices of insurance companies operating in Beijing, and professional insurance intermediaries in Beijing:

In order to regulate the cooperation business between banks and financial technology companies and Internet insurance business within the jurisdiction, promote banking and insurance institutions to strengthen risk control and compliance management, and effectively prevent external risk contagion, the relevant regulatory requirements are hereby notified as follows:

1. Cooperation between banks and financial technology companies

The fintech companies (hereinafter referred to as "cooperative institutions") regulated by this opinion refer to enterprises that cooperate with banking financial institutions in the fields of marketing, customer acquisition, risk control, and operations by exporting technology or providing scenarios. Including but not limited to: Internet companies that are simultaneously engaged in financial business and technology output; private banks, direct banks, insurance companies, insurance intermediaries, and bank-affiliated fintech subsidiaries that mainly rely on the Internet to conduct business; enterprises that use new technologies or rely on the Internet to engage in quasi-financial business, brokerage business, intermediary services, and information services; enterprises that provide data or technical services, etc. The scope of cooperative business includes but is not limited to credit, on- and off-balance sheet investment, customer and product promotion, credit cards, payment, data information, and technical services.

(I) Carry out cooperative business prudently in accordance with the law

On the premise of compliance with laws and regulations, commercial banks must not exceed their business scope, and they must not circumvent regulatory requirements through external cooperation. They must adhere to internal control first and formulate management systems and operating procedures covering all business links in advance. They must implement the main responsibility for risk prevention and control, and incorporate risk management of cooperative businesses into the comprehensive risk management system. They must reasonably control the pace of business and carry out business step by step in the early stages of business development through pilot projects and other means.

2. Strengthening the management of cooperative institutions

1. Establishing access, evaluation and exit mechanisms

Implement a list management system for cooperative institutions, prudently formulate access standards, conduct due diligence, and select institutions with good credit status, standardized business behavior, sound internal management, mature core technology, and safe and stable systems for cooperation. Improve the approval process. The access of cooperative institutions should be reported to the head office for approval. It is strictly forbidden to cooperate without authorization. Regularly evaluate the qualifications and credit status of cooperative institutions, establish a risk warning mechanism, and enhance the forward-looking nature of risk management. For cooperative institutions that have risk warning signals, potential risks, and illegal and irregular behaviors, cooperation should be terminated in a timely manner. It is strictly forbidden to cooperate with enterprises that engage in illegal financial activities in the name of financial technology; it is strictly forbidden to cooperate with enterprises that fabricate transaction backgrounds or loan purposes to siphon credit funds; it is strictly forbidden to cooperate with enterprises that collect loans by illegal means; it is strictly forbidden to cooperate with enterprises that steal, abuse, illegally buy and sell or leak customer information in the name of "big data".

2. Clearly define the division of responsibilities in cooperation and make good information disclosure

Strictly and prudently formulate the terms of the agreement with the cooperative institutions, and clarify the boundaries of rights and responsibilities in terms of risk assumption, information disclosure, risk disclosure, customer information transmission and information confidentiality, service arrangements, complaints and emergency handling, etc. Fully disclose cooperative business information and the boundaries of responsibilities of the cooperative parties, reveal cooperative business risks, clearly indicate the charging subjects, items and standards, ensure the customer's right to know and the right to choose independently, and prevent the risk of cooperative institutions from being transmitted to the bank.

(III) Regulating online loan business cooperation

1. Strictly implement the principle of independent risk control

Develop risk control models and systems that match the business, equip with professionals, and independently carry out customer access, risk assessment, loan approval, post-loan management, etc. Core business links such as loan "three checks" and risk control shall not be outsourced to cooperative institutions, credit decisions shall not be made directly based solely on data or credit scores provided by cooperative institutions, and risk control shall not be relaxed due to the introduction of risk mitigation measures such as guarantee insurance and repurchase commitments.

2. Strengthen credit risk management

Strengthen risk control of cooperative products and business models, fully assess risks, and strictly follow approval procedures. Cooperative products and business models should be approved by the head office. Make full use of big data technology, increase risk monitoring and early warning efforts, establish a key risk indicator system, set up an early warning trigger mechanism, dynamically evaluate risk control models, continuously improve product design, optimize business processes, strengthen risk control at key nodes, and strictly prevent large-scale default risk exposure. Explore ways to further verify the authenticity of customer identity intentions through remote video, biometrics, and other means, combine data risk control technology, strengthen abnormal monitoring, and prevent external fraud. Strengthen risk assessment of newly added credit customers, reasonably determine credit limits, and prevent excessive borrowing and repeated credit risks.

3. Strengthen compliance review of fund use

In accordance with the penetration principle, strictly check the compliance of fund use and prevent credit funds from illegally flowing into prohibited areas such as online lending platforms and the real estate market. If autonomous payment is adopted, it should be agreed with the borrower in advance in the loan contract that the borrower should be required to regularly report or inform the lender of the loan fund payment situation. Through account analysis, voucher inspection or on-site investigation, verify whether the loan is used for the agreed purpose. After the loan is issued, effective methods should be adopted to track, inspect and monitor the use of loan funds.

4. Carefully handle credit granting business for non-local customers

Commercial banks under the jurisdiction should operate locally, mainly serve local customers, and introduce customers within their own marketing, service and risk management capabilities through cooperative institutions. Local operation rules should be formulated based on the customer's ID card address, permanent residence, main business location, mobile phone number location, customer login IP address and other dimensions. When handling personal credit business in other places, the relevant requirements on face-to-face interviews and face-to-face signing in the "Interim Measures for the Administration of Personal Loans" (CBRC Order No. 2 of 2010) should be strictly implemented, and a certain proportion should be selected to conduct on-site investigations for post-loan management.

(IV) Regulating financial marketing and publicity cooperation

Strictly implement the Notice of the China Banking Regulatory Commission on Regulating the Agency Sales Business of Commercial Banks (Yinjianfa [2016] No. 24), and do not promote or sell non-financial enterprise products in violation of regulations. When conducting financial marketing and publicity through cooperative institutions, a list of prohibited behaviors should be formulated, and effective measures should be taken to strengthen supervision of the behavior of cooperative institutions, and strictly review all types of marketing and publicity information released through cooperative institution platforms to prevent cooperative institutions from making false propaganda, exaggerating propaganda, misleading sales, and conducting business in violation of regulations in the name of banks.

(V) Establishing a risk event response mechanism

Formulate emergency plans for events that may cause reputation risks, establish a rapid response mechanism for public opinion, actively communicate and explain things to customers, and safely resolve petition and complaint disputes to prevent the situation from escalating and causing mass incidents.

II. About Internet Insurance Business

1. Strict information disclosure

Insurance institutions and commercial banks may only engage in internet insurance business after disclosing information in accordance with the relevant requirements of the Interim Measures for the Supervision of Internet Insurance Business (Insurance Regulatory Commission [2015] No. 69, hereinafter referred to as the "Measures") and the China Insurance Association's Internet Insurance Business Information Disclosure Management Rules.

The relevant information disclosure requirements for commercial banks shall be implemented in accordance with those of professional insurance intermediaries.

(II) Regulating promotional and sales activities

When carrying out Internet insurance business, insurance institutions and commercial banks shall not make false statements, make improper comparisons with other similar insurance products, promote past performance in a one-sided or exaggerated manner, illegally promise profits or assume losses, falsely promote promotional activities, or engage in other misleading descriptions.

3. Strengthening the management of third-party network platforms

Insurance institutions that cooperate with third-party online platforms (hereinafter referred to as platforms) to carry out Internet insurance business should ensure that the platforms comply with the provisions of the Measures and meet the following conditions:

1. The platform shall not participate in insurance sales, underwriting, claims, refunds, complaint handling, customer service and other insurance operations or insurance intermediary operations, such as: premium calculation, quotation comparison, agency investigation and claims, drafting insurance plans for policyholders, handling insurance procedures, assisting in claims, etc.

2. The platform shall not display insurance products and other non-insurance financial products at the same time, or make misleading comparative promotions.

3. The platform shall not collect premiums on behalf of others. If premiums are collected together with other operating expenses, they should be allocated in real time to the special account of the insurance institution.

A third-party network platform refers to a network platform whose registered operating entity and telecommunications and information service business license (ICP) holder is not an insurance institution, and which provides network technical support and auxiliary services for the Internet insurance business of insurance institutions.

(IV) Strengthening sales staff management

Insurance institutions and commercial banks should strengthen the management of insurance practitioners and require that insurance practitioners shall not engage in insurance sales beyond the scope of their professional registration through the platform, including obtaining commissions or promotion fees similar to commissions by promoting specific insurance products or sending links to specific products.

Insurance institutions shall not, through the platform, entrust persons who have not obtained the institution's professional certificate to sell insurance products in disguised form, and shall not, through the platform, pay or pay in disguised form insurance sales commissions to persons who have not obtained the institution's professional certificate.

(V) Regulating the payment of service fees

Insurance institutions shall not pay insurance sales commissions to the platform, nor shall they simply pay insurance sales commissions in disguised form by using a settlement method that is linked to the size of premiums or the number of policies.

(VI) Strengthen information security management

Insurance institutions should clarify the division of responsibilities with the platforms to ensure that they can fully record and preserve transaction information of Internet insurance business and can fully and accurately restore relevant transaction processes and details.

7. Clarify the division of management responsibilities

Insurance institutions shall bear corresponding legal responsibilities for the compliance of insurance sales business conducted using the platform.

Internet insurance business that is sold uniformly by the head offices of insurance companies and underwritten or provided with follow-up services by branches in Beijing shall be managed in accordance with the above requirements.

Banking and insurance institutions within the jurisdiction should conscientiously implement the above regulatory requirements. For institutions whose poor implementation leads to greater risks in related businesses, the Beijing Banking and Insurance Regulatory Bureau will take corresponding regulatory measures depending on the circumstances. If the China Banking and Insurance Regulatory Commission has other provisions, they shall prevail. The Beijing Banking and Insurance Regulatory Bureau shall be responsible for interpreting this notice.

October 12, 2019

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