The filing documents required of P2P platforms in Shanghai, explained

P2P platforms are an important vehicle of private lending finance. As the customer numbers of the major P2P platforms and the volume of transactions they arrange have surged, disputes and serious risks have gradually appeared. After Guangzhou and Beijing issued supervisory measures for P2P platforms one after another, on 1 June 2017 the Shanghai Municipal Financial Services Office issued a draft for comment of the Measures of Shanghai for the Administration of the Business of Online Lending Intermediary Institutions, regulating P2P platforms in filing and registration, rectification, operation and every other respect.

1. The legal characterisation of a P2P platform

Under the Guiding Opinions on Promoting the Sound Development of Internet Finance (the Guiding Opinions), the Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions (the Interim Measures) and the Measures of Shanghai for the Administration of the Business of Online Lending Intermediary Institutions (the Implementation Measures) and other regulations, China defines online lending and online lending information intermediary institutions (P2P platforms) as follows:

Online lending: direct lending between individuals through an internet platform, the individuals including natural persons, legal persons and other organisations.

Online lending information intermediary institution: a financial information intermediary company established in accordance with law and engaged exclusively in the business of online lending information intermediation. Such an institution, taking the internet as its principal channel, provides borrowers and lenders who lend to one another directly with services of information gathering, publication of information, credit assessment, exchange of information and the bringing together of loans.

It follows that a P2P platform is no more than an institution providing information intermediation services: the platform itself may not provide credit enhancement, still less raise funds unlawfully or bear the risk of default on a customer's loan.

2. The filing and registration of a P2P platform

Under the Implementation Measures, a newly established P2P platform in Shanghai must first be registered and filed with the relevant department before it carries on business. A P2P platform established before the Implementation Measures took effect may carry on business only after rectifying its position in accordance with them and being registered and filed with the relevant department.

1. The time for filing:

(1) a newly established P2P platform shall apply for filing within ten working days after obtaining its business licence.

(2) for a platform already established, the filing of a compliant institution shall be accepted; for an institution undergoing rectification, its application shall be accepted after rectification is complete and the relevant department has confirmed it.

2. The filing body: the district financial office

3. The filing procedure:

4. The documents to be submitted with the filing application

(1) A newly established P2P platform

1) an application for filing and registration

The application shall state:

the company's basic information, its name, domicile, registered capital, paid-in capital, legal representative, business scope, the address of its official website and its ICP filing number, the name of its mobile application platform, the location of its servers and so on.

2) the original and copy of the company's legal person business licence (photocopies)

3) the articles of association

4) internal control and risk management systems

As is well known, a P2P platform carries considerable risk in operation and in management alike, and the regulators require it to have sound internal control and risk management systems, so as to regularise its management and reduce risk. Those systems chiefly comprise:

Internal control: this means the company's internal management controls, chiefly its internal contract management, personnel management and technical management.

Risk management: this aims to regularise the control and handling of risk in the company's operations, chiefly the control and handling of strategic, legal, financial and operational risk.

Information security: this aims to protect the security of the platform's information, including keeping customer information confidential and maintaining the platform's information systems against intrusion.

Customer protection: this aims to protect the lawful rights and interests of borrowers and lenders to the greatest extent, chiefly by assessing a lender's risk by due diligence, examining a borrower's qualifications, and warning customers of risk.

Financial management: this aims to establish sound internal financial management, including rules on authority to approve payments and on authority over the movement of funds, so as to protect the security of the platform's funds.

5) a plan for business development strategy

It is considered that the plan should cover the company's business model and its plans for the future; this document enables the regulators to understand fully how the platform operates, and so to supervise it and control risk in a targeted way.

6) information on the shareholders

the name of each shareholder, the amount contributed and the proportion contributed

It should be noted that the Implementation Measures provide that a shareholder may not hold shares on another's behalf, so that the shareholder must hold them directly, and the contribution must be his own and lawful.

the personal credit report of each shareholder (corporate shareholders included)

A credit report may be obtained from the credit reference centre of the People's Bank of China.

a certificate that an individual shareholder has no criminal record

The certificate shall be obtained from the public security organ with jurisdiction at the place where the individual is registered as a resident.

7) information on the directors, supervisors and senior officers

basic information, curriculum vitae, evidence of educational and professional qualifications

The Implementation Measures do not at present require professional qualifications of directors, supervisors and senior officers, so that where they hold none, none need be submitted to the regulators.

a personal credit report

a certificate of no criminal record

It should be noted that the Implementation Measures define the directors, supervisors and senior officers of a P2P platform widely, including the general manager, the deputy general manager, and the heads of the finance, risk control, legal compliance and audit departments and those who in fact perform those functions; everyone performing such functions must be treated as a director, supervisor or senior officer and submit his personal information to the regulators.

8) evidence of the business premises

This is chiefly to show that the platform has premises and facilities actually in operation, able to keep its business running. It should be noted that the Implementation Measures require the actual place of business of a P2P platform to be the same as its domicile, that is, the domicile stated on the business licence should be the actual place of business.

The supporting material required here includes:

proof of title to the business premises

where the premises are owned by the platform, evidence of title;

or

a lease or the like

where the premises are leased, the lease.

9) all branches, their locations and those in charge of them

Some P2P platforms have branches for the purposes of their business, and to regularise the operation of branches the Implementation Measures require their particulars to be filed with the relevant department.

10) a letter of undertaking to operate in compliance

Who gives it: the P2P platform, the shareholders holding 5 per cent or more, and the directors, supervisors and senior officers, signing and sealing together.

Its content:

to observe strictly during the period of operation the Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions and the relevant supervisory provisions, and to operate lawfully and in compliance;

to agree to connect promptly to the relevant supervisory information systems as the regulators require, and to report and upload the relevant data promptly; to agree and authorise the electronic data preservation service institution with which the platform works to report and upload the relevant preserved data to the regulators as required; to agree and authorise the depository bank with which the platform works to report and upload the data on movements of funds to the regulators as required; and to agree and authorise the credit reference institution with which the platform works to report and upload the transaction data to the regulators as required;

to agree that the regulators may publish to society the material submitted in filing and in day-to-day supervision;

to ensure that true, accurate and complete data and material are submitted promptly to the regulators as required;

to accept on-site inspection and off-site supervisory measures, and to ensure that problems are rectified promptly as the regulators require.

11) the receipt for the security review of information systems

A P2P platform shall first submit to the network security department of the municipal public security organ material showing that it meets the relevant state provisions on network security and the requirements of the state system for graded protection of information security, and the network security department of the Shanghai public security organ will then issue the receipt for the security review of information systems.

12) the agreement on entrusted preservation concluded with a third-party platform for the preservation of electronic data (photocopy)

The "preservation of electronic data" required here means the "preservation of electronic evidence". Because a P2P platform's customers sign up and do everything else on the network, that data forms electronic data, which is easily destroyed, edited or altered; only once preserved can it meet the legal requirements for electronic evidence. On 10 June 2017 the Shanghai Internet Finance Industry Association issued the Shanghai Guidelines on the Business of Preserving Electronic Contracts in Online Lending, which further regularised the business of electronic preservation.

13) the legal opinion on the filing and registration

The Implementation Measures require a law firm to give a legal opinion, item by item, on the following matters concerning a newly established P2P platform:

reviewing the authenticity of the filing material submitted by the platform

disclosing the platform's industrial and commercial registration information

disclosing the platform's shareholding structure

disclosing the platform's actual controller

reviewing the platform's basic operating facilities

disclosing the platform's articles of association

disclosing and reviewing the platform's relevant systems

reviewing the lawfulness and compliance of the platform's business model

For a P2P platform already established and carrying on business, the following matters must also be reviewed:

whether the platform's conduct of business complies with the Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions and the relevant supervisory provisions

whether the platform's irregular conduct has been fully rectified

As to timing: it should be noted that the Implementation Measures impose a requirement as to the currency of the legal opinion, namely that it must be issued within the three months before the platform submits its application for filing and registration.

14) other matters

(2) The filing material for a P2P platform established and carrying on business before the Implementation Measures were issued:

Besides the material required of a newly established company above, a platform already established and carrying on business shall supply the following in addition:

1) supplementary content of the filing application

the overall position of the online lending company's business and information on its products

the number of customers

the scale of business

the amount outstanding

overdue transactions arranged by the platform and how they were handled

how the former irregular conduct has been rectified

2) the company's credit report

3) the law firm's legal opinion on the compliance of the online lending institution's business

This legal opinion may be issued together with the legal opinion on the platform's filing and registration.

4) the company's financial statements for the preceding year and the auditor's report

5) the notes to the financial statements disclosing information on the online lending intermediary business, and the special audit report on the institution's operations

6) other matters

3. Work to be done after filing

After obtaining its filing, a P2P platform shall complete the following within six months:

1. where it carries on a value-added telecommunications business, it shall apply for the corresponding business qualification.

2. it must choose a commercial bank with a business presence in Shanghai that meets the relevant conditions to hold customers' funds in custody.