On December 9, 2023, Chinese Premier Li Qiang signed Decree No. 768 of the State Council to unveil the Regulations on the Supervision and Administration of Non-Bank Payment Institutions (hereinafter referred to as the Regulations), which will take effect on May 1, 2024. Recently, officials from the Ministry of Justice (MOJ) and the People’s Bank of China (PBOC) have answered press questions on issues related to the Regulations.
Q: Could you please brief on the background and general idea of the Regulations?
A: The Central Committee of the Communist Party of China (CPC) and the State Council attach great importance to the development and risk management of the non-bank payment sector. The Report to the 20th CPC National Congress put forward that all types of financial activities should be brought under regulation in accordance with the law. The Central Financial Work Conference proposed strengthening the rule of law in the financial sector and advance legislation in key financial areas and emerging areas in a timely manner. The MOJ and PBOC resolutely implemented the decisions and arrangements of the CPC Central Committee and the State Council, and drafted the Regulations on the basis of in-depth investigation and study, seeking advice widely from departments, institutions, experts and other parties, and soliciting opinions from the public. The drafting of the Regulations mainly includes the following ideas: the first is to implement the guidelines, principles, policies, decisions and arrangements of the Party and the state, thus promoting the benign competition and regulated and healthy development of the non-bank payment sector. The second is to adopt a problem-oriented approach and take a holistic perspective, and promote the law-based and standardized regulation on the whole chain and full cycle of the non-bank payment sector, so as to prevent payment risks. The third is to guide non-bank payment institutions (hereinafter referred to as payment institutions) to better protect the legitimate rights and interests of users based on serving the real economy, thus further playing their positive role in promoting the prosperity of the market economy and facilitating people’s lives.
Q: How is the non-bank payment sector developing? What is the positive role of the introduction of the Regulations in promoting the standardized and healthy development of the sector?
A: Non-bank payment business has developed rapidly with the rise of China’s digital economy, e-commerce and other new business forms, and has played an important role in the field of small-value and convenient payments. Currently, the annual transaction number and volume of payment institutions registered over 1 trillion and around 400 trillion respectively, accounting for about 80 percent and 10 percent of the total electronic payment businesses in China respectively. The outstanding average daily provision exceeds RMB2 trillion, serving over 1 billion individuals and tens of millions of merchants. Mobile payment ranks among the world’s leading levels, effectively contributing to the development of the real economy and improving people’s livelihood.
In recent years, the PBOC has attached equal importance to development and regulation, expediting the centralized depository of payment institutions’ provisions, severing their direct connection with commercial banks, and urging large-scale payment platform enterprises to rectify their payment business to guard against potential risks. Progress has been achieved in these aspects. However, at the same time, irregularities in the operation of some payment institutions also occur from time to time, such as: illegal misappropriation of user funds, leakage or improper collection and use of user information, and some payment institutions taking risks to provide funds transfer channels for telecom and online fraud, cross-border gambling and other criminal activities.
The launch of the Regulations has upgraded the proven system in regulatory practice to administrative regulations, further consolidating the foundation of the rule of law for the regulated and healthy development of payment institutions, which is conducive to the creation of a law-based business environment, stabilizing the expectations of all parties, stimulating the vitality of the market, protecting the legitimate rights and interests of users, forestalling and defusing risks, and promoting the high-quality development of the non-bank payment sector.
Q: What arrangements have been made in the Regulations around striking a balance between development and security, further strengthening regulation, and protecting the legitimate rights and interests of users?
A: The Regulations conscientiously follow the guidelines of the Central Financial Work Conference, and give prominence to forestalling and defusing risks and protecting the legitimate rights and interests of users, so as to better coordinate development and security.
First, financial activities must be licensed with a strict access threshold. The Regulations bring forward that access management shall be implemented in accordance with the principle of “issuing an operating permit before a license”, specify the access conditions for payment institutions, such as registered capital, major shareholders, actual controllers and senior executives, require permits for changes in major issues, and establish a sound normalized exit mechanism for institutions that seriously violate laws and regulations. Second, payment-related rules will be improved to strengthen risk management. It is stipulated that payment institutions should have sound mechanisms such as the business management mechanism and have business systems, facilities and technologies that meet the requirements. The Regulations also provide clear management rules for payment accounts, provisions and payment instructions, and make it clear that payment institutions are not allowed to misappropriate, occupy or borrow customer provisions and are prohibited from forging or altering payment instructions. It should be ensured that payment institutions fulfill their responsibilities in terms of user due diligence and risk monitoring. Third, users’ rights and interests will be further protected. It is specified that payment institutions should draw up agreement terms in accordance with the principle of fairness to protect users’ right to know and choose. The Regulations also propose to step up efforts to protect user information, and clarify relevant requirements for information processing, confidentiality and sharing. Payment institutions are required to clearly mark the price of the services they provide and charge reasonably. The Regulations clarify that payment institutions should fulfill their main responsibilities of complaint handling. Fourth, severe illegal and irregular conducts should be strictly cracked down on according to the laws. For the illegal and irregular conducts stipulated in the Regulations, the PBOC may, in accordance with the laws, impose fines on relevant payment institutions, restrict part of their payment businesses, order them to suspend businesses for rectification, or revoke their payment business licenses. At the same time, the Regulations make it clear that directors, supervisors, senior executives and other personnel with direct responsibility can be penalized according to specific circumstances, and in serious cases, market barring measures can also be taken.
Q: The Regulations redivide the payment businesses into two types: stored-value account operation and payment transaction processing. What are the considerations?
A: Since 2010, the Administrative Measures for the Payment Services Provided by Non-financial Institutions have divided payment businesses into three types, i.e. network payment, bankcard acquiring, and prepaid card business, based on different transaction channels and acceptance terminals. With technological innovation and business development, new methods such as barcode payment and facial recognition payment have emerged, so the existing division modes cannot well meet the needs of market development and regulatory requirements. On the basis of years of regulatory practices and drawing on the experience of other countries and regions in categorizing payment businesses, the Regulations, starting from the substance of specific businesses, adhere to the concept of functional regulation, and divide payment businesses into two types, namely, stored-value account operation and payment transaction processing, based on whether they can receive prepaid funds from payers.
The new division mode has the following characteristics: first, it has good scalability and helps to prevent regulatory gaps. Under the new division mode, regardless of the external manifestation, payment businesses can be classified and managed according to the business substance, which better adapts to the development and changes of the sector, and various new payment channels and methods can be divided into two basic business types. Second, it can avoid regulatory arbitrage and promote fair competition. The new division mode focuses on the substance and risk features rather than the external forms of payment businesses, which is conducive to unifying access conditions, such as capital requirements, and business rules, eliminating regulatory deficiencies and forming a fair institutional environment. At the same time, the supplementary provisions of the Regulations clarify that the interim measures for non-bank payment institutions established in accordance with relevant provisions shall be stipulated by the PBOC. In the near future, the PBOC will study and draw up detailed implementation rules, and promote a sound connection between new business types and original division modes, thus facilitating a smooth transition.
Q: What does the PBOC plan to do after the launch of the Regulations?
A: After the launch of the Regulations, the PBOC will carry out the following work: first, we will stress policy advocacy and interpretation, and interpret the Regulations to payment institutions, clearing institutions and branches of the PBOC in multiple ways, so that all parties concerned can be fully aware of and master the contents of the Regulations. We will also urge all payment institutions to conduct businesses in compliance with the laws and regulations, and protect users’ legitimate rights and interests. Second, detailed implementation rules of the Regulations will be drawn up and put into practice effectively. The PBOC will refine and clarify the specific division mode of payment businesses and provisions for the transition from old business types to new ones, further standardize the procedures for licensing, penalizing, etc..implement the “list-based” examination and approval, and exercise administration strictly in accordance with the laws. Third, we will pay close attention to improving other supporting documents of the Regulations. In line with the provisions of the Regulations, we will take prompt measures to revise and clean up the existing regulations and normative documents in the field of non-bank payments.
The PBOC will conscientiously implement the decisions and arrangements of the CPC Central Committee and the State Council, and take the launch of the Regulations as an opportunity to strike a balance between development and security. Centered on the goal of build China into a financial powerhouse, we will unswervingly pursue a path of payment development with Chinese characteristics, and continuously promote the high-quality development of China’s non-bank payment sector.
