On December 17, the Regulations on the Supervision and Administration of Non-bank Payment Institutions (hereinafter referred to as the "Regulations") were officially promulgated and will come into force on May 1, 2024.
The Regulations, with a total of 6 chapters and 60 articles, further bring non-bank payment institutions and their business activities into the track of rule of law for supervision, aiming to promote the standardized and healthy development of the non-bank payment industry, effectively protect the legitimate rights and interests of users, better serve the real economy, and meet the diversified payment and settlement needs of users.
The "Regulations" make it clear that for non-bank payment institutions to implement access management in accordance with the principle of "license before license", non-bank payment institutions should improve business management and other systems to strengthen the protection of users' rights and interests. In order to adapt to the latest regulatory practices, the Regulations reclassify the payment business into two categories: stored value account operation and payment transaction processing.
In recent years, the non-bank payment business has developed rapidly with the rise of new business formats such as digital economy and e-commerce in mainland China, and has played an important role in the field of small-value and convenient payment.
As of the end of September, there were 185 non-bank payment institutions (hereinafter referred to as "payment institutions") in China, with an annual transaction volume of more than 1 trillion yuan and an amount of nearly 400 trillion yuan, accounting for about 80% and 10% of the country's total electronic payment business respectively, with an average daily reserve balance of more than 2 trillion yuan, serving more than 1 billion individuals and tens of millions of merchants.
According to the Shanghai Securities News, after the issuance of the "Regulations", the main institutions in the payment market generally believe that as one of the institutional arrangements with the highest level of effectiveness in the payment field in recent years, the "Regulations" have laid the foundation for the future development of payment institutions for healthy competition and standardized and healthy development. Alipay, WeChat Pay and other payment institutions said that they will further improve the relevant business rules, actively implement the "Regulations", further strengthen the protection of the rights and interests of financial consumers, better meet the payment and settlement needs of users, and continue to improve the quality and efficiency of serving the real economy.
The person in charge of the People's Bank of China revealed that the detailed rules for the implementation of the Regulations and other supporting documents are being formulated as soon as possible, which will ensure a smooth transition of relevant businesses and will not affect the actual use of payment users.
What are the key provisions of the Regulations?
The Regulations consist of 6 chapters and 60 articles, focusing on the following:
The first is to clarify the definition and establishment license of non-bank payment institutions.
A non-bank payment institution is defined as a company, other than a banking financial institution, that transfers monetary funds based on an electronic payment instruction submitted by a user. It stipulates that the establishment of non-bank payment institutions shall be approved by the People's Bank of China, and the conditions for establishment shall be clarified and the entry customs shall be strictly controlled. It is clarified that non-bank payment institutions shall aim to provide small-amount and convenient payment services, and shall not engage in other businesses that require approval in accordance with law without approval, and shall not engage in or covertly engage in liquidation business.
The second is to improve the rules of payment business.
To meet the needs of payment business development, the payment business is divided into two categories: stored value account operation and payment transaction processing, and the People's Bank of China is authorized to formulate specific rules. Clarify the requirements for the management of payment business, and stipulate that non-bank payment institutions shall improve business management and other systems, and have business systems, facilities and technologies that meet the requirements, so as to ensure the continuity, security and traceability of payment business. Clarify the management regulations on payment accounts, reserves, payment instructions, etc., require payment accounts to be opened in the user's real name, and non-bank payment institutions shall not embezzle, occupy or borrow reserves, and shall not forge or alter payment instructions, so as to prevent risks in the non-bank payment industry.
The third is to protect the legitimate rights and interests of users.
It stipulates that when a non-bank payment institution signs a payment service agreement with a user, the terms of which shall be drafted in accordance with the principle of fairness. Non-bank payment institutions shall ensure the security of users' funds and information, and shall not entrust the handling of relevant core business and technical services to third parties; properly preserve user information and transaction records, establish an effective due diligence system, strengthen risk management, and take effective measures to ensure the security of payment accounts to prevent payment accounts from being used for illegal fundraising, telecommunications network fraud, money laundering, gambling and other illegal and criminal activities.
Fourth, clarify regulatory responsibilities and legal responsibilities.
It stipulates that the supervision and management of non-bank payment institutions shall implement the Party and state's line, principles, policies, and decision-making arrangements, focus on serving the real economy, coordinate development and security, and maintain the order of fair competition. Clarify the People's Bank of China's supervisory responsibilities, regulatory measures and risk disposal measures, etc., and local people's governments cooperate with the People's Bank of China to do a good job in risk handling. The Regulations also stipulate legal liability for violations.
Consolidate the legal foundation for the standardized development of payment institutions
Non-bank payment is closely related to the security of users' funds and information security, and is closely related to other financial businesses, and is also an important aspect of the standardized and healthy development of the platform economy. In recent years, positive results have been achieved in preventing and resolving financial risks in the payment field. However, at the same time, the phenomenon of illegal operation of some payment institutions also occurs from time to time.
The responsible persons of the Ministry of Justice and the People's Bank of China gave examples of individual payment institutions misappropriating user funds in violation of regulations, leaking or improperly collecting and using user information. There are also individual payment institutions that take risks to provide fund transfer channels for illegal and criminal activities such as telecommunications network fraud and cross-border gambling.
"The promulgation of the "Regulations" will upgrade the effective system in regulatory practice to administrative regulations, further consolidate the legal foundation for the standardized and healthy development of payment institutions, and help create a law-based business environment, stabilize the expectations of all parties, stimulate market vitality, and also help protect the legitimate rights and interests of users, prevent and resolve risks, and promote the high-quality development of the non-bank payment industry. The heads of the Ministry of Justice and the People's Bank of China said.
Zheng Haojian, general manager of Tenpay (WeChat Pay), said that the promulgation of the "Regulations", on the one hand, has improved the legal level of supervision of payment institutions, from the past departmental rules to administrative regulations, marking the payment industry has fundamental regulations, which is conducive to strengthening industry supervision and improving regulatory efficiency;
The Regulations are the first administrative regulations for the supervision of non-bank payment institutions in mainland China, reflecting the great importance and strong support of the CPC Central Committee and the State Council for the development of the non-bank payment market. The relevant person in charge of the Payment and Clearing Association said that the "Regulations" have built the basic framework and main content of the supervision of non-bank payment business, and will further promote the comprehensive and scientific supervision of non-bank payment services, so as to provide an important legal guarantee for the industry to effectively prevent and resolve risks, effectively serve the real economy, and form a high-quality development pattern.
Strengthen institutional supervision and penetrating supervision
In order to better prevent and resolve financial risks and protect the legitimate rights and interests of users, the "Regulations" regulate relevant businesses from four aspects.
The first is to adhere to the licensed operation and strict entry threshold. Implement access management in accordance with the principle of "license before license", clarify the access conditions for payment institutions' registered capital, major shareholders, actual controllers, senior executives, etc., implement license management for changes in major matters, and establish and improve a normalized exit mechanism for institutions with serious violations of laws and regulations.
"The promulgation of the Regulations provides a more comprehensive and effective regulatory tool and institutional guarantee for the payment service market. Xie Qunsong, executive vice president of China UnionPay, said that the "Regulations" strengthen institutional supervision and penetrating supervision, which will help improve the capital strength and governance capabilities of non-bank payment institutions; strengthen functional supervision, adhere to the principle of "one business, one standard" to avoid regulatory arbitrage and eliminate regulatory gaps, strengthen behavior supervision and continuous supervision, stipulate the non-bank payment institutions and their personnel for violating the responsibility for violations, and clarify the exit situation, so as to achieve full-cycle and full-chain management of payment institutions.
The second is to improve the rules of payment business and strengthen risk management. It is stipulated that payment institutions shall improve business management and other systems, and have business systems, facilities and technologies that meet the requirements. Strengthen the management system for payment accounts, reserves, and payment instructions, and make it clear that payment institutions must not misappropriate, occupy, or borrow customer reserves, and must not forge or alter payment instructions. Consolidate the responsibilities of payment institutions and users, such as due diligence and risk monitoring.
The third is to strengthen the protection of users' rights and interests. It stipulates that payment institutions shall draft the terms of the agreement in accordance with the principle of fairness, and protect users' right to know and the right to choose. Strengthen the protection of user information, and clarify relevant requirements for information processing, information confidentiality, and information sharing. Payment institutions are required to clearly mark the price of the services provided and charge reasonable fees. It is clarified that payment institutions shall perform the main responsibility for handling complaints.
In this regard, the relevant person in charge of the Payment and Clearing Association said that the "Regulations" take the protection of user rights and interests as the primary task of the development of the payment and clearing industry, and make stricter provisions on the protection of user rights and interests, focusing on preventing and resolving payment risks. The Regulations also further clarify the responsibilities and obligations of payment institutions in the protection of users' rights and interests, requiring that they not only respect the legitimate rights and interests of users such as their right to make their own choices and the right to know, but also take measures to ensure the security of users' personal information and prevent the leakage or abuse of user information.
Fourth, increase the degree of punishment for serious violations of laws and regulations in accordance with the law. The People's Bank of China may, in accordance with the law, impose penalties on relevant payment institutions, such as fines, restrictions on some payment operations, or order them to suspend business for rectification, up to the revocation of their payment business licenses. At the same time, it is clarified that directors, supervisors, senior executives and other personnel who are directly responsible may be punished according to specific circumstances, and market entry ban measures may also be adopted if the circumstances are serious.
Reclassify the payment business into two categories
Since 2010, the Measures for the Administration of Payment Services for Non-Financial Institutions have divided payment services into three categories: online payment, bank card acquiring and prepaid card business, according to transaction channels and acceptance terminals.
The reporter noted that the "Regulations" reclassified the payment business into two categories: stored value account operation and payment transaction processing.
"With technological innovation and business development, emerging methods such as barcode payment and face payment have emerged, and the existing classification methods cannot well meet the needs of market development and regulation. The responsible persons of the Ministry of Justice and the People's Bank of China said that the "Regulations" combine regulatory practice, learn from the experience of other countries and regions in the classification of payment business, adhere to the concept of functional supervision, and start from the essence of the business, according to whether it can receive the payer's advance funds, divided into two categories: stored value account operation and payment transaction processing.
The new classification method has good scalability, which is conducive to preventing regulatory gaps. The person in charge said that under the new classification method, regardless of the external manifestation of the payment business, it can be classified and managed according to the essence of the business, which can better adapt to the development and changes of the industry, and classify various new payment channels and payment methods into two basic business types.
The new classification is also conducive to avoiding regulatory arbitrage and promoting fair competition. According to the above-mentioned person in charge, the new classification method is based on the essence and risk characteristics of the business, penetrates the surface form of the payment business, is conducive to unifying the access conditions and business rules requirements such as capital, eliminating regulatory depressions, and forming a fair institutional environment.
The relevant person in charge of China Construction Bank said that payment is a typical two-sided market, and the card issuer and the customer, the acquirer and the merchant are the "two sides" of the balance. Different from the "single market", the degree of interaction between the two parties determines the vitality and scale effect of the payment market. Therefore, promoting the mutual prosperity of both parties is the key to ensuring a virtuous cycle in the payment market. The "Regulations" re-divide the payment business into two categories: stored value account operation and payment transaction processing, on the one hand, to guide the payment to return to the essence of the business, and the direction of functional supervision is clearer, and on the other hand, to strengthen the logic of "two-sided market" in terms of functional origin.
The reporter also learned that the People's Bank of China will study and formulate the detailed rules for the implementation of the "Regulations" in the near future, do a good job in connecting the new business types with the original classification methods, and promote a smooth transition.
Source: Xinhua News Agency, People's Bank of China, Shanghai Securities News