On February 8, 2024, the NFRA formulated and promulgated the Measures for Supervisory Rating of Auto Finance Companies (NFRA [2024] No.1, hereinafter referred to as the "Measures"), which came into effect as of the date of promulgation.

Since auto finance companies came into business in China nearly 20 years ago, the number of companies and business scale have both seen rapid growth. At present, the development of the sector is relatively stable, and various companies have begun to show distinctive features in terms of business model, risk control, operation and development strategy. It is necessary to formulate rules for supervisory rating of auto finance companies, which fully reflect the current operating and risk characteristics as well as regulatory priorities of auto finance companies. The NFRA aims to set up a sound risk-oriented supervisory system for auto finance companies, comprehensively evaluate the management and risk status of auto finance companies through conducting supervisory rating, strengthen classified supervision, rationally allocate supervisory resources, and promote the high-quality development of the sector.

The Measures consists of five chapters and 22 articles, including general principles, rating elements, implementation, application of rating results and supplementary provisions, which sets forth general provisions to guide the supervisory rating of auto finance companies. First, clarifying the rating elements and methods. The Measures puts in place six rating elements, namely corporate governance, capital management, risk management, professional service capability, consumer rights protection and IT management, which are assigned weights of 10%, 10%, 35%, 20%, 15% and 10% respectively, along with the scoring principles. Second, clarifying the process for conducting supervisory rating. The supervisory rating of auto finance companies shall be conducted according to the process of initial assessment, re-assessment, review and feedback of supervisory rating results. The supervisory rating results are divided into 1-5 grades and S grade, descending from excellent to poor. The larger number of the rating results, the higher the risk of the company, hence more regulatory attention. Third, clarifying the principles and measures of tiered supervision. It is stipulated that the supervisory rating results shall be used as the main basis for regulatory authorities to formulate and adjust regulatory plans, allocate regulatory resources, take regulatory actions, and conduct tiered supervision of auto finance companies' business.

The Measures has incorporated the latest regulatory requirements issued by the NFRA in recent years, such as corporate governance, equity management, capital management and consumer rights protection, into supervisory rating. The rating intends to reflect the characteristics of the auto finance sector by setting up the rating element of "professional service ability", highlighting the supervisory goal to guide auto finance companies to strengthen professional capabilities.

The promulgation and implementation of the Measures is an important step to implement the decision of the Central Financial Work Conference to "effectively improve the effectiveness of financial supervision". By improving the risk-oriented supervisory system and the effectiveness of tiered supervision of auto finance companies, the NFRA will guide auto finance companies to focus on automobile consumer finance, improve their professional capabilities to serve the auto industry and enhance automobile consumption, so that they can meet people’s needs for diversified financial services, and further release the potential of automobile consumption and contribute in expanding domestic consumption.

Appendix:

Notice of NFRA on Releasing the Measures for Supervisory Rating of Auto Finance Companies

https://www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=1152569&itemId=861