· Document Number：No.128 [2016] of the China Banking Association

· Area of Law： Banking & Finance

· Level of Authority： Industry Regulations

· Date issued：09-28-2016

· Effective Date：09-28-2016

· Status： Effective

· Issuing Authority： China Banking Association

Notice of China Banking Association on Issuing the Factoring Business Norms for the Chinese Banking Industry (2016 Revision)
（No.128 [2016] of the China Banking Association）
各会员单位：
为促进保理业务的国际交流与合作，提升中国保理业务的国际化和规范化水平，中国银行业协会保理专业委员会修订完成《中国银行业保理业务规范》英文版。现将Factoring Business Norms for the Chinese Banking Industry印发给你们，请认真学习，遵照执行，并在国际交流中使用此版本。原《中国银行业保理业务规范》英文版（银协发〔2010〕74号）同时废止。
附件：《Factoring Business Norms for the Chinese Banking Industry》
中国银行业协会
2016年9月28日
Attached
Factoring Business Norms for the Chinese Banking Industry
Chapter I General Provisions
Article 1 For the purposes of establishing fundamental management principles and defining the nature of factoring business and promoting its disciplined， healthy and orderly development， these Norms are formulated in accordance with the Contract Law of the People's Republic of China， the Property Law of the People's Republic of China， the Law of the People's Republic of China on Regulation of and Supervision over the Banking Industry， the Law of the People's Republic of China on Commercial Banks， the Pricing Law of the People's Republic of China， the Interim Provisions for Factoring Business of Commercial Banks and other relevant laws， rules and regulations as well as domestic and international practices.
Article 2 These Norms shall apply to the banking institutions within the territory of the People's Republic of China that are established and engaged in factoring business upon approval by the banking regulatory authority under the State Council.
Article 3 Banks shall observe the following principles in handling factoring business：
(1) Complying with relevant laws， rules and regulations of the State such as the Interim Provisions for Factoring Business of Commercial Banks；
(2) Complying with international practices such as the General Rules for International Factoring；
(3) Maintaining a proper balance between business development and risk management for prudent operation；
(4) Following the principles of equality， voluntariness， fairness and good faith， and maintaining a proper balance between cooperation and competition with peers.
Chapter II Definition， Features and Classification
Article 4 Definitions
(1) Accounts receivable
For the purpose of these Norms， accounts receivable shall mean the monetary claims and their proceeds arising from an enterprise's supply of goods， services or lease of assets， but excluding the right to demand payment arising from notes or other marketable securities. A loan secured by the pledge of accounts receivable is not in the scope of factoring business.
(2) Factoring
Factoring is a comprehensive financial service which is subject to the creditor's assignment of its accounts receivable and which combines collection and accounts receivable administration， protection against bad debts and finance. The creditor assigns its accounts receivable to the bank， for at least one of the following services：
(a) Collection of accounts receivable： The bank demands payment from the debtor， proactively or upon request by the creditor， by means of telephone calls， dunning letters， door-to-door collection and legal proceedings.
(b) Management of accounts receivable： The bank， upon request by the creditor， provides the creditor with information on collection of accounts receivable and overdue accounts， reconciliation statements and other financial and statistical statements， on a regular or ad-hoc basis， thereby assisting the creditor in managing accounts receivable.
(c) Protection against bad debts： After the creditor and the bank enter into a factoring agreement， the bank grants the debtor a credit line and makes payment under guarantee as agreed within the approved credit line for the creditor's accounts receivable free and clear of commercial disputes.
(d) Factoring finance： Financing service provided by the bank subject to the legal and valid assignment of accounts receivable.
Article 5 Factoring has the following features：
(1) The bank acquires direct claim against the debtor by becoming the assignee of the creditor's accounts receivable；
(2) The primary source of repayment for factoring finance is payment of accounts receivable by the debtor；
(3) The bank continuously tracks， assesses and examines payment activity and records of the debtor for timely risk detection so as to mitigate its own risks；
(4) Protection against bad debts is a conditional payment undertaking by the bank.
Article 6 Classification of factoring
(1) International factoring and domestic factoring
Factoring is classified as international factoring and domestic factoring by nature of the underlying transaction and locations of the creditor and the debtor. Under domestic factoring， both the creditor and the debtor are within the territories of China. Under international factoring， either the creditor or the debtor is outside the territories of China (here， areas “outside the territories of China” includes bonded areas， free trade zones， areas “within the borders of the PRC but outside Customs”，etc.).
(2) Recourse factoring and non-recourse factoring
Factoring is classified as recourse factoring and non-recourse factoring based on whether the bank may reassign accounts receivable to the creditor or request the creditor to repurchase accounts receivable or repay finance when the debtor goes bankrupt or is unable to pay accounts receivable or defaults on payment of accounts receivable.
Under recourse factoring， the bank may reassign accounts receivable to the creditor or request the creditor to repurchase accounts receivable or repay finance when the bank is unable to collect accounts receivable from the debtor upon maturity. Recourse factoring is also called “Repurchase Factoring”.
Under non-recourse factoring， the bank bears the risk of bad debts arising from the debtor's inability to pay accounts receivable which is free and clear of any commercial disputes. Non-recourse factoring is also called “Buy-out Factoring”.
(3) Disclosed factoring and undisclosed factoring
Factoring is classified as disclosed factoring and undisclosed factoring based on whether the debtor is notified of the assignment of accounts receivable.
Under disclosed factoring， assignment of accounts receivable is disclosed to the debtor in ways including but not limited to sending the debtor an introductory letter in the format defined by the bank or adding onto the invoice an assignment clause in the format defined by the bank.
Under undisclosed factoring， assignment of accounts receivable is temporarily not notified to the debtor but the bank reserves the right to notify the debtor of the assignment under certain conditions.
(4) Single-factor factoring and two-factor factoring
Factoring is classified as single-factor factoring and two-factor factoring according to the number of factoring institutions engaged in factoring service. Under single-factor factoring， a factoring institution provides factoring service for the seller and the buyer all by itself. Under two-factor factoring， two factoring institutions provide factoring service for the seller and the buyer respectively.
If the seller factoring institution and the buyer factoring institution are different branches of the same bank， it can be deemed as two-factor factoring in principle. The bank is required to specify the functions and responsibilities of both factoring institutions simultaneously in its business management measures.
Cooperation between a bank and an insurance company whereby the insurance company insures the buyer's credit risk is deemed as two-factor factoring.
Chapter Ⅲ Internal Management Requirements of Banks
Article 7 Banks shall， in line with their development strategy and scale of business， set up separate factoring department or team which shall be responsible for formulation of factoring regulations， product development and promotion， business operation and management. Banks shall allocate appropriate resources to support factoring business.
Article 8 Banks shall establish complete operational procedures for factoring business covering the front， middle， and back offices. The functions and responsibilities of the front， middle， and back offices shall be clear and relatively independent from each other， and posts shall encompass the following functions： marketing， product development and promotion， business management， risk control， operation， etc.
Article 9 Banks shall reinforce the training of their factoring staff， improve the staff's professional competence and actively organize and participate in training programs provided by industry organizations and related activities. Such industry organizations include the Factors Association of China， the Factors Chain International and the International Chamber of Commerce， etc.
Article 10 Based upon the features of factoring， banks shall impose strict controls over the whole process of factoring in the areas of business acceptance and investigation， risk assessment and evaluation， accounts receivable payment and monitoring， etc.， and establish standard business management measures and operating procedures.
(1) Business management measures shall at least include：
(a) Scope of business： Banks shall define their factoring products in accordance with these Norms and formulate a proper scope of business.
(b) Organizational structure： Banks shall specify relevant department responsible for factoring， define its duties and grant to such department relatively independent management authority.
(c) Client selection： Banks shall develop proper client selection criteria in line with the features of factoring.
(d) Receivables criteria： Banks shall develop criteria for accounts receivable eligible for factoring， including but not limited to payment terms， payment conditions and the underlying transaction， etc.
(e) Credit assessment and approval： Banks shall formulate credit policies in line with the features of factoring， and according to the actual risk assumed， specify the entity to which credit is extended， the assessment criteria and draw-down conditions. Banks may extend credit to the debtor without noticing the debtor or signing a credit agreement with the debtor.
(f) Risk management of correspondents： Banks shall establish selection criteria for and sign agreements with collaborative factoring institutions such as partner banks， factoring companies and insurance companies. For collaborative factoring institutions which actually assume the credit risk， credit management is needed. During the course of the business， banks shall periodically monitor the changes in the risks of the collaborative factoring institutions and the country risk so as to make timely adjustments.
(g) Post-credit management： Banks shall formulate specific post-credit management policy， including close monitoring of the performance risk of the creditor and the debtor， underlying transaction， special account for the collection of accounts receivable， etc. The special account is used to receive payment for accounts receivable， and can be opened in the name of the creditor or the factoring bank， and in the latter situation， it shall be characterized as an internal account of the bank.
(h) Fees and interest rates： Banks shall offer a comprehensive price taking into consideration of business classification， service content， business cost， workload， risk exposure， reasonable profit and industry practices， and set up reasonable and individual standards for factoring fees and interest rates ，including accounts receivable administration fee， handling fee for documents， finance interest， etc. The time to charge such fees and interests includes， but is not limited to， the moments of assignment， financing or debtor payment， and the fees and interest can be charged to the creditor， the debtor or by negotiation. If the payment terms of the accounts receivable are longer than one year， fees and interests can be charged annually. Interest rate for factoring finance may be determined by considering banks' internal funds transfer pricing， capital at risk and return requirements.
(2) Operating procedures for factoring shall at least include：
(a) Business acceptance.
(b) Credit line application and approval
(c) Finance percentage and term： Banks shall determine the finance percentage， term and grace period in a reasonable way， taking into account of dilution and payment terms of the accounts receivable.
(d) Signing of factoring agreement： Banks shall sign factoring agreement with the creditor. Banks may not sign credit agreement with the debtor.
(e) Examining underlying transaction.
(f) Assignment of accounts receivable and notification to the debtor： With the exception of order approval， the creditor shall， in principle， be required to assign to banks all accounts receivable related to a specific debtor. Banks may take assignment of future accounts receivable， but shall not finance against future accounts receivable.
(g) Credit line management： Including approval， utilization， amendment， freeze and cancellation of credit lines for the creditor and the debtor.
(h) Finance.
(i) Administration and collection of accounts receivable. Collection and administration of accounts receivable shall not be outsourced to third parties.
(j) Collection and payment of fees and charges.
(k) Dealing with specific issues such as credit note， commercial dispute， indirect payment and payment under guarantee.
(1) Accounting.
Article 11 Recognizing the credit risk alleviating effects of valid accounts receivable， banks may follow the below principles to calculate credit risk-weighted assets when conducting factoring business.
(1) If only accounts receivable administration or collection is provided， there are no credit risk-weighted assets.
(2) The seller factoring institution that provides non-recourse factoring may calculate credit risk-weighted assets by applying the risk weight of the buyer factor， the insurance company or the debtor. The seller factoring institution that provides recourse factoring may calculate credit risk-weighted assets by applying the risk weight of the buyer factor or the insurance company if it provides protection against bad debts， or that of the debtor.
(3) Based upon the actual risk assumed， a credit conversion factor may be applied by the buyer factoring institution that provides bad debt protection， as in the treatment of "trade-related short-term contingent items".
(4) If both the seller and buyer factoring institutions are within the same bank， the total risk weight shall not be higher than 100%，and the specific risk weights may be determined by business scenario and various risk alleviating factors.
Article 12 Banks shall determine whether to register assignment under factoring with the CCRC Movables Financing Registration System in accordance with internal management requirements. Registration of assignments is encouraged for the purpose of forming a mechanism for mutual aid in the industry.
Article 13 Banks shall establish an electronic operation and management system to achieve the following objectives：
(a) Uniform management process： Banks shall establish uniform business standards to ensure real-time monitoring of parameter structure， safety and control maintenance， limit control and operating procedures， keep abreast of operational developments and facilitate regular review and examination of operations.
(b) Early warning and supervision： Banks shall manage ledger accounts and give early warning to abnormalities.
(c) Business data storage： Banks shall provide data backup to ensure safety of data in storage. The storage period shall be at least five years. Data in storage shall be available upon request for statistics， management and other purposes.
Chapter IV Statistics and Information Disclosure
Article 14 Banks shall make business statistics properly and submit transaction data promptly as required by regulators.
Article 15 Disclosure in the Corporate Credit Information System of PBOC(CCIS).
The finance information under recourse factoring shall be registered in the credit information of the creditor in CCIS. There is no need to register in CCIS for non-recourse factoring.
Banks' approval of the credit line of the debtor shall not be registered in the credit information of the debtor in CCIS.
Banks' payment under guarantee or bad debt under factoring shall be registered in the credit information of either the creditor or debtor depending on the nature of risk.
Chapter V Supplementary Provisions
Article 16 Banks shall formulate relevant business regulations and implementation procedures in accordance with these Norms. Other institutions engaged in factoring may also use these Norms as a reference for conducting their business.
Article 17 When new foreign exchange administration rules and regulations related to factoring are promulgated， banks shall follow these new rules and regulations.
Article 18 These Norms are formulated and subject to interpretation by the Factors Association of China.
Article 19 These Norms shall enter into force on the date of promulgation.