On April 18, the China Banking Regulatory Commission (CBRC) issued the Interim Measures for the Administration of Factoring Business of Commercial Banks (hereinafter "Measure").

The Measures clarify the purpose and scope of application, define the factoring business, the factoring financing, receivables and the assignment thereof, and particularly set the qualified receivables standards. In addition, relevant business process and key links of the factoring financing are regulated.

The Measure consists of six chapters, thirty-seven articles in total. It provides definition and classification of factoring business, factoring financing, accounts receivable and assignment. It specifies, first, norms for operating procedures and key links of factoring; second, requirements for corporate governance, institutional construct, and internal management; third, provisions for supervision and penalty. 

1. Definition and Classification of Factoring. Complying with international practices and relevant rules, the Measure on one hand defines factoring, clearly pointing out that assignment of accounts receivable represents the base of factoring business, and on the other classifies it from various dimensions. According to the Measure, factoring based upon the creditor’s assignment of its accounts receivable, is a comprehensive financial service which combines collection and management of accounts receivable, protection against bad debts and financing. 

2. Operating Procedures of Factoring Financing. The major risk-intensive sector of factoring business is financing, and some banks take advantage of it to lend general loans and lower assessment criteria. The Measure specifies operating procedures of factoring financing in terms of financing products, selection of clients and partner institutions, business assessment, management of special accounts, ratio and maturity of financing, information disclosure and so forth. Amongst the above aspects, emphasis is attached to conduct prudent management in factoring financing, i.e., upon approval of basic transactions, credit buyers or sellers to whole process management on basis of working capital loans.

3. Risk Management Framework for Factoring Business. Taking into consideration the features of factoring, the framework specifies norms in corporate governance, institutional construct and other aspects, stressing that banks should formulate prudent strategies for business development, enact and examine relevant norms regularly. Furthermore, the framework covers team building, authorization management, separation of reception, middle office and backstage services, system construction, risk monitoring and handling, etc. The framework aims to encourage banks to set up specified and independent managerial framework for factoring business.