xrf-20f_20181231.htm

(Name, Telephone, E‑mail and/or Facsimile number and Address of Company Contact Person)

*Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock at the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the US Securities Act of 1933, as amended.

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,"accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☒

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

Unless otherwise indicated or the context otherwise requires in this annual report:

This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to:

We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information—D. Key Information—Risk Factors.” Those risks are not exhaustive. We operate in an evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this annual report and the documents that we reference in this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

The following table presents the selected consolidated financial information of our company. The selected consolidated statements of comprehensive income data for the years ended December 31, 2016, 2017 and 2018 and the selected consolidated balance sheets data as of December 31, 2017 and 2018 have been derived from our audited consolidated financial statements included in this annual report beginning on page F-1. The selected consolidated statements of comprehensive income data for the years ended December 31, 2014 and 2015 and the selected consolidated balance sheets data as of December 31, 2014, 2015 and 2016 have been derived from our audited consolidated financial statements not included in this annual report. Our audited consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our historical results do not necessarily indicate results expected for any future period. You should read the following selected financial data in conjunction with the consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.

The following table presents our selected consolidated statement of comprehensive income for the years ended December 31, 2014, 2015, 2016, 2017 and 2018.

		For the Year Ended December 31,
		2014				2015				2016			2017			2018
		US$				US$				US$			US$			US$
Selected Consolidated Statement of Comprehensive Income:
Revenue
Transaction and service fees (net of customer acquisition incentive)			60,281				62,535				55,891			91,621			70,615
Other revenue			1,027				946				1,092			1,156			4,285
			61,308				63,481				56,983			92,777			74,900
Net interest income/(expense)																	555
(Provision)/Reversal for loan losses			(580	)			(3,924	)			—			13			(3,969	)
Discretionary payments	—				—				—					(4,576	)		(4,605	)
Business related taxes and surcharges			(2,960	)			(3,424	)			(1,122	)		(503	)		(262	)
Net revenue			57,768				56,133				55,861			87,711			66,619
Operating expenses
Servicing expenses			(7,465	)			(13,484	)			(13,889	)		(13,651	)		(10,342	)
Sales and marketing expenses			(27,347	)			(34,182	)			(29,954	)		(45,341	)		(34,669	)
General and administrative expenses			(19,210	)			(30,355	)			(36,742	)		(54,121	)		(72,324	)
Product development expenses			(4,529	)			(5,675	)			(8,630	)		(11,642	)		(15,994	)
Total operating expenses			(58,551	)			(83,696	)			(89,215	)		(124,755	)		(133,329	)
Other income (expense)
Other income (expense), net			1,267				(2,456	)			(9	)		508			1,253
Profit (loss) before income tax expense			484				(30,019	)			(33,363	)		(36,536	)		(65,457	)
Income tax expense			(353	)			(7	)			(3	)		(113	)		(1,072	)
Net profit (loss)			131				(30,026	)			(33,366	)		(36,649	)		(66,529	)
Accretion on Series A convertible redeemable preferred shares to redemption value			(288	)			(288	)			(288	)		(96	)		—
Accretion on Series B convertible redeemable preferred shares to redemption value			(1,621	)			(1,621	)			(1,621	)		(540	)		—
Accretion of Series C convertible redeemable preferred shares to redemption value			—				(1,292	)			(4,468	)		(2,232	)		—
Deemed dividend to Series C convertible redeemable preferred shares at modification of Series C convertible redeemable preferred shares			—				—				(635	)		—			—
Deemed dividend to Series C convertible redeemable preferred shares upon Initial Public Offering			—				—				—			(82,034	)		—
Net loss attributable to ordinary shareholders			(1,778	)			(33,227	)			(40,378	)		(121,551	)		(66,529	)
Net profit (loss)			131				(30,026	)			(33,366	)		(36,649	)		(66,529	)
Foreign currency translation adjustment, net of nil tax			1				(533	)			(1,885	)		170			944
Comprehensive income (loss)			132				(30,559	)			(35,251	)		(36,479	)		(65,585	)

	For the Year Ended December 31,
	2014			2015			2016			2017			2018
	US$			US$			US$			US$			US$
	(in thousands, except share data and per share data)
Weighted average number of ordinary shares used in computing net profit (loss) per share
Basic		16,084,124			16,232,433			16,437,946			49,054,201			65,199,459
Diluted		16,084,124			16,232,433			16,437,946			49,054,201			65,199,459
Loss per share attributable to ordinary shareholders
Basic		(0.11	)		(2.05	)		(2.46	)		(2.48	)		(1.02	)
Diluted		(0.11	)		(2.05	)		(2.46	)		(2.48	)		(1.02	)

The following table presents our selected consolidated balance sheet data as of December 31, 2014, 2015, 2016, 2017 and 2018.

	As of December 31,
	2014			2015			2016				2017		2018
	US$			US$			US$				US$		US$
	(in thousands)
Selected Consolidated Balance Sheet Data:
Cash and cash equivalents		5,813			25,045			18,983				94,881		33,029
Restricted cash⁽¹⁾		5,218			11,890			12,685				14,673		35,833
Total assets		41,764			68,272			58,468				137,528		96,136
Total liabilities		32,383			44,907			44,460				78,490		95,219
Safeguard Program payable		16,605			18,555			19,511				17,950		—
Total mezzanine equity		36,201			84,950			116,218		—				—
Total shareholders’ (deficit) equity		(26,820	)		(61,585	)		(102,210	)			59,038		917

Our business is primarily conducted in China and almost all of our revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into U.S. dollars using the then current exchange rates, for the convenience of the readers. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.8755 to US$1.00, the exchange rate set forth in the H.10 Statistical release of the Board of Governors of the Federal Reserve System as of December 31, 2018, the last business day of 2018. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On November 5, 2019, the exchange rate was RMB6.9926 to US$1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. The source of data in the table is the Federal Reserve official website.

	Midpoint of Buy and Dollars per Sell Prices for RMB U.S.
Period	Period-End		Average⁽¹⁾		Low		High
2014		6.2046		6.1702		6.0402		6.2591
2015		6.4778		6.2869		6.1980		6.4778
2016		6.9430		6.6549		6.4480		6.9850
2017		6.5063		6.7350		6.5063		6.8900
2018		6.8755		6.6090		6.2649		6.9737
2019
May		6.9027		6.8519		6.7319		6.9182
June		6.8650		6.8977		6.8510		6.9298
July		6.8833		6.8775		6.8487		6.8925
August		7.1543		7.0629		6.8972		7.1628
September		7.1477		7.1137		7.0659		7.1786
October		7.0379		7.0961		7.0379		7.1473
November (through November 1)		7.0368		7.0368		7.0368		7.0368

Investing in our ADSs involves a high degree of risk. You should carefully consider the following risks, as well as other information contained in this annual report, before making an investment in our company. The risks discussed below could materially and adversely affect our business, prospects, financial condition, results of operations, cash flows, ability to pay dividends and the trading price of our ADSs. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, prospects, financial condition, results of operations, cash flows and ability to pay dividends, and you may lose all or part of your investment.

Risks Related to both the legacy marketplace lending platform business, as well as our transitioning in facilitating institutional lending capital business.

As the regulatory framework for our business has been quickly changing, we are transitioning from the legacy marketplace lending platform business, into a business of facilitating institutional lending capital. We no longer match borrowers with retail investors. We continue to use our proprietary decisioning technology, including predictive selection technology, and automated decision technology, to act as a third party service provider for financial institutions, to help them facilitate their lending capital to make loans to the borrowers we solicited, for which we evaluate potential borrowers’ creditworthiness, provide analytical screening and marketing services, and also provide portfolio management services, including loan collection services. See “Item 4. Information on the Company—B. Business Overview—Business Transition.” For the description of our business of facilitating institutional lending capital.

As the regulatory framework for the legacy marketplace lending business and for our facilitating institutional lending capital business continues to evolve, domestic and foreign governments may continue to propose and adopt new laws, regulations, notices or interpretive releases to regulate our legacy marketplace lending platform and facilitating institutional lending capital business, including our services, and our online and mobile-based channels, which may negatively affect our business.

The online lending industry in China has a relatively short history and relevant laws and regulations are developing and evolving. Since mid-2015, the PRC government and relevant regulatory authorities have issued various laws and regulations governing the online lending industry, which regulate the activities of online lending intermediaries, online microcredit companies, and those who collaborate with these entities in operating online lending platforms. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.” There are new and sudden changes and uncertainties as to the interpretation of these PRC laws and regulations and their applicability to our business. If any aspect of our operations is deemed to have violated these laws or regulations, we may be required to modify or even suspend relevant operations and/or be subject to administrative penalties. These laws and regulations, which include the following, may adversely affect our business and results of operations in the future.

In July 2015, ten PRC central government ministries and regulators, including the PBOC, the China Banking and Insurance Regulatory Commission, or the CBIRC, the Ministry of Finance, the Ministry of Public Security and the Cyberspace Administration of China, together released the Guidelines on Promoting the Healthy Development of Online Finance Industry, or the Guidelines, which provide regulatory principles for online financing businesses, including those in the online lending industry.

In August 2016, the CBIRC and other regulators collectively announced the Interim Measures on Administration of Business Activities of Online Lending Information Intermediaries, or the Interim Measures, which proposed the implementation of new requirements including, among others, filing, reporting, fund depository, risk and information disclosure, loan management and the permitted business scope for participants in the online lending industry. Specifically, the Interim Measures introduced a record-filing and licensing regime, which requires online lending information intermediaries to (i) make relevant record-filing with local financial regulatory authorities for their online lending information services; (ii) apply for the relevant telecommunication service license after the completion of record-filing with local financial regulatory authorities; and (iii) specify online lending information services in their business scope.

In November 2016, the CBIRC, the MIIT and the Industry and Commerce Administration Department, jointly issued the Guidance to the Administration of Filing and Registration of Online Lending Intermediaries, or the Guidance of Administration, which provides general filing rules for online lending intermediaries, and authorizes local financial regulators to make detailed implementation rules regarding filing procedures according to their local practices.

In 2017, certain local financial regulators published the implementation rules or consultation drafts, which specified the local filing requirements. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.” In February 2017, the CBIRC released the Guidance to regulate funds depositories for online lending intermediaries, which defines several obligations and responsibilities of online lending intermediaries and commercial banks involved in the online funds depository business. See “Item 4. Information on the Company— B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.” Nevertheless, it is uncertain as to how the Interim Measures will be further interpreted and implemented.

In August 2017, the CBIRC released the Guidance to regulate information disclosure of online lending intermediaries, which defines several principles, obligations and responsibilities of online lending intermediaries with respect to the disclosure of information. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.”

In December 2017, the Office of the Leading Group on Special Rectification of Risks in Internet Finance and the National Rectification Office jointly released the Notice on Regulating and Rectifying “Cash Loan” Business, or Circular 141, and the National Rectification Office released the Notice on Inspection and Acceptance of Specific Rectification of Risk of Online Lending, or Circular 57. Circular 141 and Circular 57 specified requirements for online lending intermediaries. Circular 57 required online lending information intermediaries to complete their

record-filing with the local authorities by the end of June 2018. Since 2017, local regulators have been conducting thorough investigations and inspections of online lending intermediaries, including us, and require a rectification if non-compliance is discovered. We notified national and local regulators that we decided to exit the marketplace lending platform business in April, 2019. Following such time, the regulators stopped tracking and monitoring the rectification measures with respect to our company, and they are developing new measurements for the legacy platforms that are exiting the operation.

In addition, the local regulators have also issued detailed checklists of guidelines or instructions, which reflect the local implementation practices. See “Item 3. Key Information—D. Risk Factors—Some aspects of our operations need to be modified to comply with existing and future requirements set forth by the CBIRC or laws or regulations promulgated by other PRC authorities regulating the online lending industry in China.”

In August 2018, the Leading Group for the Rectification and Inspection Acceptance of Risk of Peer-to-Peer Online Lending Intermediaries issued the Notice on Launching Compliance Inspection on Peer-to-Peer Online Lending Information Intermediaries, or the Inspection Notice, which required online lending information intermediaries to complete compliance inspections (including self-inspection, inspection conducted by local and national Internet Finance Associations and verification conducted by the rectification office in charge of online lending) by December 2018 pursuant to the Inspection Notice, and the Unified National Compliance Checklist for Online Lending Information Intermediaries as specified in the Inspection Notice. Based on the results of the compliance inspections, systems of online lending information intermediaries who are in compliance with the applicable rules and regulations can be integrated to industry-wide information disclosure systems and product registration systems. Upon completion of such integration, the online lending information intermediaries will be able to submit filing applications for record-filings pursuant to detailed procedures to be issued by the competent regulatory authorities. After the promulgation of the Inspection Notice, the local and national internet finance associations and the rectification office conducted inspections and verifications of our online lending information intermediary operations. We also submitted our self-inspection report to the local rectification office and our compliance inspection report to the relevant internet finance associations. In April 2019, we notified the local regulators that we were exiting the legacy marketplace lending platform business, and transiting into the business of facilitating institutional lending capital. Following this notification, we ceased to be subject to the purview of local rectification offices.

On December 19, 2018, the PRC government issued the Opinions on Classified Disposal and Risk Prevention of Online Lending Intermediaries (Circular No. 175). These opinions require certain online lending institutions to exit the marketplace lending industry.

On January 23, 2019, the PRC government issued the Notice on Further Implementing the Compliance Inspection and Follow-up Work of P2P Online Lending (Circular No. 1), which required that all lending platforms have to strictly follow the "triple reductions" policy, which was for all platforms, to reduce the total outstanding lending capital, reduce the total number of borrowers, and reduce the total number of investors. If a platform fails to follow the triple reduction policy, its operations will be forced to cease until the platform is in full compliance.

In furtherance the rules and policies promulgated by the PRC central government that impose inspection requirements for marketplace lending platforms, local governments accelerated their inspections of online lending platforms and began to publish the results. If a marketplace lending platform does not pass its inspection, it must cease its operations. Some local governments have found that all marketplace lending platforms in their jurisdiction have failed the inspection. In November 2019, PRC regulatory authorities indicated that their focus was on facilitating the proper exit of all platforms from the entire marketplace lending industry.

In response to the unclear and rapidly changing regulatory requirement, we prepared to winding down our legacy marketplace lending platform business in the third quarter 2018, and we further cut down borrower and investor acquisition in the first quarter of 2019, and completely stopped facilitating loans in April 2019 for individual investors, whereby we only focused on serving the remaining borrowers and lenders on our legacy marketplace lending platform, at the same time we keep serving institutional lenders by helping them facilitate loans to the borrowers we solicited. See “Item 4. Information on the Company—B. Business Overview—Legacy Marketplace Lending Platform and Our Transition.”

We are currently not in compliance with three of the New York Stock Exchange’s continued listing criteria, and may be delisted.

As set forth in our prior press releases, we are currently not in compliance with the New York Stock Exchange’s continued listing standards relating to minimum share price, minimum market capitalization and current reporting. We intend to address the minimum share price issue in the near future through a change in our ADS-to-ordinary share ratio. We intend to address the current reporting requirement through the filing of this Annual Report and continued regular disclosures in press releases and on Form 6-K. The New York Stock Exchange has granted us an additional period through December 5, 2020 to address the market capitalization issue, subject to quarterly interim reporting by us to the New York Stock Exchange on progress relating to a business transformation plan that we submitted to the Exchange. In addition, if our average market capitalization falls below US$15 million in any 30-day period or if our ADS price falls below US$0.16 at any point, we may be subject to immediate delisting. In we are delisted, the liquidity of our ADSs may be significantly adversely affected.

We have obligations to verify information relating to borrowers and detecting fraud. If we fail to perform such obligations to meet the requirements of relevant laws and regulations, we may not be able to collect the payment from borrowers and institutional lenders will not keep working with us.

In our transition, we facilitate financial institutional lending capital for our borrowers. Our legacy marketplace lending platform’s business of connecting investors and borrowers constituted an intermediary service, and our contracts with investors and borrowers were intermediation contracts under the PRC Contract Law. Under the PRC Contract Law, an intermediary that intentionally conceals any material information or provides false information in connection with the facilitation of an intermediation contract, which results in harm to the client’s interests may not claim any fee for its intermediary services and is liable for any damage incurred by the investor. In our transition to facilitate institutional lending capital, if we intentionally conceal any material information or provides false information in serving our institutional lender clients, we will be contractually liable for any damages incurred by the clients. Therefore, if we fail to provide material information to investors and are found to be at fault, for failure to exercise proper care, or failure to conduct adequate information verification or supervision, we could be subject to liabilities as an intermediary under the PRC Contract Law. In addition, the Interim Measures have imposed additional obligations on online lending information intermediaries to verify the truthfulness of the information provided by or in relation to loan applicants and to actively detect fraud. As the Interim Measures are relatively new, it is still unclear to what extent online lending information intermediaries should exercise the duty of care in detecting fraud. In addition, if there are fraudulent activities involved, we may not be able to collect the payment from the fraudulent borrowers. Although we believe that, as an information intermediary, we should not bear the credit risk for investors as long as we take reasonable measures to detect fraudulent behaviors, we cannot assure you that we would not be subject to any liabilities under the Interim Measures if we fail to detect any fraudulent behavior. If that were to occur, our results of operations and financial condition could be materially and adversely affected.

Some aspects of our business operations might not be in full compliance with existing and future requirements set forth by the CBIRC or laws or regulations promulgated by other PRC authorities regulating the marketplace lending industry, as well as our transition to help borrowers to facilitat institutional lending capital.

In July 2015, ten PRC central government ministries and regulators, including the PBOC, the CBIRC, the Ministry of Finance, the Ministry of Public Security and the Cyberspace Administration of China, together released the Guidelines, which identified the CBIRC as the supervisory regulator for the online lending industry. According to the Guidelines, online lending platforms may only serve as intermediaries to provide information services to borrowers and investors, and may not provide credit enhancement services or illegally conduct fundraising. The Guidelines also outlined certain regulatory propositions, which would require Internet finance companies, including online lending platforms, to (i) use banking financial institutions’ depository accounts to hold lending capital, and engage an independent auditor to audit such accounts and publish audit results to customers; (ii) improve the disclosure of operational and financial information, provide sufficient risk disclosure, and set up thresholds for qualified investors to provide better protections to investors; (iii) enhance online security management to protect customers’ personal and transactional information; and (iv) take measures against anti-money laundering and other financial crimes.

In August 2016, the CBIRC and other regulators collectively announced the publication of the Interim Measures. The Interim Measures provide for a twelve-month transition period, although in practice, regulators have extended the period by which online lending intermediaries shall have rectified their non-compliance. Apart from what had already been emphasized in the Guidelines and other previously released principles, the Interim Measures also include: (i) general principles; (ii) filing administration; (iii) business rules and risk management guidelines; (iv) protection measures for investors and borrowers; (v) rules on information disclosure; (vi) supervision and administrative mechanisms; and (vii) legal liabilities. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.”

In November 2016, the CBIRC, the MIIT and the State Administration of Industry and Commerce, jointly issued the Guidance of Administration, which provides the general filing rules for online lending intermediaries and delegates the filing authority to the local financial authorities. See “Item 4. Information on the Company— B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.” Since 2017, local financial regulators have been conducting investigations on the online lending intermediaries, and if we failed to be in full compliance with any regulations, we may be required to rectify mistakes within a certain period as stipulated in the rectification order of local financial regulators. After submitting the filing application, local regulators will conduct comprehensive investigations and inspections of us. Upon completion of their investigations and inspections, satisfaction with our compliance or rectifications is one of the conditions for online lending intermediary filing. In addition, Circular 141 and Circular 57 specified requirements for online lending intermediaries.

In February 2017, the CBIRC released the Guidance to regulate funds depositories for online lending intermediaries, which defines several obligations and responsibilities of online lending intermediaries and commercial banks involved in the online funds depository business. See “Item 4. Information on the Company— B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.” To the extent our current arrangements with commercial banks are deemed to be not-compliant with any of the Guidance’s requirements, we may need to adjust our operations, and as a result, our business may be materially and adversely impacted. See “—Risks Related to Our Business and Industry—If we are unable to maintain relationships with our third-party service providers, our business will suffer.”

In April 2017, the Office of the Leading Group on Special Rectification of Risks in Online Lending, or the National Rectification Office, which is the nationwide regulator for the administration and supervision of Internet finance and online lending, issued a Notice on the Conduct of Check and Rectification of Cash Loan Business Activities and a supplementary notice, or the Notice on Cash Loan. The Notice on Cash Loan prohibits online lending intermediaries from conducting cash loan businesses with the following features: conducting maliciously fraudulent activities, offering loans with extortionate interest rates or using violence in loan collections. Our consumption loan business did not have any of the prohibited features set forth in the Notice on Cash Loan. However, the Notice on Cash Loan and other relevant regulations have not explicitly stipulated the definition of cash loan, and the interpretation and application of laws and regulations promulgated in the Notice on Cash Loan is not entirely clear. If changes to our consumption loan business, which we are winding down, are required for us to comply with any future rules or regulations, a material change to our service to exiting borrowers including collection operation might take place, which could have adversely impacted on our legacy marketplace lending platform business. In December 2017, the Office of the Leading Group on Special Rectification of Risks in Internet Finance and the National Rectification Office jointly released Circular 141, and the National Rectification Office released Circular 57. Circular 141 and Circular 57 specified requirements for online lending intermediaries. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to the Online Lending Industry.” Beginning in 2017, local financial regulators started conducting onsite inspections of online lending intermediaries, including us, and issued notices to rectify certain practices. Following these onsite inspections, the local financial regulator issued a Notice of Special Rectification regarding Internet Finance in July 2017, or the Notice, which requires us to modify certain aspects of our operations. The Notice requires us to: (i) ensure that its services and business are compliant with the Interim Measures; (ii) make further adjustments in accordance with the Guidance; and (iii) ensure that each lender and borrower has entered into a one-to-one electronic loan agreement on our online lending platform. In response requests from and communications with local financial regulators, we have taken several remediation measures. The Notice also stated that our Safeguard Program did not comply with the restriction on provision of “credit enhancement service” under the Interim Measures. In response to this, effective February 2018, we ceased operating and providing our Safeguard Program.

In addition, some other elements of our marketplace may not currently be operating in full compliance with the Guidelines, the Interim Measures, the Guidance, Circular 141, Circular 57 and the other principles that have been announced in recent years. For example, the Interim Measures provide upper limits on the loan balance of a single borrower. While our legacy business mainly involves lending small amounts to a large number of borrowers, we still may not be in full compliance with the upper limits set forth in the Interim Measures because we may need to rely on the information provided by borrowers to determine whether their lending amounts from all intermediaries have reached the upper limits, and the information they provide us may contain misrepresentations or omissions or otherwise be unreliable. Moreover, the Interim Measures require online lending intermediaries to file with the local financial regulators and to include serving as an Internet lending intermediary in their business scope. In addition, the Interim Measures stipulate that online lending intermediaries shall not operate businesses other than risk management and necessary business processes such as information collection and confirmation, post-loan tracking and pledge management in accordance with online-lending regulations, via offline physical locations. However, the Interim Measures do not clearly set forth the types of business process that are not permitted to operate through offline physical locations. We have a network of offline facilities including three investor service centers, which focuses on maintaining relationship with investors in the process of exiting the legacy platform business. We may be requested to make further changes to serve the existing investors in these offline facilities.

Furthermore, the Interim Measures proposed requirements including with respect to certain prohibited activities, risk disclosure, borrower information disclosure and online dispute resolution, examination and verification functions, anti-fraud measures, risk education and training, information reporting, anti-money laundering, anti-terrorist financing, systems, facilities and technologies, service fees, electronic signatures, loan management, risk assessment, auditing and authentication, reporting obligations and information security. To the extent that our business is deemed to be non-compliant with any of these requirements of the Interim Measures, we may need to make necessary adjustments to comply and, as a result, our legacy business in the exiting process may be materially and adversely affected. We are waiting for further regulatory instructions given we are exiting from the industry.

The regulatory framework and the governmental policies for the online lending industry in China is evolving and is likely to remain uncertain for the foreseeable future. In this evolving regulatory environment, PRC regulators may from time to time impose long-term or temporary requirements on online lending intermediaries. For example, the Shanghai local association announced a measure prohibiting online lending intermediaries from increasing their business scale, number of borrowers and lenders. In addition, future regulatory requirements may be more difficult or costly for us to comply with and could materially and adversely affect the exiting of our legacy business.

For a further description of the laws and regulations applicable to us, see “Item 4. Information on the Company— B. Business Overview—Regulation.”

We have incurred net losses in the past. In the process of transitioning from the legacy marketplace lending platform business, into a business of facilitating institutional lending capital, we anticipate that our operating expenses will increase in the foreseeable future as we seek to continue to improve, further enhance and optimize our new business. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently to offset these higher expenses. We may incur net losses and may be unable to achieve or maintain profitability on a quarterly or annual basis for the foreseeable future.

Our facilitation of financial institution lending capital to our borrowers may be deemed to be the provision of an intermediary service, and our agreements with these financial institutions may be deemed to be intermediation contracts under the PRC Contract Law.

Our business of facilitating financial institutional lending capital to our borrowers may be deemed to be the provision of an intermediary service, and such services may be deemed to be as intermediation contracts under the PRC Contract Law. Under the PRC Contract Law, an intermediary may not receive service fees and may be subject to damages if it intentionally conceals any material fact or provides false information in connection with an intermediation contract that harms the client’s interests. See “Regulations Related to the Marketplace Lending Industry.” If we fail to provide material information to financial institutions or if we fail to identify false information received from borrowers and provide such information to financial institutions, we could be held liable for damages under the PRC Contract Law. In addition, if we fail to honor our obligations under our agreements entered into with financial institutions, we can be held liable for damages under the PRC Contract Law.

The personal data and other confidential information of customers and partners that we collect or are provided access to may subject us to liabilities imposed by relevant governmental regulations or expose us to risks of cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions.

We receive, transmit and store a large volume of personally identifiable information and other confidential data from borrowers, investors and our partners. There are numerous laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data. Specifically, personally identifiable and other confidential information is increasingly subject to legislation and regulations in numerous domestic and international jurisdictions, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. This regulatory framework for privacy issues in China and worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. In addition, there may be limits on the cross-border transmission of user data even to the extent that such transmission is within our company. We could be adversely affected if legislation or regulations are expanded to require changes in business practices or privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations. In addition to laws, regulations and other applicable rules regarding privacy and privacy advocacy, industry groups or other private parties may propose new and different privacy standards. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices. Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability for us, damage our reputation, inhibit the use of our platform and harm our business.

In addition, the data we possess and the automated nature of our online business may make us an attractive target for and potentially vulnerable to, cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. Furthermore, some of the data we possess is stored on our servers, which are hosted by third parties. While we and our third-party hosting facilities have taken steps to protect confidential information to which we have access, our security measures may be breached in the future. Any accidental or willful security breaches or other unauthorized access to our marketplace could cause confidential borrower, investor and partner information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If our security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, our relationships with borrowers, investors and partners could be severely damaged, and we could incur significant liability.

Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we and our third-party hosting facilities may be unable to anticipate these techniques or implement adequate preventative measures. In addition, the Administrative Measures for the Security of the International Network of Computer Information Network, effective on December 30, 1997 and amended on January 8, 2011, requires us to report any data or security breaches to the local offices of the PRC Ministry of Public Security within 24 hours of any such breach. In addition, the Cyber Security Law of the PRC, issued in June 2017, requires us to take immediate remedial measures when we discover that our products or services are subject to risks, such as security defects or bugs. Such remedial measures include informing our borrowers and investors of the specific risks and reporting such risks to the relevant competent departments. Any security breach, whether actual or perceived, would harm our reputation, and could cause us to lose borrowers, investors and partners and adversely affect our business and results of operations.

We also face indirect technology and cybersecurity risks relating to our business partners, including our third-party service providers which manage the transfer of borrower and investor funds and our custodian bank which provides custodian services for our borrowers’ and investors’ funds. As a result of increasing consolidation and interdependence of computer systems, a technology failure, cyber-attack or other information or security breach that significantly compromises the systems of one entity could have a material impact on its business partners. Any cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions of such third-party payment service providers and custodian bank could, among other things, adversely affect our ability to serve our borrowers and investors, and could even result in misappropriation of funds of our borrowers and investors. If that were to occur, our third-party service providers, custodian bank and us could be held liable to borrowers and investors who suffer losses from the misappropriation.

We may be held liable for information or content displayed on, retrieved from or linked to our website or mobile apps for our legacy marketplace lending platform, which may materially and adversely affect our business and operating results.

The PRC government has adopted regulations governing internet access and distribution of information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting on the internet content that, violates PRC laws and regulations, impairs the national dignity of China, contains terrorism, extremism, content of force or brutality, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet content and other licenses, the closure of the concerned websites and criminal liabilities. In the past, failure to comply with these requirements has resulted in the closure of certain websites. The website operator may also be held liable for the censored information displayed on or linked to the website.

In particular, the Ministry of Industry and Information Technology, or the MIIT, has published regulations that place website operators with liability for content displayed on their websites and actions of users of their systems that are deemed to be socially destabilizing. The Ministry of Public Security has the authority to order any local internet service provider to block any internet website at its sole discretion. From time to time, the Ministry of Public Security has stopped the dissemination over the internet of information which it believes to be socially destabilizing. The State Secrecy Bureau is also authorized to block any website it deems to be leaking state secrets or failing to meet the relevant regulations relating to the protection of state secrets. Furthermore, we are required to report any suspicious content to relevant governmental authorities, and to undergo computer security inspections. If we fail to implement the relevant safeguards against security breaches, our websites for our online lending platform may be shut down and our business license may be revoked.

In addition to our website, we also facilitated loans on our online lending platform through our mobile apps, which are regulated by the Regulations for Administration on Mobile Internet Applications Information Services, or the MIAIS Regulations, promulgated by the Cyberspace Administration of China, or the CAC, in June 2016 and became effective in August 2016. According to the MIAIS Regulations, the providers of mobile apps shall not create, copy, publish or distribute information and content that is prohibited by laws and regulations. We have implemented internal control procedures screening the information and content on our mobile apps for our online lending platform to ensure their compliance with the MIAIS Regulations. However, we cannot assure that all the information or content displayed on, retrieved from or linked to our mobile apps for our online marketplace lending platform complies with the requirements of the MIAIS Regulations at all times. If our mobile apps for our online marketplace lending platform were found to be violating the MIAIS Regulations, we may be subject to administrative penalties, including warning, service suspension or removal of our mobile apps from the relevant app stores, which may materially and adversely affect our business and operating results.

Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations, including our operating revenue, expenses, key performance metrics, may vary significantly in the future as we are transitioning from the legacy marketplace lending platform to the business of facilitating institutional lending capital, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Our quarterly financial results may fluctuate due to a variety of factors, some of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly results may adversely affect the price of our ADSs. Factors that may cause fluctuations in our quarterly results include:

In addition, we experience some seasonality in demand for consumer credit, which is generally higher in the third and fourth quarters due to the timing of national holidays as well as consumer spending patterns. Our operating results could be affected by such seasonality in the future.

Our business and operating results may be impacted by adverse economic and market conditions.

Many factors, including factors that are beyond our control, may have a detrimental impact on borrowers’ willingness to seek loans and investors’ ability and desire to lend, and consequentially have a negative effect on our business and results of operations. These factors include general economic conditions, the general interest rate environment, unemployment rates, residential home values and the availability of other investment opportunities. If any of these factors arise, our revenue and transactions on our online would decline and our business would be negatively impacted. For example, the fluctuation of interest rates may affect the demand for loan services on our online, a decrease in interest rates may cause potential borrowers to seek lower-priced loans from other channels and a high interest rate environment may lead to an increase in competing investment options and dampen investors’ desire to invest on our online. If we fail to respond to the fluctuations in interest rates in a timely manner and adjust our loan product offerings, potential and existing investors may delay or reduce their investments through our online, and potential and existing borrowers may show less interest in our loan products and online. As a result, fluctuations in the interest rate environment may discourage investors and borrowers from participating on our online, which may adversely affect our business.

In addition, our business is subject to the credit cycle associated with the volatility of the general economy. If economic conditions deteriorate, we may face increased risk of default, which will result in lower returns or losses to investors. In the event that the creditworthiness of our borrowers deteriorates or we cannot track the deterioration of their creditworthiness, the criteria we use for the analysis of borrower credit profiles may be rendered inaccurate, rendering our risk management system ineffective. This in turn may lead to higher default rates and adverse impact on our reputation, business, results of operations and financial position.

There can be no assurance that economic conditions will remain favorable for our business or that demand for our loans will remain at current levels. Reduced demand for, or increase in the default rate of, our loans would negatively impact our growth and revenue. If an insufficient number of qualified individuals apply for our loans or our access to lending capital for loans on our platform decreases, our growth and revenue could decline.

If the total addressable consumer credit market is smaller than we believe it is, our revenue may be adversely affected and our business may suffer.

It is very difficult to estimate the total addressable market for the loans facilitated by our online due to factors such as market demand, PRC regulations of the credit industry, competition, general economic conditions and the relatively short history of the online lending industry in China. We believe that our total addressable market of borrowers consists of EMMAs seeking unsecured affordable credit up to RMB200,000 (approximately US$28,169). However, if there is less demand than we anticipate for the loans facilitated on our online, it would significantly and negatively impact our business, financial condition and results of operations.

Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees needed to support our business, particularly in our transition to new business directions.

As we continue to wind down our legacy lending platform, and transition into business of facilitating institutional lending capital, we don’t match borrowers with retail investors any more. We keep using our proprietary decisioning technology, including predictive selection technology, and automated decision technology, to act as a third party service provider for financial institutions, to help them facilitate their lending capital to make loans to the borrowers we solicited, for which we evaluate potential borrowers’ creditworthiness, provide analytical screening and marketing services, and also provide portfolio management services, including loan collection services. We believe our success depends on the efforts and talents of our employees, including software engineers, financial personnel and marketing professionals. Our future success depends on our continued ability to attract, develop, motivate and retain highly qualified and skilled employees. Competition for highly skilled sales, technical and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.

In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve borrowers and investors could diminish, resulting in a material adverse effect on our business.

If we fail to retain our key personnel, we may not be able to successfully complete our transition to our business and our business could suffer.

In addition to attracting and retaining highly skilled employees in general, our future performance depends, in part, on our ability to attract and retain key personnel, including our executive officers, senior management team and other key personnel, all of whom would be difficult to replace. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. We may also incur additional expenses to recruit, train and retain qualified personnel.

In particular, Dr. Zhengyu (Zane) Wang, our founder, chairman and chief executive officer, and other senior officers, are critical to the management of our business and operations and the development of our strategic direction. The loss of the services of Dr. Wang, and our other executive officers or members of our senior management team would likely negatively affect our business, and the process to replace any of them, would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Any significant disruption in service on our, our third-party service providers’ or our partners’ computer systems, including events beyond our control, could prevent or delay the processing or posting of payments on loans, reduce the attractiveness of our business.

A significant natural disaster, such as a fire, power outage, flood or other catastrophic event, or interruptions by strikes, terrorism or other man-made problems, could have a material adverse effect on our business, operating results and financial condition. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our data centers, data verification centers, investor service centers or the data centers of our third-party service providers or our partners could result in lengthy interruptions in our services. In addition, acts of strikes, terrorism and other geo-political unrest or hacking could cause disruptions in our business and lead to interruptions, delays or loss of critical data. Our operations also rely on the performance of the Internet infrastructure and fixed telecommunication networks in China. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. Although this program is functional, we do not currently serve network traffic equally from each data center. If our primary data center shuts down, there will be a period of time that our services, will remain inaccessible to the borrowers and institutional investors.

In the event of an outage or physical data loss on our online or the systems of our third-party service provider depositing or transferring funds on, or third-party payment channels for, our online or partners, such third-party service provider’s or our partners’ ability to cooperate with us could be materially and adversely affected. The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure are critical to our operations, customer service, reputation and our ability to attract new and retain existing borrowers and investors to our online. Much of our system hardware is hosted in facilities located in Shanghai and Shenzhen that are partially owned by us and operated by our third-party vendors. Our operations depend on such vendors’ ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events. If there is a lapse of service or damage to our system hardware, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities.

Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with borrowers and investors on our online and our reputation. Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. We do not currently maintain business interruption insurance to compensate us for potentially significant losses, including potential harm to our business that may result from interruptions in our ability to facilitate the loan products and services. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing or posting payments on the loans, damage our brand and reputation, divert our employees’ attention, subject us to liability and cause borrowers and investors to abandon our online, any of which could adversely affect our business, financial condition and results of operations.

Our business and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.

Our business and internal systems rely on software licensed from third parties that is highly technical and complex. To the extent that such third parties also license the software or parts of the software, we rely on such third parties to maintain their licensing rights. In addition, our business and internal systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been used in our operations. Errors or other design defects within the software on which we rely may result in a negative experience for borrowers and investors, delay introductions of new features or enhancements, result in errors or compromise our ability to protect borrower or investor data or our intellectual property. Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, loss of borrowers or investors or liability for damages, any of which could adversely affect our business and financial results.

Misconduct and errors by our employees and third-party service providers could harm our business and reputation.

We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party service providers. Our business depends on our employees and third-party service providers to process a large number of increasingly complex transactions, including loan transactions that involve the use and disclosure of personal and business information. We could be materially adversely affected if personal and business information was disclosed to unintended recipients or an operational breakdown or failure in the processing of other transactions occurred, whether as a result of human error, a purposeful sabotage or a fraudulent manipulation of our operations or systems.

In addition, the manner in which we store and use certain personal information and interact with borrowers and investors is governed by various laws. If any of our employees or third-party service providers take, convert or misuse funds, documents or data or fail to follow protocol when interacting with borrowers and investors, we could be liable for damages and subject to regulatory actions and penalties or suffer reputational damage. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminal liability or suffer reputational damage. It is not always possible to identify and deter misconduct or errors by employees or third-party service providers, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. Furthermore, though we have formulated policies and procedures aimed at preventing money

laundering and terrorism financing, we cannot assure you that these policies and procedures will be effective to prevent our employees from engaging in money laundering or terrorism financing activities. In addition, third-party service providers are required to have in place appropriate anti-money laundering policies and procedures under applicable anti-money laundering laws and regulations issued by the PBOC. If any of our third-party service providers fails to comply with the applicable anti-money laundering laws and regulations, our reputation could suffer and we could become subject to regulatory intervention.

Also, we could be materially adversely affected if our employees or third-party service providers absconded with our proprietary data or used our know-how to compete with us. Although employees have left our company in the past and violated the non-compete and non-solicitation clauses in their employment agreements with little impact on our business, future violations of these clauses could have a material adverse effect on our business. Any of these occurrences could result in our diminished ability to operate our business, potential liability to borrowers and investors, inability to attract future borrowers and investors, reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results of operations.

We may from time to time be subject to claims, controversies, lawsuits and legal proceedings, which could have a material adverse effect on our financial condition, results of operations, cash flows and reputation.

We may from time to time in the future become subject to or involved in various claims, controversies, lawsuits, and legal proceedings. Lawsuits and litigations may cause us to incur defense costs, utilize a significant portion of our resources and divert management’s attention from our day-to-day operations, any of which could harm our business. Any settlements or judgments against us could have a material adverse impact on our financial condition, results of operations and cash flows. In addition, negative publicity regarding claims or judgments made against us may damage our reputation and may result in material adverse impact on us.

Any failure to protect our own intellectual property rights could impair our brand, negatively impact our business or both.

Our success and ability to compete also depend in part on protecting our own intellectual property. We rely on a combination of copyright, trade secret, trademark and other rights, as well as confidentiality procedures and contractual provisions to protect our proprietary technology, processes and other intellectual property. However, it is often difficult to maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. In addition, the steps we take to protect our intellectual property rights may be inadequate. Third parties may seek to challenge, invalidate or circumvent our copyright, trade secret, trademark and other rights or applications for any of the foregoing. In order to protect our intellectual property rights, we may be required to spend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or business partners use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know how and inventions. Any failure to secure, protect and enforce our intellectual property rights could seriously adversely affect our brand and adversely impact our business.

We may be sued by third parties for alleged infringement of their proprietary rights, which could harm our business.

Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. From time to time, third parties may claim that we are infringing on their intellectual property rights. We may, however, be unaware of the intellectual property rights that others may claim cover some or all of our applications, technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, restrict us from conducting our business or require that we comply with other unfavorable terms. We may also be obligated to indemnify parties or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management from our business operations.

Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have infringed the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.

We may be face liability as a result of delayed payments to third party service providers.

Due to the impact of regulatory policies and changes in market liquidity in recent years and other regulatory changes, we have endeavored to make timely payments to our vendors. To the extent we are delinquent in our payment obligations to our vendors, we could face liability for those delinquent payments. As of the date of this report, we are delinquent in our payment obligations to a small portion of our vendors.

Some aspects of our digital operations include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

Some aspects of our digital operations include software covered by open source licenses. The terms of various open source licenses have not been interpreted by PRC courts and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our online and mobile-based channels. If portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies if required so by the license, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and loan products. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with use of open source software cannot be eliminated, and could adversely affect our business.

If we fail to implement and maintain an effective system of internal controls or fail to adequately remediate prior material weaknesses in our internal control that have been identified, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.

We are subject to reporting obligations under the U.S. securities laws, including the Sarbanes-Oxley Act of 2002. Section 404 of this Act requires that we include a report of management on our internal control over financial reporting in this annual report. In addition, once we cease to be an “emerging growth company,” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

Prior to our IPO, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. In preparing our consolidated financial statements for the years ended December 31, 2017, we and our predecessor independent registered public accounting firm identified three material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, and other control deficiencies. The three material weaknesses identified related to: (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; and (iii) inadequate controls with respect to the maintenance of sufficient documentation for, and the evaluation of the accounting implications of, significant and non-routine payment transactions. In preparing our consolidated financial statements for the years ended December 31, 2018, we and our successor independent registered public accounting firm

determined these three material weaknesses remain as of December 31, 2018, and identified additional two material weaknesses in our internal control over financial reporting. The additional material weaknesses identified by us and our successor independent registered public accounting firm related to: (iv) a lack of adequate control procedures to ensure compliance with provisions of relevant regulations to prevent the Company from using personal bank accounts for its operation; and (v) inadequate controls with respect to the maintenance of sufficient documentation for nonrecurring transactions. Following the identification of the material weaknesses and control deficiencies, we have continuously taken remedial measures. While we believe that we have remediated some aspects of the material weaknesses identified, the material weakness still existed for the fiscal year ended December 31, 2018. As a result of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors or omissions. We cannot be certain in future periods that one or more material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified. If we fail to maintain the adequacy of our internal controls, including any failure to implement or difficulty in implementing required new or improved controls, our business and results of operations could be harmed, the results of operations we report could be subject to adjustments, we could incur further remediation costs, we could fail to be able to provide reasonable assurance as to our financial results or the effectiveness of our internal controls or meet our reporting obligations to the SEC and third parties (including lenders under our financing arrangements) on a timely basis and there could be a material adverse effect on the price of our ADSs.

Certain data and information in this annual report were obtained from third-party sources and were not independently verified by us.

This annual report contains certain data and information that we obtained from various government and private entity publications. Statistical data in these publications also include projections based on a number of assumptions. The Chinese credit industry, and online lending in particular, may not grow at the rate projected by market data, or at all. Failure of this industry to grow at the projected rate may have a material adverse effect on our business and the market price of our ADSs. In addition, the new and rapidly changing nature of the credit and online lending industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our industry. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.

We have not independently verified the data and information contained in such third-party publications and reports. Data and information contained in such third-party publications and reports may be collected using third-party methodologies, which may differ from the data collection methods used by us. In addition, these industry publications and reports generally indicate that the information contained therein was believed to be reliable, but do not guarantee the accuracy and completeness of such information.

If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business.

We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we continue to develop the infrastructure of a public company and grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.

The insurance industry in China is still in an early stage of development, and insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

If we are required to pay U.S. taxes, the value of your investment in our company could be reduced.

If, (1) pursuant to a plan or a series of related transactions, a non-U.S. corporation, such as our company, acquires substantially all of the properties constituting a trade or business of a U.S. partnership (including any trade or business conducted by such partnership directly or through entities treated as transparent for U.S. federal income tax purposes), (2) after the acquisition, 80% or more of the stock, by vote or value, of the non-U.S. corporation, excluding stock issued in a public offering related to the acquisition, is owned by former partners of the U.S. partnership by reason of their ownership of the U.S. partnership and (3) the non-U.S. corporation and certain of its affiliates do not have substantial business activities in the country in which the non-U.S. corporation is organized, then the non-U.S. corporation will be considered a U.S. corporation for U.S. federal income tax purposes. Prior to our conversion to a Cayman Islands company, we were a Delaware Limited Liability Company treated as a partnership for U.S. federal income tax purposes. We do not believe that the Delaware limited liability company was engaged in a trade or business, either directly or through entities treated as transparent for U.S. federal income tax purposes. Based on our analysis of the facts related to our corporate restructuring (in particular, our conversion from a Delaware limited liability company to a Cayman Islands company), we do not believe that we should be treated as a U.S. corporation for U.S. federal income tax purposes.

However, as there is no direct authority on how the relevant rules of the Internal Revenue Code might apply to us, the Internal Revenue Service could reach a different conclusion and seek to treat us as a U.S. corporation for U.S. federal income tax purposes. In addition, changes to the rules described above or the U.S. Treasury Regulations promulgated thereunder or other IRS guidance implementing such rules could adversely affect our status as a non-U.S. corporation for U.S. federal income tax purposes, and any such changes could have prospective or retroactive application to us or our shareholders.

A finding that we owe additional U.S. taxes could significantly reduce the value of your investment in our company. If we were to be treated as a U.S. corporation for U.S. federal income tax purposes, we would be subject to U.S. corporate income tax on our worldwide income, and the income of our non-U.S. subsidiaries would be subject to U.S. federal income tax when repatriated or when deemed repatriated under the U.S. federal income tax rules for controlled foreign corporations. Additionally, we may be subject to significant penalties for the failure to file certain tax returns and reports. Moreover, in such case, a non-U.S. shareholder would generally be subject to U.S. withholding tax on the gross amount of any dividends paid by us to such shareholder. You are urged to consult your tax advisor concerning the income tax consequences of purchasing, holding or disposing of ADSs or ordinary shares if we were to be treated as a U.S. corporation for U.S. federal income tax purposes.

We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.

The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.

The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse effect on our business and results of operations.

We are required to obtain a value-added telecommunication business certificate and may be subject to foreign investment restrictions.

PRC regulations impose sanctions for engaging in Internet information services of a commercial nature without having obtained an Internet content provider, or ICP, certificate. PRC regulations also impose sanctions for engaging in the operation of online data processing and transaction processing without having obtained an online data processing and transaction processing, or ODPTP, certificate (ICP and ODPTP are both sub-sets of value-added telecommunication business certificates). These sanctions include corrective orders and warnings from the PRC communication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites involved may be ordered to cease operation. Nevertheless, the PRC regulatory authorities’ enforcement of such regulations in the context of online lending platforms remains unclear. The Interim Measures provide that online lending intermediaries must apply for value-added telecommunications business licenses in accordance with the relevant provisions of telecommunications authorities after filing with a local financial regulator. However, PRC regulatory authorities to date have not explicitly stipulated whether the operator of a online lending platform (including in the form of a website or mobile Internet application) is engaging in Internet information services requiring an ICP certificate or an ODPTP certificate. If we are not able to obtain the required value-added telecommunication certificates pursuant to the relevant regulations, we may not be able to conduct online lending intermediaries’ services, but it is unclear under these regulations whether online lending intermediaries would be deemed to be engaged in a commercial information provider business or online data processing and transaction processing business or whether an ICP certificate or an ODPTP certificate is required. To the extent that the PRC regulatory authorities require such value-added telecommunication certificate to be obtained or if they set forth rules that impose additional requirements, and we do not obtain such certificate or comply with such rules, we may be subject to the sanctions described above. We plan to apply for filing immediately after the filing procedures are clarified by the relevant authorities, and apply for the corresponding value-added telecommunication business certificates after completing the filing, provided that the relevant telecommunication authority clarifies which sub-set of telecommunication business certificates need to be obtained by online lending platforms and how to apply for such certificate.

According to the Provisions on the Administration of Foreign-invested Telecommunication Enterprises, the ratio of investment by foreign investors to domestic investors in a foreign-invested telecommunication enterprise that engages in the operation of a value-added telecommunication business shall not exceed 50%. As such, foreign investors are only permitted to invest up to 50% of the registered capital in a foreign-invested telecommunication enterprise that engages in the operation of commercial Internet information services or general online data processing and transaction processing services. As an exception, the Circular of Ministry of Industry and Information Technology concerning Lifting Restrictions on the Proportion of Foreign Equity in Online Data Processing and Transaction Processing Business (E-commerce), or Circular 196, which was promulgated on June 19, 2015, provides that foreign investors are permitted to invest up to 100% of the registered capital in a foreign-invested telecommunication enterprise engaging in the operation of online data processing and transaction processing (E-commerce). While Circular 196 permits foreign ownership, in whole or in part, of online data processing and transaction processing businesses (E-commerce), which is a sub-set of value-added telecommunications services, there is still uncertainty regarding whether foreign investment restrictions may be applied to our business and industry. Further, under either circumstance, the largest foreign investor in an e-commerce business is required to have a satisfactory business track record and operational experience in the value-added telecommunication business.

We may be subject to risks if we have to restructure as a variable interest entity to obtain a telecommunication business license.

The final version of Foreign Investment Law adopted by the legislature, namely Standing committee of the National People’s Congress in March 2019 is quite different from the Draft Foreign Investment Law and does not address the issues related to the VIE structure. If we are required to establish a variable interest entity, or VIE, to serve as the operator of our online lending platform, the PRC government or local financial regulators may determine that the contractual arrangements necessary to form and control the VIE, or the Contractual Arrangements, do not comply with PRC licensing, registration, policies, legal or regulatory requirements, or with requirements or policies that may be adopted in the future and we could be subject to severe penalties, material difficulties in making the requisite filings or registrations, or be forced to relinquish our interests in certain operations. Accordingly, we cannot assure you that if any such Contractual Arrangements we may implement were to be challenged in a PRC court that these Contractual Arrangements would be enforced and upheld. Furthermore, we may be required to conduct our

telecommunication certificate-related business in China under Contractual Arrangements and generate our revenues through a VIE. In such case, we would need to rely on the Contractual Arrangements that we implement for a portion of our PRC operations, which may not be as effective in providing us with control over such operations as we would have with direct ownership of such VIE. Additionally, any failure by a VIE or its shareholders to perform its and their obligations under the Contractual Arrangements that we implement may have a material adverse effect on our business and our legal remedies under PRC law. Moreover, the shareholders of a consolidated VIE that we implement may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition. The shareholders of a VIE may breach or refuse to renew the Contractual Arrangements with us that allow us to effectively control such VIE, and receive economic benefits from its operations. There is a risk that they would not always act in the best interests of our company. We may not have effective arrangements to address potential conflicts of interest between these individuals and our company. We would rely on these individuals to abide by the contract laws of China and honor their contracts with us in order for us to effectively control the VIE and to receive the economic benefits deriving from our contracts with them. If we are unable to resolve any conflicts of interest or disputes between us and the shareholders of a VIE or if the shareholders of the VIE breach our agreements with them, we would have to rely on legal proceedings to enforce our rights, which may result in disruption to our business. There is also substantial uncertainty as to the outcome of any such legal proceedings. In addition, Contractual Arrangements in relation to a consolidated VIE may be subject to scrutiny by the PRC tax authorities, which may determine that we or the consolidated VIE owe additional taxes, which could negatively affect our financial condition and the value of your investment. In the event of bankruptcy, dissolution or liquidation of a VIE, we may lose the ability to use certain assets held by the VIE that are material to our business.

The micro-credit business in which our subsidiary, Haidong CRF Micro-credit Co., Ltd., or Haidong, operates is heavily regulated and any failure by us to adhere to the relevant laws, regulations or measures may have a significant impact on our business, results of operations and financial condition.

The micro-credit business of our subsidiary, Haidong, is heavily regulated by PRC laws and regulations, including requirements in respect of approvals and licensing, maintenance of minimum capital reserves, the maximum interest rates that can be charged, methods of fundraising and the amount permitted to be raised. In addition, these laws and regulations are subject to change, which may impose significant costs or limitations on the way we conduct or expand our business, including the way in which we can charge fees. There may be uncertainties regarding the interpretation and application of new laws and regulations and other governmental policies. Moreover, as we develop new loan products, we may be subject to additional laws and regulations. Any material violation of such laws and regulations, if not remedied, could have an adverse impact on our business, financial condition and results of operations. To the extent laws and regulations change or we become subject to different laws and regulations, the way in which we operate the micro-credit portion of our business may be materially impacted, and we may not be able to adapt to the new regulatory environment on a timely basis. Failure to comply with the applicable laws, regulations or measures may result in fines, restrictions on our activities or revocation of our licenses, which could have a significant impact on our micro-credit business.

Haidong obtained an approval of operation and business license from the relevant authorities in Qinghai Province in 2012, and will apply for the Microfinance Company Business Qualification Certificate pursuant to a new regulation issued in 2014 after the relevant authority in Qinghai Province begins to accept applications from microfinance companies. We cannot assure you that we will be able to obtain such certificate. Failure to obtain such certificate may have adverse effect on our micro-credit business.

The Several Opinions Regarding the Promotion of Healthy Development of Micro-credit Lending Companies, issued by the Qinghai Financial Office, require the balance of operating loans with terms less than six months issued by micro-lending companies to comprise at least 70% of the balance of all loans issued by such micro-lending company. We may need to adjust our business model with respect to the ratio of loans with terms less than six months for Haidong’s operations to be compliant with relevant requirements. In addition, it is not clear whether Haidong’s facilitation of consumption loans across China through online platforms will be deemed to be a violation of current or future regulations and we may be required to adjust our business model for Haidong’s operations accordingly.

According to the Interim Measures for the Administration of Micro-credit Companies of Qinghai Province issued by the Financial Office of Qinghai Province, as amended, or the Interim Measures of Qinghai Province, the total aggregate shareholding of the largest shareholder and its affiliates in a micro-credit company in Qinghai Province may not exceed 40% of the registered capital of the micro-credit company. Some other provinces in China do not impose limits on shareholding concentrations of micro-credit companies. 30% of Haidong’s shares are held directly

by Shanghai CRF Financial Information Service Co., Ltd., or Shanghai CRF and 70% of Haidong’s shares are held by five individuals as nominees of Shanghai CRF through entrustment agreements. Pursuant to these entrustment agreements, we are the sole beneficial owner of all of Haidong’s shares and have the ability to exercise all related shareholder’s rights, including the rights to receive distributions and dividends and exercise voting rights. The relevant local government authority has issued a letter acknowledging its consent to such arrangement. According to our PRC counsel, Fangda Partners, these entrustment agreements are legal, valid and enforceable. As also advised by our PRC legal counsel, the local administrative authorities could change their position or impose more stringent requirements in the future, in which case we will make other arrangements to meet relevant requirements.

In addition, Haidong is subject to regulations applicable to micro-credit companies incorporated in Qinghai Province, which are set forth by the Finance Office of Qinghai Province. These regulations provide that: (i) if loans use a micro-credit company’s own capital, the interest rate and fees must be greater than 90% of the PBOC benchmark interest rate posted at PBOC official website on daily basis, and less than four times the PBOC benchmark interest rate; and (ii) if loans use capital derived from certain financial institutions, the interest rate and fees must be greater than 90% of the PBOC benchmark interest rate and less than three times the PBOC benchmark interest rate.

The loans originated by Haidong are subject to the aforementioned interest rate and fee restrictions, which could affect our ability to collect the payments from the loans originated by Haidong, and may have a material adverse effect on our business.

Our ability to continue as a going concern is dependent on our ability to raise capital to support our operations.

We have limited cash resources and will periodically need additional funds to maintain our operations. We expect to consume cash and incur operating losses for the foreseeable future as we are transitioning from the legacy marketplace lending platform business, into a business of facilitating institutional lending capital to our target borrowers. The impact on cash resources and results from operations will vary depending on our ability to successfully make this transition.

Our financial statements have been prepared on a going concern basis, which contemplates continuity of normal activities and realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to derive sufficient cash from investors, from the remaining investors and borrowers on our legacy marketplace lending platform, from our business of facilitating institutional lending capital for target borrowers, and from other sources of revenue. Management has considered the cash flow forecasts and the funding requirements of our business and believes that the strategies in place are appropriate to generate sufficient funding to allow us to continue as a going concern. Accordingly management has prepared the financial statements on a going concern basis. Should the above assumptions not prove to be appropriate, there is material uncertainty whether we will continue as a going concern and therefore whether realize our assets and extinguish our liabilities in the normal course of business and at the amounts stated in our financial statements.

If we are unable to obtain additional funds on favorable terms or at all, we may be required to cease or reduce our operations. Also, if we raise more funds by selling additional securities, the ownership interests of holders of our securities will be diluted.

We may need additional capital, and financing may not be available on terms acceptable to us, or at all.

Although we believe that our current cash and cash equivalents and anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months, we may need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. Due to the unpredictable nature of the capital markets and our industry, we cannot assure you that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available to us as required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited, which would adversely affect our business, financial condition and results of operations. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges senior to those of existing shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

We may incur substantial debt in the future, which may adversely affect our financial condition and negatively impact our operations.

Although we have not incurred substantial debt to date, we may decide to do so in the future. The incurrence of debt could have a variety of negative effects, including:

The occurrence of any of these risks could adversely affect our operations or financial condition.

Changes in foreign exchange regulations may materially adversely affect our results of operations.

Our marketplace currently receives all of its lending capital from investors in RMB. The PRC government regulates the conversion between RMB and foreign currencies. Over the years, the PRC government has significantly reduced its control over routine foreign exchange transactions under current accounts, including trade and service related foreign exchange transactions. There can be no assurance that these PRC laws and regulations on foreign exchange transactions will not cast uncertainties on foreign investors’ ability to convert foreign currencies to RMB and provide lending capital for our marketplace. While the adjustments related to foreign exchange transactions were relatively small in 2016, 2017 and 2018, the adjustments may be significant going forward if the RMB depreciates. Changes in PRC foreign exchange policies might have a negative impact on our ability to attract foreign investors to our marketplace and could result in foreign investors choosing to provide their lending capital to our non-Chinese competitors, both of which would materially adversely affect our results of operations.

Regulatory authorities have begun focusing their regulatory efforts on collection operations, which has had a material and adverse effect on our ability to collect past-due payments from delinquent borrowers.

Regulatory authorities have focused their efforts on curtailing illegal activities and strengthening the implementation of rigid collection policies and regulations. These newly implemented collection policies and regulations have required us to modify our collection operations of past-due funds from delinquent borrowers. We believe our collection operations have followed the rigid collection policies and regulations. In addition, our collection operations have been stymied by delinquent borrowers fraudulently reporting illegal collection activities. These fraudulent reports have resulted in delays and increased expenses in collecting past-due funds from delinquent borrowers.

The increasing regulatory and restriction requirements of the regulatory authorities on lending collection will have a negative impact on the normal collection from the platform to the borrower and promote the trend of malicious default of the borrower.

On December 1, 2017, Office of the Leading Group for the Special Campaign against Internet Financial Risks and the Office of the Leading Group for the Special Campaign against Peer-to-peer Lending Risks issued the Notice of the Regulation and Rectification of the “Cash Loan” Business. The Notice provides that all kinds of institutions or entrusted third-party institutions shall not collect loans by means of violence, intimidation, insult, slander, harassment, etc. On May 4, 2018, China Banking Regulatory Commission, the Ministry of Public Security, the State Administration for Market Regulation, and the People's Bank of China issued Notice of Regulating Private Lending

and Maintaining the Economic and Financial Order. The Notice emphasized the cracking down of collecting loans by intentional injury, illegal detention, insult, intimidation, threat, harassment and other illegal means. On July 23, 2019, the Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security and the Ministry of Justice issued the Opinions on Several Issues in Handling Criminal Cases of Illegal Lending, which reiterated and emphasized the requirements above. The continuous introduction of regulations on collection practices indicates that the regulatory authorities are increasingly strict in the regulation and restriction of loan collection. The increase of restrictions may have a potential adverse impact on the normal collection from the platform to the borrower and increase the collection cost of the platform. In addition, we expect that this will contribute to the trend of borrowers' malicious default and increase the difficulty of the platform’s collection efforts. We might not be able to carry all of our operating losses forward.

Some of the loans we facilitated may be deemed loans with no designated purpose or loans that do not rely on specified consumption scenarios and we may be required to track the actual use of such loans, which may materially and adversely affect our business, financial condition and results of operations.

Circular 141 specifies that "cash loans" must (i) not rely on consumption scenarios, (ii) have a specified use of loan proceeds, (iii) have no qualification requirement for customers, and (iv) be unsecured. Circular 141 prohibits online lending information intermediaries from facilitating loans with no designated purpose or loans that do not rely on specified consumption scenarios. We have taken measures to track the actual usage and consumption scenarios of the loans we facilitated, including: (i) requiring borrowers to fill out information on the actual usage of the loans during the loan application process; (ii) requiring borrowers to upload supporting documents to demonstrate the actual usage of the loans; (iii) conducting inspections on the actual usage of the loans from time to time by phone calls; and (iv) cross-checking and verifying the actual usage of the loans. It is unclear whether the measures we have taken completely satisfy the requirements of Circular 141, or whether some of the loans we facilitated may be deemed to be loans with no designated purpose or loans that do not rely on specified consumption scenarios, either of which would require us to take further measures to track the actual usage of such loans, which would result in the incurrence of significant expenses.

Changes in PRC regulations relating to interest and fee rates for marketplace and micro-credit lending could have a material adverse effect on our business in our efforts to collect on delinquent loans.

The interest rate permitted to be charged on loans facilitated by our legacy marketplace lending platform is subject to limitations set forth in the Provisions of the Supreme People’s Court on Application of Laws to the Hearing of Private Lending Cases, or the Provisions on Private Lending Cases, which provide that (i) when the interest rate agreed between the borrower and investor does not exceed an annual interest rate of 24%, the People’s Court will uphold the interest rate charged by the investor, and (ii) when the interest rate agreed between the borrower and investor exceeds an annual interest rate of 36%, the portion in excess of 36% is void and the People’s Court will uphold the borrower’s claim for return of the excess portion to the borrower, and even place legal charges against the organization. For loans with interest rates per annum between 24% and 36%, if the interest on the loans has already been paid to the investor, and so long as such payment has not damaged the interest of the state, the community or any third parties, the courts will not enforce the borrower’s demand for the return of such interest payment.

In August 2017, the Supreme People’s Court promulgated the Circular of Several Suggestions on Further Strengthening the Judicial Practice Regarding Financial Cases, or Circular 22, which provides that (i) PRC courts shall uphold borrower claims to adjust or reduce the aggregate amount of interest, compound interest, default interest, liquidated damages and other fees collectively claimed by the lender in excess of an annual interest rate of 24%, and (ii) in the context of online finance disputes, if the online lending intermediary platforms and the lenders circumvent the upper limit of the judicially protected interest rate by charging intermediary fees, such fees shall be ruled as invalid. Circular 141 further requires that borrowers’ aggregated borrowing costs charged by institutions in the form of interest and fees should be annualized and subject to the private lending interest rate limits set forth in the Provisions on Private Lending Cases issued by the Supreme People’s Court. We charge borrowers on our platform reasonable transaction fees, and the transaction fees we charge are recognized as our revenue. Historically, borrowers’ aggregate borrowing costs (including aggregate interest fees, transaction fees and other costs incurred by borrowers) exceeded 36%. Starting December 2017, we decreased our transaction and interest fees so as to ensure that borrowers’ aggregate borrowing costs on our platform are less than 36%. In response to these regulatory

changes to our legacy marketplace lending platform, our borrower behavior may change as some of existing borrowers might use it as excuse by saying that they borrowed the loans with high interest such that they don’t want to pay back the loans, and our business, financial condition and results of operations would be materially and adversely affected. We continue to have business arrangements with third party vendors and companies to facilitate our business, including third party vendors and companies that conduct most or substantially all of their business with us only. Although these third parties are separate from us, for accounting purposes such as U.S. GAAP purposes their financials may be consolidated with us, which may result in the interpretation that the aggregate borrowing costs on our platform exceed 36% and other matters which PRC governmental authorities may deem to be non-compliant, any of which may result in our business, financial condition, results of operations and prospects being materially and adversely affected. Moreover, if the method of calculating the annualized borrowing costs used by the PRC governmental authorities or the PRC courts differs from our method causing the aggregate borrowing costs of loans we facilitate to be deemed to exceed the 36% per annum limit, the portion of the borrowing costs exceeding the 36% per annum limit may be ruled as invalid and we may (i) be required to change our business operations to be in compliance with this limit, (ii) receive a warning, correction order, condemnation or fines from the relevant regulators, or (iii) be required to reduce fees and lower the annual transaction and interest rate charged to our borrowers, any of which may result in our business, financial condition, results of operations and prospects being materially and adversely affected.

Further, the Supreme People’s Court, Supreme People's Procuratorate, Ministry of Public Security and Ministry of Justice collectively promulgated the Opinions on Several Issues Concerning Handling Criminal Cases of Illegal Lending (hereinafter referred to as the “Opinions”). The Opinions came into force on October 21, 2019, and specify that no loan may have an interest rate that exceeds 36%. All fees including the introduction fees, consulting fees, management fees, overdue interest, and liquidated damages are included in the calculation of the annual interest rate, which means, all fees, no matter in what name we charge shall be included in the annual interest rate.

Further, Circular 141 and the Inspection Notice prohibit online lending information intermediaries from deducting interests, commissions, management fees or margins from investors’ loan disbursements to borrowers. No interest is collected in advance for any of the loans on our platform. However, we currently charge borrowers of lifestyle loans by deducting a transaction fee from each such borrower’s depository bank account in its own name after the loan principal has been transferred into such account, and then the funds, net of the transaction fees, are released to the borrower’s bank account from such depository bank account. We do not think such arrangement should be regarded as not in compliance with current regulations, but we cannot assure you that the PRC courts will hold the same view as ours, and parts or all of the transaction fees we collect from borrowers of lifestyle loans may not be upheld by the PRC courts. The regulatory authorities may also hold the view that the current deduction arrangement will not comply with current regulations, and we may need to adjust our arrangement accordingly.

Our legacy business to facilitate loans through our legacy marketplace lending platform could give rise to liabilities under PRC laws and regulations that prohibit illegal fundraising.

Except with the prior approval of applicable government authorities, PRC laws and regulations prohibit persons and companies from raising funds as a result of advertising a promise to repay premium or interest payments over time through payments in cash or in kind. Failure to comply with these laws and regulations may result in penalties imposed by the PBOC, State Administration for Market Regulation, formerly known as the State Administration for Industry and Commerce, or SAIC, and other governmental authorities, and can lead to civil or criminal lawsuits.

To date, our legacy lending platform was not subject to any fines or other penalties under any PRC laws and regulations that prohibit illegal fundraising. We believe that our legacy online lending platform did not violate PRC laws and regulations prohibiting illegal fundraising because our online only acts as a service provider in the facilitation of loans between borrowers and investors. In this capacity, we did not raise funds or promise repayment of premium or interest obligations. Nevertheless, considerable uncertainties exist with respect to the PBOC, SAIC and other governmental authorities’ interpretations of the fundraising-related laws and regulations. While our agreements with investors require investors to guarantee the legality of all funds investors put on our legacy online, we did not verify the source of investors’ funds separately, and therefore, to the extent that investors’ funds are obtained through illegal fundraising, we may be negligently liable as a facilitator of illegal fundraising. In addition, while our loan agreements contain provisions that require borrowers to use the proceeds for purposes listed in their loan applications, we did not monitor the borrowers’ use of funds on an on-going basis, and therefore, to the extent that borrowers use proceeds from the loans for illegal activities, we may be negligently liable as a facilitator of an illegal use. Although we designed and implemented procedures to identify and eliminate instances of fraudulent conduct on our online, we may not have be able to identify all fraudulent conduct that may violate illegal fundraising laws and regulations.

Because some borrowers and investors from our legacy marketplace lending business may have come to our marketplace from referrals of third parties, it is possible that an unsatisfied borrower or investor could make a claim against us based on the content of any information provided by these third parties that could result in claims that are costly to defend and distracting to management.

Some borrowers and investors from our legacy marketplace lending business may come to our marketplace after reviewing information provided by a third party. We do not review, approve or adopt any information provided by third parties website and, while we do not believe we would have liability for such information, it is possible that an unsatisfied borrower or investor could bring claims against us based on such information. Such claims could be costly and time-consuming to defend and would distract management’s attention from the operation of our business and create negative publicity, which could affect our reputation.

Our legacy business to facilitate loans through our marketplace lending platform could give rise to liabilities under PRC laws and regulations that prohibit unauthorized public offerings.

The PRC Securities Law stipulates that no organization or individual is permitted to issue securities for public offering without obtaining prior approval in accordance with the law. The following offerings are deemed the be public offerings under the PRC Securities Law: (i) offering of securities to nonspecific targets; (ii) offering of securities to more than 200 specific targets; and (iii) other offerings provided by the laws and administrative regulations. Additionally, private offerings of securities shall not be carried out through advertising, open solicitation and disguised publicity campaigns. If any transaction between one borrower and multiple investors on our legacy marketplace lending platform is identified as a public offering by PRC government authorities, we may be subject to legal consequences under PRC laws and our business may be severely adversely affected.

If we are unable to maintain relationships with our third-party service providers, our exit to the legacy marketplace lending platform business will suffer.

We rely on third-party service providers to operate our legacy marketplace lending platform business. For instance, we rely on our depository bank to provide fund depository services and third-party payment companies to serve as payment channels to ensure compliance with various laws and regulations, including anti-money laundering and anti-terrorism financing laws. Most of our agreements with third-party service providers are non-exclusive and do not prohibit the third-party service provider from working with our competitors or from offering competing services. Our third-party service providers could decide that working with us is not in their interests, could decide to enter into exclusive or more favorable relationships with our competitors or could themselves become our competitor. Although we have changed third-party service providers in the past without difficulty, switching to new third-party service providers could cause temporary disruptions to our business. In addition, our third-party service providers may not perform as expected under our agreements or we could in the future have disagreements or disputes with our third-party service providers, which could negatively impact our operations or threaten our relationships with our third-party service providers.

Third-party payment companies and depository banks in China, including a depository bank that takes deposits and transfers funds on our online and the third-party payment company with which it works, are subject to oversight by the PBOC and must comply with complex rules and regulations, licensing and examination requirements, including, but not limited to, minimum registered capital, maintenance of payment business licenses, anti-money laundering regulations and management personnel requirements. Some third-party payment companies have been required by the PBOC to suspend their credit card pre-authorization and payment services in certain areas of China. Further, the depository banks are required to pass an exam and inspection held by the National Internet Finance Association of China, or NIFAC, as one of the conditions to provide depository services for online lending intermediaries. If the third-party service providers that take deposits and transfer funds on, or serve as payment channels for, our online were to suspend, limit or cease their operations, or if our relationships with our third-party service providers were to otherwise terminate, we would need to implement substantially similar arrangements with other third-party service providers. If we fail to switch providers as needed in response to market conditions, our business may be materially and negatively affected. Negative publicity about our or other third-party service providers or the industry in general may also adversely affect investors’ or borrowers’ confidence and trust in the use of third-party payment companies and depository banks to carry out the payment and depository functions in connection with the origination of loans on our online. If any of these were to happen, the operation of our business could be materially impaired and our results of operations would suffer. The recently published Guidelines to Promote the Healthy Growth of Internet Finance, or the Guidelines, require market lending platforms to use bank depository accounts to hold lending capital,

which is further emphasized in the Interim Measures. In addition, the Administrative Measures of Non-Bank Payments Institutions Network Payment Service, or the Administrative Measures, which became effective from July 1, 2016, prohibit payment institutions from opening payment accounts for institutions engaging in the lending business and also set ceilings for the maximum deposits permitted into an account opened with a third-party payment company. In February 2017, the CBIRC released the Guidance to the Operation of Depositing Online Lending Funds, or the Guidance. The Guidance further specifies that qualified commercial banks may act as depositories to hold online lending funds, and that other banking financial institutions are not qualified to set up individual accounts or provide settlement and payment functions. The Guidance also sets forth basic requirements for commercial banks, including maintaining separate accounts to hold online lending funds and private funds owned by online lending platforms and prohibits outsourcing or assigning such entities’ responsibilities for setting up capital accounts, dealing with transaction information, verifying trading passwords and various other services to third parties, provided, however, that certain cooperation regarding payment services with third-party payment companies is permitted in accordance with clarifications by the CBIRC. However, CBIRC’s remarks regarding the Guidance are not entirely clear regarding the definition and scope of the term “certain cooperation regarding payment services.” In addition, the Guidance imposes certain responsibilities on online lending intermediaries such as us, including requiring them to organize independent audits on fund depository accounts of borrowers and investors. The Guidance stipulated a 6-month grace period from the time of its announcement for online lending intermediaries to adjust their business models. See “Item 4. Information on the Company— B. Business Overview—Regulation—Regulations Related to the online Lending Industry.” In December 2017, the NIFAC released two industry standards—the Depositing Online Lending Funds Business Standard and the Depositing Online Lending Funds System Standard—each of which provide detailed technical requirements for online lending businesses. In December 2016, prior to the announcement of the Guidance, we entered into an agreement with Hengfeng Bank regarding the provision of funds depository services by Hengfeng Bank, and modified our operations to be compliant with the Guidance. In June 2017 we entered into a new fund depositary services agreement with Bank of Shanghai to act as our depository bank. We terminated our relationship with Hengfeng Bank and transferred the funds depository services functions to Bank of Shanghai on December 1, 2017.

To the extent our current arrangements with Bank of Shanghai for the legacy online lending platform are deemed non-compliant with the Guidelines, the Administrative Measures, the Interim Measures, the Guidance or other regulations or if changes to these arrangements are required by future rules or regulations, a material change to our business model may be required and our business may be materially and adversely impacted.

Our payment management services with respect to our legacy marketplace lending platform may not be as effective in the future, and may need to be modified to comply with future PRC laws and regulations regarding the debt collection industry in China.

In 2000, the State Economic and Trade Commission, the Ministry of Public Security and the State Administration of Industry and Commerce issued the Notice on Prohibition of All Types of Debt Collection Companies and Raids on Illegal Debt Collection Activities (GuoJingMaoZong He (2000) 568), or the Notice on Prohibition, which regulates the activities on debt collection companies, including the prohibition on the use of threats, intimidation, harassment or disclosure of private information in collection efforts. While we believe that our payment management services team, which engages in collection efforts primarily by means of phone calls and text messages, has complied with the Notice on Prohibition, we may need to modify our payment management services in the future to comply with changes to debt collection regulations. If our collection methods are viewed by borrowers or regulatory authorities as harassments, threats, or criminal conduct, we may be subject to lawsuits initiated by borrowers or prohibited by the regulatory authorities from using certain collection methods. In addition, our existing collection methods, such as phone calls and text messages, may not be as effective in the future. If any of these were to happen and we fail to adopt alternative collection methods in a timely manner, or if the alternative collection methods are less effective, our ability in collecting delinquent loans may be impaired.

As a result of regulatory changes, our custodian bank may face significant regulatory pressure, and if it chooses to cease doing business with us, our legacy marketplace lending investors and borrowers will be negatively impacted.

Engagement of a custodian bank is a regulatory requirement and a business operational necessity in the marketplace lending industry. We have a relationship with our custodian bank, the Bank of Shanghai, whereby it provides investor fund depositary services and borrower lending services for our legacy marketplace lending platform. The facilitation of transactions and the flow of funds for investors and borrowers on our legacy marketplace lending platform rely on the services provided by our custodian bank. Any disruption to the services provided by our custodian bank will have a significant impact on our ability to continue to operate our legacy marketplace lending platform and conduct our business.

Our custodian bank may experience pressure from local regulators, and as a result may no longer be able to continue to act as our custodian bank with respect to our legacy marketplace lending platform. Such pressure from local regulators will likely be borne by the entire marketplace lending sector as opposed to just by our custodian bank. As such, it may be difficult or impossible for us to find a replacement custodian bank and may adversely affect our ability to keep serving the existing borrowers and investors in the process of exiting the legacy business.

The regulatory authorities require that the online lending intermediaries should be connected to the bank for fund deposit, but at present, under the market pressure, banks have withdrawn from the online lending capital deposit market. After the expiration of the cooperation agreement, the fund depository bank cooperating with the platform may choose to cease the fund depository services. If the cooperative bank chooses to withdraw, it will be difficult for the platform to find other banks or third-party payment institutions willing to provide fund depository services.

Article 28 of the Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions requires that online lending intermediaries shall select qualified banking financial institutions as the fund depository institution of lenders and borrowers. To meet the regulatory requirements, our legacy marketplace lending platform is now using Bank of Shanghai as the fund depository institution. With the increasingly strict supervision of the online lending intermediary industry by the government, some banks choose to withdraw from the online lending intermediaries’ transaction fund deposit business considering their own business risks. In this context, the Bank of Shanghai may also adjust its business and decide to stop the business. If the Bank of Shanghai decides to terminate the cooperation before the expiration of the agreement or after the expiration of the agreement, it may be difficult for the platform to find other banks willing to replace the Bank of Shanghai to continue to provide online lending transaction for the legacy platform’s capability to collect borrowers’ payment, and repay investors’ principle and interest.

In practice, as an alternative, the platform can choose to cooperate with the third-party payment institutions and entrust the third-party payment institutions to provide fund deposit services for the transactions on the platform. However, due to the fact that the selection of third-party payment institutions as fund depositors cannot strictly comply with the Article 28 of the Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions, and many third-party payment institutions have reduced the fund deposit business of online lending transactions and/or ceased direct cooperation with online lending platforms.

In conclusion, if the Bank of Shanghai decides to terminate the provision of fund deposit service, it will be difficult for our legacy marketplace lending platform to find other banks or third-party payment institutions willing to provide online lending transaction support. If our legacy marketplace lending platform fails to find a fund depository, it will greatly affect the transfer and payment of online lending transaction funds, thus affecting the exit process of the legacy platform.

Regulators may require our third-party payment service provider and/or our legacy marketplace lending platform’s custodian bank to cease its operations with respect to our legacy marketplace lending platform. If this were to happen, and if we were not able to find another third-party payment service provider for our legacy marketplace lending platform, we would not be able to operate our legacy marketplace lending platform.

Our legacy marketplace lending platform relies on the third-party payment service companies to provide online transaction services, including deductions from borrowers’ accounts and sending funds to investors’ accounts.

Beginning in July 2019, local regulatory authorities began investigating and interviewing third-party payment companies. In some cases regulatory authorities have required the third-party payment companies to alter their operations, make refunds to accounts connected to marketplace lending businesses, and submit detailed rectification plans and refund schedules. In addition, some banks have also started to receive notices from regulatory agencies that require internet financial institutions to carry out marketplace lending platform settlement services in a specific manner. In response to regulatory pressure and changing regulations, several major third-party payment service companies have ceased operations in the marketplace lending industry. Our third-party payment service provider may also cease to operate in the marketplace lending industry, including with respect to our legacy marketplace lending platform. If this were to happen, and if we were not able to find another third-party payment service provider for our legacy marketplace platform, we would not be able to operate our platform and may need to cease our legacy marketplace lending business.

Regulators may enforce new policies that heavily restrict the online marketplace lending industry or require additional marketplace lending platforms to shut down, and therefore we may need to cease our legacy marketplace lending business.

Currently, there is no clear policy on regulatory registration for the marketplace lending industry. To date, the PRC government has focused its efforts in the marketplace lending industry on preventing and eliminating risks and preventing social instability when lenders face the possibility of not recovering their original investment capital in full. The PRC government has begun to pressure marketplace lending platforms to cease their operations. To this end, the PRC government issued Circular No. 175 in January 2019 by the National Remediation Office of Online Lending, which provides detailed requirements for the operation of online credit institutions. Circular No. 175 also provides guidance on the principles and working measures for online lending companies under various classifications, which are intended to phase out online credit lending businesses, leading many major online credit lending businesses to cease operations. Circular No. 175 categorizes online lending institutions according to risk profiles, and empowers local police authorities to investigate those platforms with high levels of risk. Depending on a particular institution’s classification, Circular No. 175 provides guidance, methods and strategies for exiting the marketplace lending industry. While it has yet to do so thus far, the PRC government may actively make marketplace lending illegal, whereupon we would be forced to cease our legacy marketplace lending business. We received an oral request to exit the marketplace lending industry at the various meetings with local regulatory authorities.

As a great number of marketplace lending platforms have ceased their operations as a result of regulatory pressures. In April 2019, we stopped facilitating new loans on our platform, and started the business transformation to provide financial technology, marketing services, portfolio management fin-tech services to institutional lenders.

Many marketplace lending platform businesses are suspected of illegal fund-raising or other criminal crimes, resulting in the suspension of the platform business and the adoption of criminal measures by the executives; as a result, the platform executives and employees may leave the company, and the investors may withdraw their investment thus affecting the normal development of the platform business.

Since 2016, regulatory authorities have continuously changed the marketplace lending industry regulation framework. As more and more platforms ran into the difficulties to redeem investor lending capital when they are exiting the platforms, or the platforms have other operational risks, some of platforms are suspected to have engaged in illegal fund-raising and other illegal activities in their operation, the legal system including police and court might place criminal charges against these platforms along with the senior executives of the companies, including criminal proceedings against their actual controlling persons and senior management.

The recent regulatory focus on the marketplace lending industry, including the criminalization of certain activities, and the overall decline in the marketplace lending industry has led to many employees, including senior management, leaving our company and the industry. The potential risk of criminal liabilities caused panic among people working for the online lending institutions and even many industry practitioners choose to withdraw voluntarily to avoid the risk of being investigated criminally. If the number of employees who make such a choice is large, and the platform cannot recruit new employees to fill the vacancy in time, it will inevitably affect the normal operation of our company, including our exit from our legacy marketplace lending business and our transition to fin-tech service platform.

In extreme cases, if investors believe that there are huge risks involved in the platform, such as the management of the platforms might run away, or there might be illegally activities involving lending capital abusing or moving around, or there might be fraudulent lending information presented to the investors, the investors might choose to report such risks to the public security organization. In order to prevent and defuse the potential risks of the marketplace lending platform industry, the public security organization may take actions against the company, including seizing the senior management and assuming complete control of the platform. Once the platform is investigated by the public security organization, the platform may need to cooperate with the investigation, and the relevant assets may also be seized which will seriously affect the normal operation of the platform. As the company is wind down the legacy marketplace lending platform business, we are operating in the same sector and we are subject to the risk discussed here.

Dissatisfied investors could file complaints with the PRC government, which may result in litigation or require us to modify our operations in a ways that ensure payback of the invested principal and increase the predictability of returns to investors on our marketplace.

According to the Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions, online lending platforms are defined as information intermediary institutions, and strictly from the legal perspective, the platform itself is not expected to bear legal liability of the borrower’s breach. However, we cannot rule out the possibility that investors who fail to be repaid due to the breach of borrowers would sue the platform or report to the public security authority. If such things were to happen, the platform would have to be engaged in expensive and time-consuming litigations or criminal investigation procedures, which also would damage the reputation of the platform.

Although investors on marketplace lending platforms generally receive higher returns as compared to depositing their funds with traditional banks, investors may file complaints with the PRC government or reach out to the PRC government to require marketplace lenders to payback principal they invested, and request that the interest and principle payments are returned even if credit losses take place. To the extent that there are complaints filed against our company, we could be forced to process the complaints and partake in costly and time consuming processes to mitigate losses, which could divert management attention. In addition, to the extent that the PRC government decides to take added measures on these investors’ behalves, we may be required to alter our operations so as to ensure that the rate of return and assurance that investors will receive payment in respect to their investments on our legacy marketplace lending platform.

Senior executives from other marketplace lending platforms have been arrested for illegal fund raising activities.

While the PRC government has put in place some regulations concerning the marketplace lending industry, there are still gaps in interpretations as to what is permitted and not permitted. As a result senior executives from other marketplace lending platforms have been arrested for illegal fund raising activities conducted by their marketplace lending platforms. Such violations by these marketplace lending platforms and arrests of their senior executives have an adverse impact on the credibility and trustworthiness of the entire marketplace lending industry, including our company.

Recent regulatory focus on the marketplace lending industry, including the criminalization of certain activities, has made it more difficult for marketplace lending platforms to operate. In the recent past, the marketplace lending industry as a whole has experienced an overall decline. The uncertainty of the industry has led many of our employees, including our senior management, to depart our company and the industry as a whole. Replacing these employees and senior management could be costly and could result in decreased cohesiveness of our Company.

Risks Related to Our Transition to Business of Facilitating Institutional Lending Capital for Our Target Borrowers

Our transition to facilitate institutional lending capital exposes us to regulatory uncertainties faced by those partners, and we may be required to obtain government approvals or licenses due to our cooperation with those partners, which could have a negative impact on our business and results of operations.

Our cooperation with institutional lenders has exposed us to, and may continue to expose us to, regulatory uncertainties faced by such institutional lenders. We cannot assure you that the business operations of our institutional lenders or our cooperation with these institutional lenders are, or will continue to be compliant with the relevant laws and regulations. For instance, Circular 141 requires financial institutions cooperating with third parties to engage in lending businesses (i) not outsource any core lending business (including credit assessment and risk control), (ii) not accept any credit enhancement provided by third parties with no guarantee approval or license, whether or not in a disguised form (including commitment to absorbing default risks), and (iii) ensure that no interests or fees are collected from borrowers by such third parties. Furthermore, Circular 141 prohibits online lending information intermediaries from facilitating financial institutions’ participation in online lending services. Our cooperation with institutional lenders may need to be modified, suspended or terminated, which may be time consuming and lead to insufficient funding supply on our marketplace and materially or adversely affect our business.

We are transitioning the focus of our business from our legacy marketplace lending platform to facilitate to institutional lending capital for target borrowers, and will need to adjust our operations to better suit this new business focus.

Due to the overall decline in the PRC marketplace lending industry and increased regulations it is increasingly difficult to earn a profit. On April 15, 2019, we started the transition from the marketplace lending platform to a business of facilitating institutional lending capital, which provides financial technology, marketing services, and portfolio management services to financial institutions, including technology that identifies qualified prospective borrowers, portfolio management services and decisioning technology. While we will continue to operate our legacy marketplace lending platform, such operations will be at a significantly reduced level as compared to current and past operations. We have reduced our branch level oriented data verification centers nationwide and will retain a minimal collection force. We no longer issue new loans and we have stopped acquiring new lenders and new borrowers. Going forward, the focus of our legacy marketplace lending platform will be on borrower payback, borrower collection and lender payment services.

During our transition from our legacy marketplace lending platform to the business of facilitating institutional lending capital, we will undergo organizational changes, including with respect to our employee workforce, senior management and entity operations. Such organizational changes will be costly and time consuming. Our ability to manage these risks will directly impact the success of our business of facilitating institutional lending capital and our failure to do so could adversely impact our overall financial condition, results and cash flows.

There is business compliance risk in facilitating the institutional lending capital business. According to the latest regulatory requirements, entities involved in facilitating institutional lending capital business shall not provide financing guarantee services.

On October 23, 2019, China Banking and Insurance Regulatory Commission issued the Notice on Printing and Distributing the Supplementary Provisions on the Supervision and Management of Financing Guarantee Companies, which clearly provides that institutions providing customer promotion, credit evaluation and other services for various lending institutions shall not provide financing guarantee services without approval. This regulation did not specifically address facilitating institutional lending capital business, but there is no that the regulators could have new regulations regarding the business of facilitating institutional lending capital.

The Supreme People's court, the Supreme People's Procuratorate, the Ministry of Public Security and the Ministry of Justice issued the Notice on Several Issues Concerning the Handling of Criminal Cases of Illegal Lending, which came into force on October 21, 2019. According to this Notice, after the platform has been transformed into business of facilitating institutional lending capital, if (1) various fees, including interests, penalties and service fees charged in total would render the borrower's comprehensive cost calculated on an annualized interest rate basis in total to exceed 36%, (2) the financial institutions have operations out of the business scope licensed by regulatory authorities, and (3) other conditions of the Notice are met, there is a risk that we will be prosecuted for illegal business operations.

Regulations relating to the data industry have become increasingly stricter, and as our business of facilitating institutional lending capital heavily relies on the application of data in daily business operations, data compliance risks exists and may negatively impact our new business.

The PRC Cybersecurity Law, implemented on June 1, 2017, provides that to collect and use personal information, network operators shall follow the principles of legitimacy, rightfulness and necessity, disclose their rules of data collection and use, clearly express the purposes, means and scope of collecting and using the information, and obtain the consent of the persons whose data is gathered. On December 29, 2017, the National Information Security Standardization Technical Committee officially issued the Information Security Technology Personal Information Security Specification, which provides the principles and security requirements to be followed in the collection, preservation, use, sharing, transfer, public disclosure and other personal information processing activities. On May 28, 2019, the Cyberspace Administration of China, together with relevant departments, drafted the Data Security Management Measures (draft for comments), which reiterated and emphasized the three aspects of data collection. In addition, illegal access to personal information, unauthorized access to data and other acts have been criminalized. As the business of facilitating institutional lending capital involves the collection and application of a large amount of data, increasingly strict regulatory policies in the data industry may make compliance in the operation of our business of facilitating institutional lending capital more difficult and will likely increase compliance costs.

The risk control services that we intend to offer in connection with our facilitating institutional lending capital may be prohibited by certain regulations, and therefore our new Lend-Aid business strategy may be negatively impacted. On December 1, 2017, Office of the Leading Group for the Special Campaign against Internet Financial Risks and the Office of the Leading Group for the Special Campaign against Peer-to-peer Lending Risks issued the Notice of the Regulation and Rectification of the “Cash Loan” Business (Circular No. 141). Circular No. 141 provides that banking financial institutions shall not outsource the core business of risk control to a third party institution. However, in practice, because many financial institutions do not have online risk control capabilities, they outsource part of risk control to companies facilitating institutional lending capital as a precondition for cooperation. The platform has strong risk control ability due to its previous credit analytic business experience and expertise. However, considering the above provisions, when engaging in facilitating institutional lending capital, the platform may not provide risk control services to financial institutions in compliance with Circular No. 141, thus affecting the development of the business of facilitating institutional lending capital.

There is market operation risk in Our Business Transition, as many marketplace platforms are exiting, some of them have run into difficulties, and the overall market perception towards the industry tends to be negative.

Because of the increasingly strict regulations faced by the online lending industry, many platforms originally engaged in the online lending business have transitioned into the business of facilitating institutional lending capital, however the regulations that pertain to this industry are still developing. The regulatory framework for the business of facilitating institutional lending capital is not clear, and therefore there is potential that the business of facilitating institutional lending capital may be negatively impacted by future regulations that restrict their business operations.

From time to time we may evaluate and potentially consummate acquisitions or alliances, which could require significant management attention, disrupt our business, adversely affect our financial results, be unsuccessful or fail to achieve the desired result.

We are evaluating and considering strategic transactions, combinations, acquisitions or alliances to enhance or complement our business of facilitating institutional lending capital, although we do not have a specific target yet. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate the transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.

Any acquisition or alliance will involve risks commonly encountered in business relationships, including:

We may not make any acquisitions or consummate any alliances, or any future acquisitions or alliances may not be successful, may not benefit our business strategy, may not generate sufficient revenue to offset the associated costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future acquisition of, or alliance with respect to, new businesses or technology will lead to the successful development of new or enhanced loan products and services or that any new or enhanced loan products and services, if developed, will achieve market acceptance or prove to be profitable.

We may encounter difficulties in transitioning our legacy marketplace lending business to the business of facilitating institutional lending capital, which could adversely affect our growth and business prospects.

We are transitioning the focus of our business to facilitate institutional lending capital. The development of our facilitating institutional lending capital business is subject to significant risks and uncertainties, including, without limitation, the following:

If we are not successful in the establishment of our new fin-tech empowered facilitating institutional lending capital, our growth, business, financial condition and results of operations could be adversely affected.

We have a comparatively limited track record in facilitating institutional lending capital and cannot guarantee our success.

In contrast to our 30 years of experience in the consumer credit marketplace and our experience in the marketplace lending industry, we entered the fin-tech empowered business of facilitating institutional lending capital to help borrowers to better access consumer credit with relatively short history. Given that the fin-tech empowered facilitating institutional lending capital business in China is highly competitive and dominated by some well capitalized companies that can afford to use their capital to provide first-loss protection to the financial institutions. Our limited capital resources may impact our ability to be successful in our business transition. In addition, the success of our transition will depend upon our ability to:

We may not have a sufficient amount of initial capital to provide first-loss protection for institutional lenders, which may deter institutional lenders from engaging in business with us.

Some institutional lenders may require partners to jointly contribute 20-33% of their own capital to participate the lending capital pool, to originate the loans facilitated by the service provider, as first-loss protection. The required percentage of capital that institutional lenders is require is dependent on the overall risk level, track record, scale, and term of the partner relationship. We may not have the sufficient initial capital reserves available to secure service arrangements for large institutional funds and in the business of facilitating institutional lending capital, we do not have an established reputation we lack reputation and may be considered high risk to institutional lenders, which may negatively impact our initial business development. As we plan to continue to operate our legacy lending business on a more limited scale, regulators and potential customers may associate our lend aid business with our legacy lending business platform, which may adversely affect our prospects.

Although we stopped facilitating loans for individual investors in April 2019, and have been transitioning from the legacy marketplace lending platform business, into a business of facilitating institutional lending capital, financial institutions may associate our facilitating lending capital with our legacy marketplace lending business. In addition, regulators may scrutinize the business of facilitating institutional lending capital, which may subject us to investigation. If potential consumers are unable to differentiate our new business from our legacy marketplace lending platform, we may experience difficulty in attracting and securing new business prospects.

We may not be able to compete successfully against our current or future competitors in the fin-tech services industry.

Some of our current and future competitors in the fin-tech empowered institutional lending capital facilitation industry have competitive advantages over us, such as, being more recognizable and well established companies in the industry, operating new and different business models, maintaining lower operation cost, larger customer bases, more experience in the fin-tech services industry and greater financial, marketing, technology, human resources, and other expertise and resources. We cannot assure that we will always be able to successfully compete against our current or future competitors. If we are unable to compete successfully with our current or future competitors, our business, financial condition and results of operations could be adversely affected.

If our proprietary credit assessment technology is ineffective, our transition to the business of facilitating institutional lending capital may be less attractive to potential borrowers and institutional lenders, our reputation may be harmed and our market share could decline.

Our ability to attract potential borrowers and institutional lenders to, and build trust in, our new business is significantly dependent on our ability to effectively evaluate a potential borrower’s credit profile and likelihood of default, and thus maintain low loss ratios for investors on our marketplace. We utilize our proprietary credit assessment technology, which encompasses our predictive selection technology, credit scoring technology and automated decisioning technology, to assign each potential borrower and loan offered a score. Our proprietary advanced credit assessment technology allows for the evaluation and analysis of a number of factors, including historical behavioral data, transactional data, social data, search and employment information which may not effectively predict future loan losses.

We refine our proprietary credit assessment technology based on new data and changing macro-economic conditions. However, these risk management measures may not always be adequate or effective. For example, our proprietary credit assessment technology may contain errors or defects that prevent us from effectively identifying fraudulent information supplied by borrowers. To the extent the credit assessment technology we use to assess the creditworthiness of potential customers does not adequately identify potential risks, is ineffective or the data provided by potential borrowers or third parties is incorrect or stale, our loan pricing and approval process could be negatively affected, resulting in mispriced or misclassified loans. These types of errors could make our platform less attractive to potential investors as well as potential borrowers, damage our reputation in the market and result in a decline in our market share.

We rely on data from third parties and prospective borrowers for the successful operation of our business transition, and this data may be inaccurate or may not accurately reflect the potential borrower’s creditworthiness, which may cause us to inaccurately price loans facilitated through our new business of facilitating institutional lending capital business and cause our reputation to be harmed.

Our ability to review and select quality potential borrowers and attract interested lenders depends on credit, identification, employment and other relevant information that we receive from prospective borrowers and third parties, including our data channel partners, PBOC credit reporting platforms, credit bureaus, association data systems, data vendors and social media and consumer transaction companies. In addition to traditional data points used to analyze potential borrowers’ creditworthiness, we also rely on other behavioral data, including online, social media, search, browsing and transactional data.

Unlike many developed countries, China does not have a well-developed centralized credit reporting system nor is there widespread information sharing among consumer finance companies’ marketplaces. Although we take steps to verify potential borrower data and identities as described elsewhere in this annual report, the potential borrower information may nevertheless be inaccurate or incomplete. For example, for borrowers having a bank account, we rely on banks’ verification of identity. In addition, we may not accurately identify potential borrowers who have already borrowed elsewhere, which may affect their ability to repay or otherwise cause us to violate the maximum lending limits under applicable PRC laws.

We use credit and other information about prospective borrowers to assign credit scores and corresponding grades to potential borrowers based on our proprietary advanced credit assessment technology. If this information becomes unavailable or becomes more expensive to access, it could cause us to have to seek alternative sources of information or increase our costs.

While our credit score serves to predict the likelihood of a potential borrower being able to repay a loan by taking into consideration hundreds of variables, it may not reflect that potential borrower’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate data, and we do not verify information obtained from third parties, other than as indicated elsewhere in this annual report. Additionally, there is a risk that, following the date we obtain and review the information, a potential borrower may have:

The occurrence of any of these events would impact the creditworthiness of such potential borrower.

Although we do not permit borrowers to have more than one loan facilitated on our platform outstanding at a time, borrowers are not restricted from incurring additional unsecured or secured debt, nor are they required to post collateral or be subject to any financial covenants during the term of the loan. We currently cannot determine whether borrowers have outstanding loans through other consumer finance marketplaces at the time they obtain a loan from us. This creates the risk that a borrower may borrow money through our platform in order to pay off loans on other consumer finance marketplaces and vice versa. If a borrower incurs additional debt before or after the date of the borrower’s loan, the additional debt may impair the ability of that borrower to make payments on his or her loan and the investor’s ability to receive the principal and interest payments that it expects to receive on the loan. In addition, the additional debt may adversely affect the borrower’s creditworthiness generally, and could result in the financial distress, insolvency, or bankruptcy of the borrower. To the extent that a borrower has or incurs other indebtedness and cannot pay all of his or her indebtedness, the obligations under the unsecured loans will rank pari passu to each other and the borrower may choose to make payments to other creditors rather than to the investor.

If institutional lenders do not receive returns that are satisfactory to them, they may be deterred from lending to our borrowers and our reputation may be harmed.

Failure to maintain relationships with our partners or implement our strategy to develop new relationships with other potential partners could have a material adverse effect on our business and results of operations.

Our relationships with our partners are important to our future success, particularly with respect to our consumption loans and the data sources for our predictive selection, credit scoring and automated decisioning technologies. However, our partners could choose to terminate their relationships with us or propose terms that we cannot accept.

One of our strategies is to continue to enter into new relationships with Internet companies, other marketplace lending companies, e-commerce platforms, online travel agencies, telecommunication service providers, trust companies, insurance companies, payment service providers and other institutions. We intend to explore additional forms of relationships with our existing partners and pursue additional relationships with other potential strategic partners, such as social media companies, consumer transaction companies, banks, asset managers and insurance companies. Identifying, negotiating and maintaining relationships with our partners requires significant time and resources as does integrating third-party data and services. Our current agreements with our partners also do not prohibit them from working with our competitors or from offering competing services. Our competitors may be effective in providing incentives to our partners to favor their products or services over ours, which could have the effect of reducing the volume of loans facilitated through our marketplace if our partners were to direct potential borrowers to other platforms or otherwise endorse our competitors’ products over ours. Also, our partners may choose to offer competing offers to our borrowers and become a competitor themselves. In addition, these partners may not perform as expected under our agreements with them, the benefits to us may not be as favorable as we expect and we may have disagreements or disputes with such partners, any of which could adversely affect our brand and reputation as well as our business operations. If we cannot successfully enter into and maintain effective relationships with partners, our business and results of operations may be adversely affected.

If we do not compete effectively in our target markets, our operating results could be harmed.

The PRC’s lending market is highly competitive and rapidly evolving. We compete with financial products and companies that attract potential borrowers, investors or both. With respect to borrowers, we primarily compete with other online platforms that facilitate consumer credits.

Some of our current or potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels. Their business models may also ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Our current or potential competitors may also have longer operating histories, more extensive customer bases, more data and distribution channels, greater brand recognition and brand loyalty and broader customer and partnership relationships than we have. For example, established Internet companies, including social media companies that possess large, existing customer bases, substantial financial resources and established distribution channels have entered and may continue to enter the market. Other competitors in related markets, such as financial services, may expand their operations and enter the online lending business as well. Our competitors may be better at developing new products, responding quickly to new technologies and undertaking more extensive marketing campaigns. If we are unable to compete with such companies or meet the need for innovation in our industry, the demand for our online could stagnate or substantially decline, we could experience reduced revenue or our online could fail to achieve or maintain more widespread market acceptance, any of which could harm our business.

When new competitors seek to enter our target market, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or terms common place in that market, which could adversely affect our market share or ability to exploit new market opportunities. In addition, since the consumer credit industry is a relatively recent development in China, potential investors and borrowers may not fully understand how our platform works and may not be able to fully appreciate the additional customer protections and features that we have invested in and adopted on our platform as compared to other online lending platforms. Further, to the extent that our competitors are able to offer more attractive terms to our cooperation partners, such cooperation partners may choose to terminate their relationships with us. All of the foregoing could adversely affect our business, results of operations, financial condition and future growth.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

The PRC legal system is based on written statutes. Unlike common law legal systems, prior court decisions may be cited for reference but have limited precedential value. The PRC legal system evolves rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

In particular, PRC laws and regulations concerning the marketplace lending industry are developing and evolving. Although we have taken measures to comply with the laws and regulations that are applicable to our business operations, including the regulatory principles raised by the CBIRC, and avoid conducting any non-compliant activities under the applicable laws and regulations, such as illegal fund-raising, forming capital pool or providing guarantee to investors, the PRC government authority may promulgate new laws and regulations regulating the marketplace lending industry in the future. We cannot assure you that our practice would not be deemed to violate any new PRC laws or regulations relating to the marketplace lending industry. Moreover, developments in the marketplace lending industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and policies that may limit or restrict companies like us, which could materially and adversely affect our business and operations. Furthermore, we cannot rule out the possibility that the PRC government will institute a licensing regime covering our industry at some point in the future. If such a licensing regime were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our operations.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed legal systems. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

The Foreign Investment Law of the People's Republic of China is issued on March 15, 2019, and shall come into force on January 1, 2020. According to Foreign Investment Law of the People's Republic of China, the organization form, institutional framework and standard of conduct of a foreign-funded enterprise shall be subject to the provisions of the Company Law of the People's Republic of China, the Partnership Enterprise Law of the People's Republic of China, and other laws. With the coming into force of the new law, the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures, the Law of the People's Republic of China on Wholly Foreign-owned Enterprises and the Law of the People's Republic of China on Sino-Foreign Cooperative Joint Ventures shall be repealed simultaneously. Foreign-funded enterprises, which were established in accordance with the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures, the Law of the People's Republic of China on Wholly Foreign-owned Enterprises and the Law of the People's Republic of China on Sino-Foreign Cooperative Joint Ventures before the implementation of the Law, may retain their original organization forms and other aspects for five years upon the implementation hereof. Specific implementation measures shall be formulated by the State Council. On November 1, 2019, the Ministry of Justice, the Ministry of Commerce and the State Development and Reform Commission drafted the regulations for the implementation of the Foreign Investment Law of the People's Republic of China (Draft for comments). Although the Foreign Investment Law did not address the VIE issues as its Draft seeking public comments did, the Foreign Investment Law and its Implementation Regulations (after effectiveness) may materially impact our corporate governance practices and increase our compliance costs, for example, through the imposition of stringent ad hoc and periodic information reporting requirements.

Changes in China’s economic, political or social conditions or government policies could have a material and adverse effect on our business and results of operations.

Our revenues are substantially sourced from China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. For instance, if interest rates are liberalized, our competition with traditional banks could be intensified.

China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policies and providing preferential treatment to particular industries or companies.

Although the Chinese economy has grown significantly in the past decade, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, the Chinese economy has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.

A downturn in the Chinese or global economy could reduce the demand for consumer loans and investments, which could materially and adversely affect our business and financial condition.

The global financial markets have experienced significant disruptions since 2008 and the United States, Europe and other economies have experienced periods of recession. The recovery from the lows of 2008 and 2009 has been uneven and is facing new challenges, including the escalation of the European sovereign debt crisis from 2011 and the slowdown of the Chinese economy since 2012. It is unclear whether the Chinese economy will resume its high growth rate. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have also been concerns over unrest in Ukraine, the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns about the economic effect of the tensions in the relationship between China and surrounding Asian countries and between China and the U.S. The recent trade disputes between the U.S. and China and the imposition of higher tariffs by the U.S. government for the importation of goods manufactured in China have brought upon a level of uncertainty for many Chinese companies concerning the strength of China’s economy. The proposed tariffs may result in the depreciation of the Renminbi and the contraction of certain PRC industries. As such, there may be a potential decrease in the spending powers of our target demographics. In addition, economic conditions in China are sensitive to global economic conditions. Any prolonged slowdown in the global or Chinese economy may reduce the demand for consumer loans and investments and have a negative impact on our business, results of operations and financial condition. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which could result in unfavorable tax consequences to us and our ADS holders and shareholders and have a material adverse effect on our results of operations and the value of your investment.

While we currently do not generate revenue outside of China, under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. In 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, in 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, to provide more guidance on the implementation of SAT Circular 82.

According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board of directors and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC.

Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT’s general position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

If the PRC tax authorities determine that we or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, then we or any such non-PRC subsidiary could be subject to PRC tax at a rate of 25% on our worldwide income, which could materially reduce our net income. In addition, we also would be subject to PRC enterprise income tax reporting obligations.

If the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes, gains realized on the sale or other disposition of ADSs or ordinary shares and dividends distributed to our non-PRC shareholders may be subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty or similar arrangement), if such gains are deemed to be from sources within the PRC. Any such tax may reduce the returns on your investment in the ADSs.

Dividends payable to our foreign investors and gains on the sale of our ADSs or ordinary shares by our foreign

Under the PRC Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of ADSs or ordinary shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our ordinary shares or ADSs, and any gain realized from the transfer of our ordinary shares or ADSs, may be treated as income derived from sources within the PRC and may as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or ordinary shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions, if such dividends or gains are deemed to be from PRC sources. If we or any of our subsidiaries established outside China are considered a PRC resident enterprise, it is unclear whether holders of our ADSs or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our ADSs or ordinary shares by such investors, are deemed as income derived from sources within the PRC and thus are subject to PRC tax, the value of your investment in our ADSs or ordinary shares may decline significantly.

We may not be able to obtain certain benefits under relevant tax treaty on dividends paid by our PRC subsidiaries to us through our Hong Kong subsidiary.

We are a holding company existing under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity from our PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, such withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC enterprise. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong enterprise must be the beneficial owner of the relevant dividends; and (b) the Hong Kong enterprise must directly hold no less than 25% share ownership in the PRC enterprise during the 12 consecutive months preceding its receipt of the dividends.

In addition, the SAT promulgated the Circular on Comprehension and Recognition of “Beneficial Owner” under Tax Treaties, or SAT Circular 601, on October 27, 2009, which provides that tax treaty benefits will be denied to “conduit” or shell companies without business substance, and that “substance over form” principles will be used to determine beneficial ownership for purposes of receiving tax treaty benefits. For this purpose, a conduit company is a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. As a result, we will not be able to enjoy the 5% withholding tax rate with respect to any dividends or distributions made by our PRC subsidiaries to its parent company in Hong Kong if our Hong Kong subsidiary is regarded as a “conduit company.” Furthermore, in current practice, a Hong Kong enterprise must obtain a tax resident certificate from the

Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiaries to CRF China Holding Co. Limited, our Hong Kong subsidiary.

The PRC tax authorities’ heightened scrutiny over acquisition transactions may have a negative impact on our business operations or our acquisitions or the value of your investment in us.

The State Administration of Taxation has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises in 2009 with retroactive effect from January 1, 2008, or SAT Circular 698, the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises in 2011, or SAT Circular 24, and the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-PRC Resident Enterprises in February 2015, or SAT Circular 7. Pursuant to these rules and notices, if a non-PRC resident enterprise transfers its equity interests in a PRC tax resident enterprise, such non-PRC resident transferor must report to the tax authorities at the place where the PRC tax resident enterprise is located and is subject to a PRC withholding tax of up to 10%. In addition, if a non-PRC resident enterprise indirectly transfers so-called PRC Taxable Properties, referring to properties of an establishment or a place of business in China, real estate properties in China and equity investments in a PRC tax resident enterprise, by disposition of the equity interests in an overseas non-public holding company without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, the transfer will be re-characterized as a direct transfer of the PRC Taxable Properties and gains derived from the transfer may be subject to a PRC withholding tax of up to 10%. SAT Circular 7 has listed several factors to be taken into consideration by the tax authorities in determining if an indirect transfer has a reasonable commercial purpose. However, regardless of these factors, an indirect transfer satisfying all the following criteria will be deemed to lack a reasonable commercial purpose and be taxable in the PRC: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from PRC Taxable Properties; (ii) at any time during the one-year period before the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC Taxable Properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC Taxable Properties is lower than the potential PRC tax on the direct transfer of those assets. On the other hand, indirect transfers falling into the scope of the safe harbors under SAT Circular 7 may not be subject to PRC tax. The safe harbors include qualified group restructurings, public market trades and exemptions under tax treaties.

Under SAT Circular 7 and other PRC tax regulations, in the case of an indirect transfer, entities or individuals obligated to pay the transfer price to the transferor must act as withholding agents and are required to withhold the PRC tax from the transfer price. If they fail to do so, the seller is required to report and pay the PRC tax to the PRC tax authorities. If neither party complies with the tax payment or withholding obligations under SAT Circular 7, the tax authority may impose penalties such as late payment interest on the seller. In addition, the tax authority may also hold the withholding agents liable and impose a penalty of 50% to 300% of the unpaid tax on them. The penalty imposed on the purchasers may be reduced or waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with SAT Circular 7.

On October 17, 2017, the State Administration of Taxation promulgated the Bulletin of SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which became effective on December 1, 2017, and SAT Circular 698 then was repealed with effect from December 1, 2017. Bulletin 37, among other things, simplified procedures of withholding and payment of income tax levied on non-resident enterprises. There is uncertainty as to the application of Circular 7 and Bulletin 37. We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved. Our company may be subject to filing obligations or taxed if our company is a transferor in such transactions, and may be subject to withholding obligations if our company is a transferee in such transactions under Circular 7 or Bulletin 37. We may be required to expend valuable resources to comply with Circular 7 or Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with Circular 7 and Bulletin 37, or to establish that our company should not be taxed under Circular 7 and Bulletin 37, which may have a material adverse effect on our financial condition and results of operations.

We have conducted and may conduct acquisitions or restructurings which may be governed by the aforesaid tax regulations, as well as any possible future acquisition of us. We cannot assure you that the PRC tax authorities will not, at their discretion, impose tax return filing obligations on us or our subsidiaries, require us or our subsidiaries to co-operate an investigation by PRC tax authorities with respect to these transactions or adjust any capital gains. Any PRC tax imposed on a transfer of our shares, or equity interests in our PRC subsidiary or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on our results of operations.

Any limitation on the ability of our PRC subsidiaries to pay dividends or other distributions to us and repay their debts to creditors could limit our ability to distribute profits to our shareholders and fulfill our repayment obligations.

We are a holding company incorporated in the Cayman Islands, and we rely on dividends or other distributions paid by our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur, and to pay our operating expenses. PRC regulations currently permit payments of dividends only out of accumulated profits, as determined in accordance with the accounting standards and regulations in China, which differ in many aspects from generally accepted accounting principles in other jurisdictions. Our PRC subsidiaries are required to allocate certain percentages of any accumulated profits after tax each year to their statutory common reserve fund as required under the PRC Company Law until the aggregate accumulated statutory common reserve funds exceed fifty percent (50%) of its registered capital. Such reserve funds cannot be distributed as cash dividends. In addition, if our PRC subsidiaries incur debt on their own or enter into certain agreements in the future, the instruments governing the debt or such other agreements may restrict their ability to pay dividends or make other distributions to us. Therefore, these restrictions on the availability and usage of our major source of funding may materially and adversely affect our ability to pay dividends to our shareholders and to service our debts.

Our PRC subsidiaries receive substantially all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their Renminbi revenues to pay dividends to us.

In response to the persistent capital outflow in China and RMB’s depreciation against U.S. dollar in the fourth quarter of 2016, the PBOC and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures over recent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. For instance, on January 26, 2017, SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Review of Authenticity and Compliance to Further Promote Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put in place by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Lenders, or the M&A Rules, and other recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National

People’s Congress on August 30, 2007 and effective as of August 1, 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by MOFCOM before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Lenders, or Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Lenders, or the MOFCOM Security Review Regulations, which became effective on September 1, 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises with “national security” concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the Circular 6 led by the National Development and Reform Commission, or NDRC, and MOFCOM under the leadership of the State Council, to carry out the security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that the merger or acquisition of a company engaged in the marketplace lending business requires security review.

In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited.

PRC regulations relating to offshore investment activities by PRC residents and PRC entities may limit our PRC subsidiaries’ abilities to increase their registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law.

SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.

SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE further enacted the Notice on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment effective from June 1, 2015, or SAFE Circular 13, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches or qualified banks as required by SAFE Circular 37 and other related rules, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

We have requested PRC residents whom we know hold direct or indirect interests in our company to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules. However, we cannot assure you that the registration will be duly and timely completed with the local SAFE branch or qualified banks. In addition, we may not be informed of the identities of all of the PRC residents holding direct or indirect interests in our company. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

Besides, outbound investments by any PRC entities may require approvals, filings or registration procedures with NDRC, MOFCOM and SAFE, or their local counterparts, which may limit PRC entities’ ability to invest in us.

Failure to comply with PRC regulations regarding the registration requirements for foreign loans may subject us to fines and other legal or administrative sanctions.

Pursuant to the Provisional Measures on Administration of Foreign Loans promulgated on January 8, 2003, the Administrative Measures on Registration of Foreign Loans effective on May 13, 2014 and its operational guidelines (collectively, the “Foreign Loan Measures”), any domestic entities shall complete the SAFE registration within 15 business days after entering into a foreign loan contract. Any domestic entity’s failure to register foreign loans with SAFE may subject such entity to registration requirements, warning and a penalty of not more than RMB300,000. However, it is not clear whether a RMB loan borrowed from non-resident individual requires registration with SAFE. We have borrowed a loan of the RMB equivalent of US$20,000,000 from Dr. Zhengyu (Zane) Wang who holds US citizenship. To the extent that the registration of such loan with SAFE is required, any failure to do so may result in penalties on us.

Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

On February 15, 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules, which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas Publicly-Listed Companies issued by SAFE on March 28, 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in a stock incentive plan in an overseas publicly listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding shares or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to our share incentive plans if there are any material changes to the share incentive plans, the PRC agent or the overseas entrusted institution or other material changes. Also, Circular 37 stipulates that PRC residents who participate in a share incentive plan of an overseas unlisted special purpose company may register with SAFE before they exercise the share options. We and our PRC employees who have been granted share options will be subject to these regulations. Failure of our PRC share option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to us, or otherwise materially adversely affect our business.

PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our IPO to make loans to our PRC subsidiaries and their subsidiaries, or to make additional capital contributions to our PRC subsidiaries.

We are an offshore holding company conducting our operations in China through our PRC subsidiaries and their subsidiaries. We may make loans or additional capital contributions to our PRC subsidiaries and their subsidiaries or we may establish new PRC subsidiaries or acquire offshore entities with business operations in China in an offshore transaction. However, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiaries are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, or FICMIS, and registration with other governmental authorities in China. Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to Qianhai Shouhang Guarantee (Shenzhen) Co., Ltd., Haidong, Shanghai CRF Financial Information Service Co., Ltd., or CRF Wealth Management Co., Ltd., which are PRC domestic companies.

SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our IPO, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received from our IPO and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees’ salaries as required by PRC regulations may subject us to penalties.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Companies operating in China are also required to withhold individual income tax on employees’ salaries based on the actual salary of each employee upon payment. If we are subject to late fees or fines in relation to the underpaid employee benefits and underwithheld individual income tax, our financial condition and results of operations may be adversely affected.

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign exchange policies, among other things. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. The PRC government subsequently allowed the RMB to appreciate slowly against the U.S. dollar again, although there also have been periods when it depreciated against the U.S. dollar. For example, in August 2015, the RMB depreciated by more than 4% against the U.S. dollar.

On November 30, 2015, the Executive Board of the International Monetary Fund, or the IMF, completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. In addition, there remains significant international pressure on the PRC government to substantially liberalize its currency policy, which could result in further appreciation in the value of the RMB against the U.S. dollar.

Our revenues and costs are mostly denominated in RMB, whereas our reporting currency is the U.S. dollar. Any significant depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position as reported in U.S. dollars. To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

Our leased property interests may be defective and our right to lease the properties affected by such defects may be challenged, which could cause significant disruption to our business.

Under PRC laws, all lease agreements are required to be registered with the local housing authorities. We presently lease around 111 premises in China, and the landlords of these premises have not completed the registration of their ownership rights or the registration of our leases with the relevant authorities. Failure to complete these required registrations may expose our landlords, lessors and us to potential monetary fines or may require us to relocate our offices and incur the associated losses. In addition, for part of our leased premises, the lessors have not provided us with their ownership certificate. If there is a third-party claim with respect to ownership of the premises, our business may be affected.

In the event of failure to use the PRC state-owned lands in accordance with the approved use, PRC land administration authorities may order the lessor to return the land use right and may impose penalties on the lessor. Additionally, under applicable PRC laws, construction companies are required to act in accordance with the applicable land use rights. Lessors are required to obtain approval from administrative authorities prior to changing the approved usage of a particular plot of PRC state-owned land. With respect to our PRC leased units, the actual use of certain leased units may not be entirely consistent with the approved uses for the corresponding land. We may be ordered by the PRC land administration authorities to return the land use right under relevant lease contracts.

The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit report included in this annual report filed with the U.S. Securities and Exchange Commission, or the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Proceedings instituted by the SEC against the “big four” PRC-based accounting firms, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act against the Chinese affiliates of the “big four” accounting firms (including our auditors). The Rule 102(e) proceedings initiated by the SEC relate to these firms’ inability to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act, as the auditors located in the PRC are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the China Securities Regulatory Commission, or the CSRC. The issues raised by the proceedings are not specific to our auditors or to us, but affect equally all audit firms based in China and all China-based businesses with securities listed in the United States.

In January 2014, the administrative judge reached an Initial Decision that the “big four” accounting firms should be barred from practicing before the SEC for six months. Thereafter, the accounting firms filed a Petition for Review of the Initial Decision, prompting the SEC Commissioners to review the Initial Decision, determine whether there had been any violation and, if so, determine the appropriate remedy to be placed on these audit firms.

In February 2015, the Chinese affiliates of the “big four” accounting firms each agreed to censure and pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S. listed companies. The settlement requires the firms to follow detailed procedures and to seek to provide the SEC with access to the Chinese firms’ audit documents via the CSRC. If future document productions fail to meet the specified criteria, the SEC retains the authority to impose a variety of additional measures (e.g., imposing penalties such as suspensions, restarting the administrative proceedings, etc.).

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, and could result in delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our shares may be adversely affected.

If our independent registered public accounting firm were denied the ability to practice before the SEC, even temporarily, and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

The future development of money laundering and anti-terrorism regulations in the PRC may increase our obligations to supervise and report transactions between borrowers and investors on our marketplace, thereby increasing our costs and exposing us to the risk of criminal or administrative sanctions.

PRC laws and regulations relating to money laundering and anti-terrorism have undergone considerable development over recent years. The Guidelines and the Interim Measures require us to take effective measures to verify customer identities, monitor and report suspicious transactions and keep client information and transaction records safe. We are also required to assist in investigations by judicial authorities and the public security bureau. We currently rely primarily on the depository bank and third-party payment companies transferring funds on our

marketplace to carry out anti-money laundering due diligence of our customers. Current PRC laws stipulate specific obligations and steps that the banks and third-party payment companies should follow for anti-money laundering due diligence. While the Guidelines and the Interim Measures do not stipulate explicit standards for our anti-money laundering obligations, any new requirement under money laundering laws to supervise and report transactions with our customers could have the effect of increasing our costs, and may expose us to potential criminal or administrative sanctions if we fail to comply.

In January 2016, the Standing Committee of the National People’s Congress announced the Anti-Terrorism Law of the People’s Republic of China, or the Anti-Terrorism Law. According to this law, telecommunications operators and Internet service providers shall implement supervision systems for network security and information content as well as technical safety precautions in accordance with the relevant laws and administrative regulations to prevent the dissemination of information involving terrorism and extremism. If such information is found, the corresponding data transmission will be immediately stopped, relevant records will be saved, relevant information will be deleted and a report shall be made to the public security organizations or related departments. Furthermore, telecommunications, Internet, finance, accommodations, long-distance passenger transportation and motor vehicle leasing business operators and service providers shall check the identities of their customers. No services are permitted to be provided to unidentified customers or those who refuse to comply with identification checks. While we believe that we are in compliance with the Anti-Terrorism Law, to the extent that our operations are not in compliance, we may be exposed to potential criminal or administrative sanctions.

The PRC Labor Contract Law, any labor shortages, increased labor costs or other factors affecting our labor force may adversely affect our business, profitability and reputation.

We engage third-party employment agencies to provide contract workers to save costs. On December 28, 2012, the PRC Labor Contract Law was amended with effect on July 1, 2013 to impose more stringent requirements on labor dispatch. Under such law, the number of contract workers that an employer hires may not exceed a certain percentage of its total number of employees as determined by the Ministry of Human Resources and Social Security. Additionally, contract workers are only permitted to engage in temporary, auxiliary or substitute work. According to the Interim Provisions on Labor Dispatch promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, the number of contract workers hired by an employer shall not exceed 10% of the total number of its employees (including both directly hired employees and dispatched contract workers). The Interim Provisions on Labor Dispatch require an employer not in compliance with the PRC Labor Contract Law in this regard to create a plan to reduce the number of its contract workers to below 10% of the total number of its employees prior to March 1, 2016. In addition, an employer is not permitted to hire any new contract worker until the number of its contract workers has been reduced to below 10% of the total number of its employees.

As of the date of this annual report, none of our PRC operating entities exceed the 10% cap, however some contract workers are not engaged in temporary, auxiliary or substitute provisions. While we expect to formulate and implement a plan to engage contract workers only in temporary, auxiliary or substitute positions, we cannot assure you that we will be able to locate replacements for our contract workers on a timely basis without incurring increased labor and administrative costs.

The application and interpretation of the new requirements under the amended Labor Contract Law are limited and uncertain. If we are found to be in violation of the new rules regulating contract workers, we may be ordered by the labor authority to rectify the noncompliance by entering into written employment contracts with the contract workers. Furthermore, our failure to rectify this issue within the time period specified by the labor authority, may result in us being subject to penalties ranging from RMB5,000 to RMB10,000 per contract worker.

Additionally, the economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increased labor costs to our borrowers and investors by increasing the fees of our services, our financial condition and results of operations may be adversely affected.

We may be subject to penalties under relevant PRC laws and regulations due to failure to make full social security and housing fund contributions for some of our employees.

In the past, contributions by some of our PRC subsidiaries for some of their employees to the social security and housing funds may not have been in compliance with relevant PRC regulations. Pursuant to the Regulation on the Administration of Housing Accumulation Funds, as amended in 2002, the relevant housing fund authority may order an enterprise to pay outstanding contributions within a prescribed time limit. Pursuant to the PRC Social Insurance Law promulgated in 2010, the social security authority may order an enterprise to pay the outstanding contributions within a prescribed time limit, and may impose penalties if there is a failure to do so. Although we have made what we believe to be sufficient accruals to address these risks, some of our PRC subsidiaries may be required to pay outstanding contributions and penalties to the extent they did not make full contributions to the social security and housing funds.

The trading price of our ADSs may be volatile, which could result in substantial losses to investors.

The trading price of our ADSs may be volatile and could fluctuate widely due to factors beyond our control. For example, since our ADSs became listed on the NYSE on April 28, 2017, the trading price of our ADSs has ranged from US$11.43 to US$0.22 per ADS, and the last reported trading price on October 31, 2019 was US$0.28 per ADS. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed their securities on U.S. stock markets, and some of these companies have experienced significant volatility. The trading performances of these Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

Title of each class		Name of each exchange on which registered
American depositary shares, each representing one Class A ordinary share, par value US$0.0001 per share		New York Stock Exchange
Class A ordinary shares, par value US$0.0001 per share*		New York Stock Exchange

TABLE OF CONTENTS
INTRODUCTION		1
FORWARD‑LOOKING STATEMENTS		2
PART I		3
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
ITEM 2.	OFFER STATISTICS AND EXPECTED TIME TABLE	3
ITEM 3.	KEY INFORMATION	3
A.	Selected Financial Data	3
B.	Capitalization and Indebtedness	6
C.	Reasons for the Offer and Use of Proceeds	6
D.	Risk Factors	6
ITEM 4.	INFORMATION ON THE COMPANY	56
A.	History and Development of the Company	56
B.	Business Overview	59
C.	Regulation	71
D.	Organizational Structure	90
E.	Property, Plant and Equipment	90
ITEM 4A.	UNRESOLVED STAFF COMMENTS	91
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	91
A.	Operating Results	91
C.	Research and Development	106
E.	Off Balance Sheet Arrangements	107
F.	Contractual Obligations	107
G.	Safe Harbor	107
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	108
A.	Directors and Senior Management	108
B.	Compensation	109
C.	Board Practices	115
D.	Employees	117
E.	Share Ownership	118
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	118
A.	Major Shareholders	118
B.	Related Party Transactions	120
C.	Interests of Experts and Counsel	120
ITEM 8.	FINANCIAL INFORMATION	120
A.	Consolidated Statements and Other Financial Information	120
B.	Significant Changes	121
ITEM 9.	THE OFFER AND LISTING	121
A.	Offering and Listing Details	121
B.	Plan of Distribution	121
C.	Markets	121
D.	Selling Shareholders	121
E.	Dilution	121
F.	Expenses of the Issue	122
ITEM 10.	ADDITIONAL INFORMATION	122
A.	Share Capital	122
B.	Memorandum and Articles of Association	122
C.	Material Contracts	130

D.	Exchange Controls	130
E.	Taxation	131
F.	Dividends and Payment Agents	136
G.	Statements by Experts	136
H.	Documents on Display	136
I.	Subsidiary Information	136
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	137
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	137
A.	Debt Securities	137
B.	Warrants and Rights	137
C.	Other Securities	137
D.	American Depositary Shares	138
PART II		140
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	140
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	140
ITEM 15.	CONTROLS AND PROCEDURES	140
ITEM 16.		142
A.	Audit Commitee Financial Expert	142
B.	Code of Ethics	142
C.	Principal Accountant Fees and Services	142
D.	Exemptions From the Listing Standards for Audit Commitees	142
E.	Purchase of Equity Securities by the Issuer and Affiliated Purchasers	142
F.	Change in Registrant’s Certifying Accountant	143
G.	Corporate Governance	144
H.	Mine Safety Disclosure	144
PART III		145
ITEM 17.	FINANCIAL STATEMENTS	145
ITEM 18.	FINANCIAL STATEMENTS	145
ITEM 19.	EXHIBITS	145
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1