Fin-tech changes: Operating online importation services and improving individual lessees’ protection

Edict of the President of the Republic of Belarus No. 196 was published “On online importation services and leasing activities” was published on May 28, 2021. We have scrutinised the alterations introduced by the document.

New legal framework for operating online importation services

According to the Edict, online importation services are Internet websites and software used by businesses and individuals to conclude loan agreements and accessory contracts (contracts of pledge, indemnity contracts, contracts of suretyship). Here we are going to cover the key aspects of operating the services as specified by the Edict, and further improvements to be introduced by the National Bank as the authorised regulator. 

Connecting a service under an agreement for a fee

In order to connect an online importation service clients (lenders, borrowers and persons furnishing collateral under loan agreements) must conclude with the service operator (a Belarusian commercial entity included by the National Bank of the Republic of Belarus in the register of operators of online importation services) a paid services agreement and pay a fee to the operator. It is assumed that the National Bank may set limits for services’ fees.

Services as a source of available information on financing terms

The services allow clients promptly and smoothly obtain complete and accurate data on terms and conditions of loan agreements and accessory contracts (inter alia, on the procedures for computing principal sums payable by parties, interest and penalties, as well as cases for alteration or early termination of contracts).

Private individuals will not be allowed to obtain funding from businesses. Non-residents will not be able to act as borrowers.

Natural persons will be able to attract financing from corporations or IEs via the services (using business-online importation services) only if acting as IEs. Individuals involved in handicraft and farm estate business, self-employed, founders and owners of businesses and other individuals without IE status will not be allowed to use businesses’ loan funds otherwise available via the services. Therewith, companies and IEs will be allowed to attract funding from corporations and individuals (including IEs) without restraint. Non-residents of Belarus will also be allowed to transact via the platform, however only as lenders and financing providers.

Settlements only via non-cash transfer are allowed, settlements in foreign currency are restrained.

All settlements on transactions via the services (including payment of fees to the services) will be allowed only via non-cash transfer. Foreign currency loans may be attracted only from non-residents and only from accounts opened in a foreign bank.

Client identification and transaction transparency.

Services’ clients will undergo mandatory identification as services are subject to requirements to counteract money laundering and terrorist financing similar to those applying to banks and other financial institutions.

Assessing financial solvency of parties.

Prior to the date of loan agreement or accessory contract, a service must procure a robust assessment of client’s ability to meet his/her obligations and of the proposed project (if any). Methods of such assessment shall be defined by the service (maybe, the National Bank will specify mandatory requirements to criteria/methods). Data on transactions settled via a service will impact borrower’s credit history – all related data will be furnished by services to the Credit Register.

Payments to third parties are still banned.

Operators of online importation services cannot be a party to loan agreements and accessory contracts, as services are only intermediate agents. Also, services are not allowed to draw and cumulate client’s moneys on their bank accounts in order to forward them to borrowers – thus, the legislator makes no exclusion for online importation services from the general prohibition on payments to third parties existing in Belarus. 

Long-time storage of data on transactions.

Information on loan agreements (accessory contracts) and performance thereof will be stored by a service for at least ten years from the date of discharge of all obligations under respective agreement/contract.

Online importation services and micro-financing.

Laws on micro-financing impose limitations on corporations’ and IEs’ procuring of loans from natural persons not being IEs, – such loans may be raised at most 2 times in a calendar month, regardless of loan sum (a similar restriction applies to natural persons extending loans to corporations and IEs). According to the Edict, this limitation does not apply to loans extended via online importation services – this means that corporations and IEs may raise loans from individual borrowers without restriction. 

According to the Edict, micro-financing institutions are allowed to carry out micro-financing business via online importation services.

Loans extended via online importation services to individuals are exempt from income tax.

Tax agents – Belarusian and foreign entities and IEs are exempt from the obligation to pay income tax in this situation. Where sums of loans raised via services shall be reflected in income/property declarations (submitted on demand of tax authorities), income tax is not charged by tax authorities from such loan sums as well.

The Edict sets only the basic principles of services’ functioning, while detailed regulations will be elaborated by the National Bank.

In particular, it is expected that the National Bank will set limit sizes for loans займа, lump sums of raised loans (through all services), limit interest rates, requirements for documents compiled via services, and mandatory requirements to financial standing and qualification of lenders, borrowers and persons providing security.

The rules will come in force on November 29, 2021.

Loan agreements concluded before the enuring of the Rules on online importation services (November 29, 2021) shall not be harmonised with the Edict and will be effective until the full discharge of respective obligations thereunder by parties (even if such obligations are to be discharged after November 29). Loan agreements concluded on or after November 29 must comply with the new rules. 
Operations of online importation services are similar to activities of crowd-lending platforms and online crediting platforms operated in many countries. It is expected that creation of such services will streamline financing for Belarusian small and medium businesses as well as individuals.

Increased legal protection for individual lessees.

Edict No. 196 sets requirements to financial lease agreements involving individuals (not acting as individual entrepreneurs (IEs) in concluding and performing such agreement).

Thus, according to the Edict, (1) a maximum size of excess of total sum of paid lease payments and redemption value of leasing subject over actual value of leasing subject (inclusive of VAT) cannot be more than:

  • actual value of leasing subject – where the term of lease agreement is not more than 1 year;
  • twice actual value of leasing subject – under other lease agreements (except residential lease agreements).

(2) A maximum size of penalty charged from lessee due to default on obligations cannot exceed half actual value of leasing subject. (3) Also, the Edict restrains cases where a lease agreement, at lessee’s request, may be terminated early (in particular, where lessee violates lease payment dates), and (4) prohibits applying penalties to lessors for early termination of lease agreements or pre-schedule return of leasing subject on lessee’s demand.

There were no such legislative requirements prior to the adoption of the Edict: terms and conditions could be specified at the discretion of parties (in practice – mostly at lessor’s discretion, while lessee acceded to an agreement without an opportunity to alter it).

Countering money laundering in leasing entities.

Apart from the increased protection of individuals, the new Edict also requires leasing entities to appoint officers in charge of securing compliance with laws on counteracting money laundering and terrorist financing (ML/TF). The ML/TF rules have been applied to businesses conducting financial operations for several years already, and the legislator gradually sets more detailed regulations in this sphere. Moreover, it is expected that the National Bank, in accordance with the Edict, will soon set requirements to business reputation and qualification of founders/participants and CEOs of leasing companies.

The rules take effect on November 29, 2021.

The new rules of leasing activities will come into force on November 29, 2021. Lease agreements concluded prior to the date shall be harmonised with the new rules on or before January 29, 2022. Therewith, relations based on lease agreements will be subject to the new rules as from November 29 regardless of whether such agreements have been respectively amended.