Our Holding Company Structure
and Contractual Arrangements with the Consolidated Variable Interest Entities
Yiren Digital Ltd. is not
an operating company but a Cayman Islands holding company with operations conducted by (i) its subsidiaries and (ii) the consolidated
variable interest entities with which its subsidiaries have maintained contractual arrangements. PRC laws and regulations restrict and
impose conditions on foreign investment in the production of radio and television programs, the internet culture business and certain
value-added telecommunication services such as internet content provision services. Accordingly, these businesses are operated by the
variable interest entities in China. Neither Yiren Digital Ltd. nor its subsidiaries own any equity interest or direct foreign investment
in the variable interest entities. Instead, Yiren Digital Ltd. relies on contractual arrangements among its PRC subsidiary, Hengyuda,
the variable interest entity, Yiren Financial Information and its shareholders, which allow Yiren Digital Ltd. to (i) direct the activities
of the variable interest entities that most significantly impact their economic performance, (ii) receive substantially all of the economic
benefits of the variable interest entities, and (iii) have an exclusive option to purchase all or part of the equity interests in the
variable interest entities when and to the extent permitted by PRC law. As a result of these VIE agreements, Yiren Digital Ltd. is considered
the primary beneficiary of the variable interest entities for accounting purposes and is able to consolidate the financial results of
the variable interest entities in the consolidated financial statements in accordance with U.S. GAAP. Revenues contributed by the consolidated
variable interest entities accounted for 33.2%, 33.7% and 14.4% of our total revenues for 2023, 2024 and 2025, respectively. As used in
this annual report, “we,” “us,” “our company” and “our” refers to Yiren Digital Ltd.,
its subsidiaries, and, only in the context of describing our consolidated financial information, the consolidated variable interest entities
in China. Depending on the context, we refer to the consolidated variable interest entities by their legal names or “variable interest
entities” or “VIEs,” including but not limited to the following entities:
● Haijin Yichuang Financial Leasing Co., Ltd. or Yichuang Financial Leasing, which was established in March 2017 and primarily engages in the business of financial leasing;
● Hexiang Insurance Broker Co., Ltd. or Hexiang Insurance Brokers, which was established in September 2011 and holds Business Licenses to Professional Insurance Intermediaries, operates a website and primarily engages in the insurance brokerage business;
● Yiren Financial Information Service (Beijing) Co., Ltd. or Yiren Financial Information, which was established in October 2016 and had no business operation other than holding shares as of the date of this annual report;
● Beijing Yiding Technology Co., Ltd. or Yiding Technology, which was established in August 2019 and primarily engages in the insurance referral business;
● Yiren Zhisheng Technology Information Service (Beijing) Co., Ltd. (formerly known as Beijing Yiyouxuan Technology Information Service Co., Ltd.), or Yiren Zhisheng, which was established in July 2022 and holds an Internet Content Provider License and an Electronic Data Interchange License, primarily engages in operation of Yiren Select;
● Dekai Yichuang Asset Management (Shenzhen) Co., Ltd. or Dekai Yichuang, which was established in March 2016 and had no business operation other than holding shares as of the date of this annual report;
● Hainan Haijin Yichuang Data Information Service Co., Ltd. or Yichuang Data, which was established in December 2016 and had no business operation other than holding shares as of the date of this annual report;
● Heilongjiang Changtuo Technology Development Co., Ltd. or Changtuo Technology, which was established in January 2014 and had no business operation other than holding shares as of the date of this annual report;
● Hainan Guatian Film and Television Co., Ltd. or Hainan Guatian, which was established in July 2025 and holds an Internet Content Provider License, an Electronic Data Interchange License, a Network Culture Operation License and a Permit for Production and Operation of Radio and TV Programs, engaged in live streaming business for a short period in 2025 but has no business operation as of the date of this annual report; and
● Hubei Jiushi Network Technology Co., Ltd. or Hubei Jiushi, which was established in May 2023 and holds an Internet Content Provider License and a Network Culture Operation License, engaged in live streaming business for a short period in 2025 but has no business operation as of the date of this annual report.
Yiren Digital Ltd. has no
equity ownership in the consolidated variable interest entities. Therefore, investors investing in our ADSs are not holding equity interest
in the consolidated variable interest entities but instead are holding equity interest in a holding company incorporated in the Cayman
Islands.
1
The following diagram illustrates
our corporate structure, including our subsidiaries, the consolidated variable interest entities, and our consolidated assets backed financing
entities, as of the date of this annual report:
Notes:
(1) The shareholders of Yiren Financial Information are CreditEase Pucheng Credit Assessment and Management (Beijing) Co., Ltd., Mr. Ning Tang and Ms. Yan Tian, each owning 95%, 3.8% and 1.2% of Yiren Financial Information’s equity interest, respectively. The shareholders of CreditEase Pucheng Credit Assessment and Management (Beijing) Co., Ltd. are Mr. Ning Tang and Ms. Yan Tian, ultimately owning 95% and 5% of its equity interest, respectively. Mr. Ning Tang is our executive chairman and Ms. Yan Tian is a third-party individual designated by CreditEase.
A series of contractual agreements,
including loan agreements, exclusive purchase option agreements, exclusive technology consulting and services agreements or exclusive
business cooperation agreements, as applicable, equity pledge agreements, powers of attorney and business operation agreements, have been
entered into by and among Hengyuda, our subsidiary, Yiren Financial Information, the consolidated variable interest entity and its shareholders.
As a result of the contractual agreements, we are considered the primary beneficiary of the variable interest entities and have consolidated
the financial results of these companies in our consolidated financial statements in accordance with U.S. GAAP. For more details of these
contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements
with Yiren Financial Information.”
2
However, the contractual
arrangements may not be as effective as direct ownership and we may incur substantial costs to enforce the terms of the arrangements.
In addition, these agreements have not been tested in China courts. See “Item 3. Key Information—D. Risk Factors—Risks
Related to Our Corporate Structure—We rely on contractual arrangements with the consolidated variable interest entity, and its shareholders
for certain business operations in China, which may not be as effective as direct ownership” and “Item 3. Key Information—D.
Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the consolidated variable interest entity may have
potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.”
In addition, our corporate
structure is subject to risks associated with our contractual arrangements with Yiren Financial Information. There are substantial uncertainties
regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights
of Yiren Digital, the Cayman Islands holding company, with respect to its contractual arrangements with Yiren Financial Information and
its shareholders. If the PRC government deems that our contractual arrangements with the consolidated variable interest entities do not
comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretations
of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish
our interests in those operations. Our holding company, our PRC subsidiaries and the consolidated variable interest entities, and investors
of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual
arrangements with the consolidated variable interest entities and, consequently, significantly affect the financial performance of the
consolidated variable interest entities and our company as a whole. For a detailed description of the risks associated with our corporate
structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate
Structure.”
Doing Business in China
We and the VIEs face various
risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China through our PRC subsidiaries
and the VIEs, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory
requirements on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact
our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks
could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability
to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description
of risks related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China.”
PRC government has significant
authority in regulating our operations and may influence our operations. It may exert more oversight and control over offerings conducted
overseas by, and foreign investment in, China-based issuers, which could significantly limit or completely hinder our ability to offer
or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related
regulations, in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight
and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.”
Risks and uncertainties arising
from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations
in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legal system
in Chinese mainland could adversely affect us. Certain laws and regulations in Chinese mainland can evolve quickly, which bring risks
and uncertainties to their interpretation and enforcement. Administrative and court proceedings in Chinese mainland may be protracted.
Some government policies and internal rules may not be published on a timely manner. These risks and uncertainties may make it difficult
for us to meet or comply with requirements under the applicable laws and regulations” and “—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.”
3
Permissions Required from
the PRC Authorities for Our Operations
We conduct our business primarily
through our subsidiaries and the consolidated variable interest entities in China. The operations in China are governed by PRC laws and
regulations. As of the date of this annual report, our PRC subsidiaries and the consolidated variable interest entities have obtained
the requisite licenses and permits from the PRC government authorities that are material for the business operations of our company and
the consolidated variable interest entities in China, including, among others, Internet Content Provider (“ICP”) License,
Electronic Data Interchange License, Food Business Permit, Filing Recordation for Medical Devices Operating Enterprise, Financing Guarantee
Business License, Approval to Conduct Financial Leasing Business, Approval to Conduct Micro-lending Business, Business Licenses to Professional
Insurance Intermediaries, Network Culture Operation Licenses and Permit for Production and Operation of Radio and TV Programs and Registration
of a Consignee or Consignor of Imported or Exported Goods. Given the uncertainties of interpretation and implementation of relevant laws
and regulations and the enforcement practice by relevant government authorities, our PRC subsidiaries and the consolidated variable interest
entities may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in
the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If
our practice is deemed to violate any PRC laws, rules or regulations, our business, financial condition and results of operations would
be materially and adversely affected.”
Also, in connection with
issuance of securities to foreign investors, the PRC government has recently indicated an intent to exert more oversight and control over
offerings that are conducted overseas and/or foreign investment in China-based issuers. For example, on February 17, 2023, the China Securities
Regulatory Commission, or the CSRC, issued Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies,
or the Overseas Listing Regulations, and five supporting guidelines, which became effective on March 31, 2023. Pursuant to the Overseas
Listing Regulations, companies in China that directly or indirectly offer or list their securities in an overseas market must file with
the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing.
The Overseas Listing Regulations also provides that a company in China must file with the CSRC within three business days after completion
of its follow-on offering of securities after it is listed in an overseas market. If the company fails to complete the filing procedure
or conceals any material fact or falsifies any major content in its filing documents, it may be subject to administrative penalties.
Companies in China that have
been listed overseas before March 31, 2023 are not required to file with the CSRC in connection with the historical offerings, although
these companies are required to fulfill filing obligations with the CSRC in connection with their additional capital raising activities
in accordance with the Overseas Listing Regulations. Based on the foregoing, we are not required to complete filing with the CSRC for
our historical offerings, but may be subject to the filing requirements for our future capital raising activities, if any, under the Overseas
Listing Regulations. As of the date of this annual report, in connection with our previous issuance of securities to foreign investors,
none of us, our PRC subsidiaries and the consolidated variable interest entities, (i) have received a request to obtain permissions or
complete filings from the CSRC, (ii) have received a request to go through cybersecurity review by the Cyberspace Administration of China,
or the CAC, or (iii) have received or were denied such requisite permissions by any PRC authority.
However, in connection with
any future overseas capital markets activities, we may need to file with the CSRC, undergo a cybersecurity review conducted by the CAC,
or meet other regulatory requirements that may be adopted in the future by PRC authorities. To the extent such requirements are or become
applicable, we cannot assure you that we would be able to comply with them. Any failure to obtain or delay in obtaining such approval
or completing such procedures could subject us to restrictions and penalties imposed by the CSRC, the CAC or other PRC regulatory authorities,
which could include fines and penalties on our operations in China, delays of or restrictions on the repatriation of the proceeds from
our offshore offerings into China, or other actions that could materially and adversely affect our business, financial condition, results
of operations, and prospects, as well as the trading price of our ADSs. See “Item 3. Key Information—D. Risk Factors—Risks
Relating to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required
in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to
obtain such approval or complete such filing” and “—Our business is subject to complex and evolving Chinese and international
laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our customers and network
against security breaches could damage our reputation and brand and substantially harm our business and results of operations.”
Summary of Risk Factors
Investing in our ADSs involves
significant risks. You should carefully consider all of the information in this annual report before making an investment in our ADSs.
Below please find a summary of the principal risks we face, organized under relevant headings. These risks are discussed more fully in
the section titled “Item 3. Key Information—D. Risk Factors.”
4
Risks Related to
Our Business
Risks and uncertainties related
to our business include, but are not limited to, the following:
● We operate in emerging and evolving industries, and our operations, services and products have been and may need to be modified in answering to the latest market trends, which makes it difficult to evaluate our future prospects.
● If the funding from institutional funding partners is insufficient to meet user demand for loans on our platform, our business and results of operations will be adversely affected.
● If we are unable to maintain or increase the volume of loans facilitated through our marketplace or if we are unable to retain existing borrowers or clients or attract new borrowers or clients, our business and results of operations will be adversely affected.
● If our practice is deemed to violate any PRC laws, rules or regulations, our business, financial condition and results of operations would be materially and adversely affected.
● We may not be able to achieve profitability in the future.
● If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
● Our business is subject to complex and evolving Chinese and international laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our customers and network against security breaches could damage our reputation and brand and substantially harm our business and results of operations.
Risks Related to
Our Carve-out from CreditEase and Our Relationship with CreditEase
Risks and uncertainties related
to our carve-out from CreditEase and our relationship with CreditEase include, but are not limited to, the following:
● We rely on our parent company, CreditEase, for the successful operation of our business.
● Our financial information included in this annual report may not be representative of our financial condition and results of operations if we had been operating as a stand-alone company.
● We may have conflicts of interest with CreditEase and, because of CreditEase’s controlling ownership interest in our company, we may not be able to resolve such conflicts on favorable terms for us.
Risks Related to
Our Corporate Structure
Risks and uncertainties related
to our corporate structure include, but are not limited to, the following:
● Yiren Digital Ltd. is not an operating company but a Cayman Islands holding company with operations conducted by (i) its subsidiaries in China, and (ii) the consolidated variable interest entities with which its subsidiaries have maintained contractual arrangements. Yiren Digital Ltd. has no equity ownership in the consolidated variable interest entities. Therefore, investors investing in our ADSs are not holding equity interest in the consolidated variable interest entities but instead are holding equity interest in a holding company incorporated in the Cayman Islands. There are uncertainties under PRC laws and regulations regarding the enforceability of the whole or any part of these contractual arrangements. If the whole or any part of our contractual arrangements with the variable interest entity and its shareholders is found to be unenforceable, we may not be able to consolidate, or derive economic interests from the consolidated variable interest entities and their subsidiaries, which could result in a material adverse change in the financial performance of our company and the value of our ADSs.
5
● Any failure by the consolidated variable interest entity or its respective shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.
● The shareholders of the consolidated variable interest entity may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
Risks Related to
Doing Business in China
We are also subject to risks
and uncertainties relating to doing business through our subsidiaries and the VIEs in China in general, including, but not limited to,
the following:
● PRC government has significant authority in regulating our operations and may influence our operations. It may exert more oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.”
● Changes in China’s or global economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
● Uncertainties with respect to the legal system in Chinese mainland could adversely affect us. Certain laws and regulations in Chinese mainland can evolve quickly, which bring risks and uncertainties to their interpretation and enforcement. Administrative and court proceedings in Chinese mainland may be protracted. Some government policies and internal rules may not be published on a timely manner. These risks and uncertainties may make it difficult for us to meet or comply with requirements under the applicable laws and regulations.
● 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 funds in our PRC subsidiaries or the consolidated variable interest entities in Chinese mainland may not be available to fund operations or for other use outside of Chinese mainland due to interventions in or the imposition of restrictions and limitations on the ability of our holding company, our subsidiaries, or the consolidated variable interest entities by the PRC government on currency conversion. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize our net revenue effectively and affect the value of your investment.”
● The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.
Risks Related to
Our American Depositary Shares
In addition to the risks
described above, we are subject to general risks relating to our ADSs, including, but not limited to, the following:
● The trading price of our ADSs may be volatile, which could result in substantial losses to investors.
6
● Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
● We believe that we may be or may have been a passive foreign investment company, or PFIC, for United States federal income tax purposes for the taxable year ended December 31, 2025, which could subject United States holders of our ADSs or ordinary shares to significant adverse United States federal income tax consequences.
Cash and Asset Flows through
Our Organization
We have established stringent
controls and procedures for cash flows within our organization, including for our subsidiaries and the VIEs. Each transfer of cash between
our Cayman Islands holding company and a subsidiary, the variable interest entities or their subsidiaries is subject to internal approval.
The cash inflows of the Cayman Islands holding company were primarily generated from the proceeds we received from our public offerings
of ordinary shares, other financing activities and cash generated from operating activities. Our Cayman Islands holding company received
RMB49.7 million, RMB64.2 million and RMB468.4 million (US$67.0 million) from our subsidiaries in 2023, 2024 and 2025, respectively. In
2023, 2024 and 2025, no assets other than cash were transferred between our Cayman Islands holding company and a subsidiary, a variable
interest entity or its subsidiary. We have a semi-annual dividend policy in place, which was approved by our board of directors on August
14, 2024. In 2025, we paid cash dividends in the total amount of US$38.2 million to our shareholders. See “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Dividend Policy.”
Pursuant to the exclusive
technical and consulting services agreements between our wholly-owned PRC subsidiaries and the consolidated variable interest entities,
the amount of service fees shall be calculated in such a manner as determined by both the consolidated variable interest entities and
our wholly-owned PRC subsidiaries from time to time based on the nature of service paid. The consolidated variable interest entities have
paid RMB93.3 million, RMB104.9 million and nil of service fees to our wholly-owned PRC subsidiaries under the variable interest entity
arrangements in 2023, 2024 and 2025, respectively. The consolidated variable interest entities expect to continue to settle any service
fees incurred under the exclusive technical and consulting services agreements. Furthermore, cash transfers from our PRC subsidiaries
and the consolidated variable interest entities to entities outside of Chinese mainland are subject to PRC governmental control on currency
conversion. As a result, the funds in our PRC subsidiaries or the consolidated variable interest entities in mainland China may not be
available to fund operations or for other use outside of Chinese mainland due to interventions in, or the imposition of restrictions and
limitations on, the ability of our holding company, our subsidiaries, or the consolidated variable interest entities by the PRC government
on such currency conversion. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—We rely on dividends and other distributions on equity paid by our PRC
subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make
payments to us could have a material adverse effect on our ability to conduct our business” and “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to
utilize our net revenue effectively and affect the value of your investment.”
As a Cayman Islands holding
company, we may receive dividends from our PRC subsidiaries. Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and related
regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise, such as our PRC subsidiaries, to any of
its foreign non-resident enterprise investors, and proceeds from any such foreign enterprise investor’s disposition of assets (after
deducting the net value of such assets) are subject to a 10% withholding tax, unless the foreign enterprise investor’s jurisdiction
of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax. The Cayman Islands, where Yiren Digital
Ltd., the direct parent company of our PRC subsidiaries, is incorporated, does not have such a tax treaty with China. Hong Kong has a
tax arrangement with China that provides for a 5% withholding tax on dividends subject to certain conditions and requirements, such as
the requirement that the Hong Kong resident enterprise own at least 25% of the PRC enterprise distributing the dividend at all times within
the 12-month period immediately preceding the distribution of dividends and be a “beneficial owner” of the dividends. See
“Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—Contractual arrangements in
relation to the consolidated variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that
we owe additional taxes, which could negatively affect our financial condition and the value of your investment.” If our holding
company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under
the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%.
7
For purposes of illustration,
the following discussion reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) our company
and the VIEs have taxable earnings, and (ii) our company and the VIEs determine to pay dividends in the future:
Tax calculation (1)
Hypothetical pre-tax earnings (2) 100 %
Tax on earnings at statutory rate of 25% (3) (25 )%
Net earnings available for distribution 75 %
Withholding tax at standard rate of 10% (4) (7.5 )%
Net distribution to Parent/Shareholders 67.5 %
Notes:
(1) For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to equal taxable income in China.
(2) Under the terms of variable interest entity agreements, our PRC subsidiaries may charge the consolidated variable interest entities for services provided to the consolidated variable interest entities. These service fees shall be recognized as expenses of the consolidated variable interest entities, with a corresponding amount as service income by our PRC subsidiaries and eliminate in consolidation. For income tax purposes, our PRC subsidiaries and the consolidated variable interest entities file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by the consolidated variable interest entities and as income by our PRC subsidiaries and are tax neutral.
(3) Certain of our subsidiaries qualify for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.
(4) The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or the FIE, to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.
The table above has been
prepared under the assumption that all profits of the consolidated variable interest entities will be distributed as fees to our PRC subsidiaries
under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the consolidated variable interest entities
exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities
is determined to be non-substantive and disallowed by Chinese tax authorities), the consolidated variable interest entities could make
a non-deductible transfer to our PRC subsidiaries for the amount of the stranded cash in the consolidated variable interest entities.
This would result in such transfer being non-deductible expenses for the consolidated variable interest entities but still taxable income
for the PRC subsidiaries.
Under PRC laws and regulations,
our company and the VIEs are subject to restrictions on foreign exchange and cross-border cash transfers, including to U.S. investors.
Our ability to distribute earnings to the holding company and U.S. investors is also limited. We are a Cayman Islands holding company
and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries, which in turn rely on consulting and other
fees paid to us by the consolidated variable interest entities, for our cash and financing requirements, including the funds necessary
to pay dividends and other cash distributions to our shareholders and service any debt we may incur. When any of our PRC subsidiaries
incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions
to us.
Our subsidiaries’ ability
to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends
to their respective shareholders only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, each of our PRC subsidiaries and the consolidated variable interest entities, when distributing
its after-tax profits to shareholders, is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory
reserve until such reserve reaches 50% of its registered capital. Such reserve is not distributable as cash dividends.
8
In addition, our PRC subsidiaries,
the consolidated variable interest entities and their subsidiaries generate revenue primarily 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 pay dividends
to us. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We
rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have,
and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to
conduct our business,” and “—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies
and governmental control of currency conversion may delay or prevent us from using the proceeds of our initial public offering and the
concurrent private placement to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially
and adversely affect our liquidity and our ability to fund and expand our business.”
Financial Information Related
to the Consolidated Variable Interest Entities
The following table presents
the condensed consolidating schedule of financial position for the consolidated variable interest entities and other entities as of the
dates presented:
Selected Condensed
Consolidated Statements of Income Information
For the Year Ended December 31, 2025
The Company Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Net revenue — 5,229 836 116 (462 ) 5,719
Net (loss)/income 55 1,272 (1,076 ) (65 ) (131 ) 55
For the Year Ended December 31, 2024
The Company Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Net revenue — 5,065 1,956 — (1,215 ) 5,806
Net (loss)/income 1,582 1,606 (1 ) 21 (1,626 ) 1,582
For the Year Ended December 31, 2023
The Company Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Net revenue — 3,610 2,878 — (1,592 ) 4,896
Net (loss)/income 2,080 904 1,335 (86 ) (2,153 ) 2,080
9
Selected Condensed
Consolidated Balance Sheets of Information
As of December 31, 2025
Parent Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Cash and cash equivalents 153 2,234 988 - (27 ) 3,348
Restricted cash - 93 - 430 - 523
Accounts receivable - 809 176 - (159 ) 826
Guarantee receivable - 833 - - - 833
Contract assets, net - 590 29 - - 619
Contract cost - 4 - - - 4
Prepaid expenses and other assets - 1,731 1,995 17 (1,966 ) 1,777
Loans at fair value - 22 - 321 - 343
Financing receivables - - 6 903 - 909
Amounts due from related parties 911 4,240 5,349 - (7,526 ) 2,974
Financial investments 5 1,055 - 19 (595 ) 484
Equity investments 5 7 - - - 12
Property, equipment and software, net - 63 48 - (61 ) 50
Digital assets 391 - - - - 391
Deferred tax assets - 325 - - - 325
Right-of-use assets - 34 5 - (2 ) 37
Investments in its subsidiaries and the consolidated VIEs 8,217 49 - - (8,266 ) -
Total assets 9,682 12,089 8,596 1,690 (18,602 ) 13,455
Accounts payable - 42 683 3 (649 ) 79
Amounts due to related parties 398 954 504 4 (1,816 ) 44
Guarantee liabilities-stand ready - 990 - - - 990
Guarantee liabilities-contingent - 1,300 - - - 1,300
Payable to investors of consolidated ABFE - - - 1,897 (602 ) 1,295
Accrued expenses and other liabilities 12 352 7,239 6 (7,204 ) 405
Deferred tax liabilities - 19 11 - - 30
Lease liabilities - 37 5 - (2 ) 40
Total liabilities 410 3,694 8,442 1,910 (10,273 ) 4,183
As of December 31, 2024
The Company Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Cash and cash equivalents 159 2,524 1,158 — — 3,841
Restricted cash — 127 25 108 — 260
Accounts receivable — 513 54 — — 567
Guarantee receivable — 474 — — — 474
Contract assets, net — 881 128 — — 1,009
Prepaid expenses and other assets — 2,323 29 10 — 2,362
Loans at fair value — 40 — 382 — 422
Financing receivables — 15 3 — — 18
Amounts due from related parties 1,096 5,062 3,737 — (6,507 ) 3,388
Financial investments — 648 77 7 (295 ) 437
Equity investments — 9 — — — 9
Property, equipment and software, net — 54 59 — (34 ) 79
Deferred tax assets — — 77 — — 77
Right-of-use assets — 36 4 — — 40
Investments in its subsidiaries, the consolidated VIEs 8,363 79 — — (8,442 ) —
Total assets 9,618 12,785 5,351 507 (15,278 ) 12,983
Accounts payable — 30 12 1 — 43
Amounts due to related parties 64 3,546 3,018 8 (6,506 ) 130
Guarantee liabilities-stand ready — 607 — — — 607
Guarantee liabilities-contingent — 579 — — — 579
Deferred revenue — 9 — — — 9
Payable to investors of consolidated ABFE — — — 654 (286 ) 368
Accrued expenses and other liabilities 12 529 1,081 — — 1,622
Deferred tax liabilities — 32 9 — — 41
Lease liabilities — 37 4 — — 41
Total liabilities 76 5,369 4,124 663 (6,792 ) 3,440
10
Selected Condensed
Consolidated Cash Flows Information
For the Year Ended December 31, 2025
Parent Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Net cash generated from operating activities 78 388 114 124 — 704
Net cash provided by/(used in) investing activities 196 (504 ) (179 ) (1,110 ) 21 (1,576 )
Net cash (used in)/provided by financing activities (273 ) (194 ) (130 ) 1,308 (48 ) 663
Effect of foreign exchange rate changes (7 ) (15 ) — — — (22 )
For the Year Ended December 31, 2024
The Company Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Net cash generated from operating activities 240 665 503 16 — 1,424
Net cash provided by/(used in) investing activities 95 (2,843 ) (2,423 ) (160 ) 2,218 (3,113 )
Net cash (used in)/provided by financing activities (198 ) 2,414 (260 ) (15 ) (2,218 ) (277 )
Effect of foreign exchange rate changes (1 ) 10 — — — 9
For the Year Ended December 31, 2023
The Company Company Subsidiaries Consolidated Variable Interest Entities Consolidated Assets Backed Financing Entities Eliminations Consolidated Total
RMB (in millions)
Net cash (used in)/generated from operating activities (25 ) 791 1,379 26 — 2,171
Net cash provided by/ (used in) investing activities 72 102 793 (900 ) 33 100
Net cash (used in)/provided by financing activities (48 ) 64 (1,604 ) 1,052 (33 ) (569 )
Effect of foreign exchange rate changes — (4 ) — — — (4 )
11
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Related to Our Business
We operate in emerging
and evolving industries, and our operations, services and products have been and may need to be modified in answering to the latest market
trends, which makes it difficult to evaluate our future prospects.
We operate in emerging and
evolving industries. To respond to constantly changing market trends, we have been continuously expanding and upgrading our product and
service offerings. For instance, we began operating our business on a more diverse and scalable mix of service platforms—Yiren Credit
and Yiren Wealth (predecessor of “Yiren Select”) through our subsidiaries and the VIEs as a result of our strategic business
realignment with CreditEase in 2019. In May 2020, we initiated insurance brokerage business through Hexiang Insurance Brokers, a subsidiary
of a VIE. In the second half of 2022, we upgraded and re-branded Yiren Wealth as Yiren Select, which caters to the mass affluent group’s
diversified and comprehensive needs in different life scenarios by offering a variety of non-financial products and services as well as
wealth solutions. In the first quarter of 2023, we re-categorized non-financial products and services offered through e-commerce platforms,
such as Yiren Select, into a new business segment, namely the consumption and lifestyle business. The consumption and lifestyle business
offers a range of selective non-financial products and services to fulfill various consumption demands by clients. These offerings span
multiple sectors, such as membership upgraded services, mini digital games, daily necessities, beauty products, and healthcare products
and services. Furthermore, to expand our business internationally, we initiated the offering of credit solution business in the Philippines
at the end of 2022.
We may continue to introduce
new products and service offerings, or make adjustments to our existing products, service offerings or business model through the operation
of our subsidiaries and the VIEs. However, the introduction of new products or service offerings, or any significant change to our business
model may not achieve expected results and may have a material and adverse impact on our financial condition and results of operations.
The risks and challenges our company and the VIEs encounter or may encounter in this developing and rapidly-evolving market may adversely
impact our business and prospects. These risks and challenges include our ability to, among other things:
● navigate an evolving regulatory environment;
● expand the base of borrowers and clients served on our platforms;
● acquire borrowers and clients in a cost-effective manner;
● enhance our risk management capabilities and maintain low delinquency rates of transactions facilitated by us;
● continue to scale our technology infrastructure to support the growth of our platform and higher transaction volume;
● broaden our product and service offerings;
12
● enhance our risk management capabilities;
● attract sufficient funding from institutional funding partners;
● improve our operational efficiency;
● cultivate a vibrant consumer finance ecosystem;
● maintain the security of our platform and the confidentiality of the information provided and utilized across our platform;
● attract, retain and motivate talented employees; and
● defend ourselves against litigation, regulatory, intellectual property, privacy or other claims.
Our company and the VIEs
are subject to all risks and challenges inherent in developing a business enterprise in emerging and evolving industries. If the market
for our marketplace does not develop as we or the VIEs expect, or if we or the VIEs fail to address the needs of our target market, or
other risks and challenges, our business and results of operations will be harmed.
If the funding from
institutional funding partners is insufficient to meet user demand for loans on our platform, our business and results of operations will
be adversely affected.
We generated a majority of
our revenue from credit solution business in 2025.The growth and success of the credit solution business depends on the availability of
adequate funding to meet users’ demand for loans on our platform. These loans are funded mainly by third parties or our subsidiaries.
The funding sources for third-party loans are investments from institutional funding partners only, which primarily include commercial
banks, internet banks, trusts, microloan companies, and consumer finance companies. In 2025, our company and the VIEs facilitated RMB67,438.7
million (US$9,643.6million) loans that were funded by third parties, representing 99.5% of the total loans facilitated on our platform.
The loans funded by our subsidiaries amounted to RMB352.0 million (US$50.3 million) in 2025, representing 0.5% of the total loans facilitated
on our platform.
To maintain a high growth
momentum of our marketplace, we must continuously attract more institutional funding partners to our marketplace. If there is insufficient
funding from these institutional funding partners, borrowers may not be able to obtain capital through our marketplace and may need to
turn to other sources for their borrowing needs. If we are unable to retain our existing institutional funding partners or attract new
institutional funding partners, or if regulatory authorities promulgate new laws and regulations to regulate, limit, or even prohibit
our collaboration with the institutional funding partners, our business, results of operations and financial condition will be adversely
affected. The cooperation with institutional funding partners by us and the VIEs for the credit solution business is not on an exclusive
basis. If the governmental authorities further tighten the regulations on the online consumer finance industry, our institutional funding
partners would become more selective in choosing partners for referring borrowers and facilitating loans for them. The competition our
company and the VIEs face would become even more intense. If we fail to continuously meet their requirements or needs, our financial institution
partners may stop cooperating with us and turn to our competitors, which may also materially and adversely affect our business, financial
condition and results of operations.
If we are unable
to maintain or increase the volume of loans facilitated through our marketplace or if we are unable to retain existing borrowers or clients
or attract new borrowers or clients, our business and results of operations will be adversely affected.
The growth of our marketplace
is largely dependent on our ability to increase the volume of loans facilitated under the credit solution business, as well as our ability
to attract and retain borrowers and clients for our various service offerings, which may be affected by several factors, including the
regulatory environment, our brand recognition and reputation, the effectiveness of our risk control, the repayment rate of borrowers on
our marketplace, the spectrum and attractiveness of our current service and product offering portfolio, the efficiency of our platform,
the macroeconomic environment and other factors.
13
To maintain the high growth
momentum of our marketplace, our company and the VIEs must continuously increase the volume of loans and the sales volume of other products
and services by retaining current participants and attracting more users whose needs for financing, or wealth appreciation or protection
can be met on our marketplace. If there is insufficient funding from our institutional funding partners, borrowers may not be able to
obtain capital through our marketplace and may turn to other sources for their borrowing needs. If our company or the VIEs are unable
to attract qualified borrowers and sufficient funding from our institutional funding partners, or if borrowers do not continue to participate
in our marketplace at the current rates due to business or regulatory reasons, our company or the VIEs might not be able to increase our
loan transaction volume and revenues as we expect, and our business and results of operations may be adversely affected.
To the extent permitted by
laws and regulations, our company and the VIEs intend to continue to dedicate significant resources to our user acquisition efforts, including
establishing new acquisition channels. For our credit solution business, our company and the VIEs attract borrowers through online channels,
such as social media platforms, search engine marketing, search engine optimization, mobile application downloads through major application
stores, as well as various marketing campaigns and membership services. For our insurance brokerage business, we acquire clients through
a variety of channels, such as online direct marketing, existing channels from other business segments, member referral, channel partnership
and social media platforms.
There is no assurance that
our company or the VIEs will be successful with our user acquisition efforts. If any of our current user acquisition channels becomes
less effective, if we are unable to continue to use any of these channels, or if we are not successful in using new channels, our company
or the VIEs may not be able to acquire new borrowers and clients in a cost-effective manner or convert potential borrowers and clients
into active borrowers and clients, and may even lose our existing borrowers and clients to our competitors. If our company or the VIEs
are unable to attract qualified borrowers and sufficient funding from our institutional funding partners or if clients do not continue
to participate in our marketplace, we might be unable to increase our loan transaction volume or sales volume of other products and services
and thus unable to increase revenues as we expect, and our business and results of operations may be adversely affected.
If our practice
is deemed to violate any PRC laws, rules or regulations, our business, financial condition and results of operations would be materially
and adversely affected.
The PRC government has adopted
several regulations governing the personal credit reporting business. According to these regulations and measures, no entity may engage
in the personal credit reporting business without approval by the credit reporting industry regulatory department under the State Council.
If any entity directly engages in the personal credit reporting business without such approval, the entity is subject to penalties including
suspension of business, confiscation of revenues related to the personal credit reporting business, fines and criminal liabilities.
On September 27, 2021, the
People’s Bank of China, or the PBOC, issued the Administrative Measures for Credit Reporting Business, or the Credit Reporting Measures,
which took effect on January 1, 2022. The Credit Reporting Measures define “credit information” to include “basic information,
borrowing and lending information and other relevant information legally collected in the offering of services of finance or other activities
for purposes of identifying and judging the credit standing of businesses and individuals, as well as result of analysis and evaluation
based on the aforesaid information” and define “credit reporting business” as the collection, collation, keeping and
processing of credit information and provision of such information to information users. The Credit Reporting Measures applies to entities
that carry out credit reporting business and “activities relating to credit reporting business” in China. Separately, entities
providing “services of credit reporting function” in the name of “credit information service, credit service, credit
evaluation, credit rating, credit repair, among others” are also subject to the Credit Reporting Measures. There are significant
uncertainties that exist with respect to the interpretation and implementation of the Credit Reporting Measures. For example, the Credit
Reporting Measures do not directly deny the legitimacy of existing data analytics or precision marketing service providers in the financial
services industry, nor does it provide a clear guidance or implementation rules on how and when these providers, if deemed to be conducting
credit reporting business, could apply for required licenses or otherwise comply with the Credit Reporting Measures.
14
In addition, it is reported
that in April 2021, the PBOC, the China Banking and Insurance Regulatory Commission, or the CBIRC, the China Securities Regulatory Commission,
or the CSRC, and the State Administration of Foreign Exchange, or the SAFE, invited a number of internet platform operators for a meeting
to discuss the operations and compliance of their internet finance business, including but not limited to conducting credit reporting
business through authorized credit reporting agency.
Our company and the VIEs
organize, store and analyze information provided by users after obtaining their consent. This information contains certain personal information
of users, a portion of which, upon their consent, will be provided to our institutional funding partners for their further review and
assessment. Due to the lack of further interpretations of the current regulations governing the personal credit reporting business, it
is uncertain whether our company or the VIEs would be deemed to engage in the personal credit reporting business. As of the date of this
annual report, our company and the VIEs have not obtained credit reporting business license. We cannot assure you that our company or
the VIEs will not be required in the future to obtain approval or a license for the personal credit reporting business and comply with
the relevant regulations, which may be costly, or become subject to penalties associated with regulations governing the personal credit
reporting business.
According to the Regulations
on the Supervision and Administration of Financing Guarantee Companies, which was promulgated by State Council and came into effect on
October 1, 2017, without the approval by the competent government department, no entity may operate the financing guarantee business in
which such entity acts as a guarantor providing guarantee to the guaranteed parties as to their loans, bonds or other types of debt financing.
If any entity engages in the financing guarantee business without such approval, the entity may be subject to penalties, including ban
or suspension of business, confiscation of revenues related to financing guarantee business, fines and criminal liabilities. Circular
on Measures for the Regulation of Risks in the Information Technology Outsourcing by Banking and Insurance Institutions, or Circular 141,
further sets out that a banking financial institution shall not accept any credit enhancement service, ultimate commitment or any other
disguised credit enhancement service provided by any third-party institution without guarantee qualifications. We cooperated with a bank
to furnish borrower referral and facilitation services to the bank from August 2017 to December 2017. We provided guarantee deposits to
the bank to protect it from potential losses due to loan delinquency and undertook to timely replenish such deposits from time to time.
We also undertook to repay the bank on behalf of defaulting borrowers if any repayment was 80 days overdue and upon such full repayment
to the bank, we would obtain the creditor’s rights in respect of the relevant default amount. Since the promulgation of Circular
141, we suspended the cooperation with the bank. Due to the lack of further interpretations and the evolving regulatory environments,
it is uncertain whether our subsidiaries or the VIEs would be deemed by the PRC regulatory authorities as operating financing guarantee
business, which is prohibited by the Interim Measures. We cannot assure you that our company or the VIEs will not be subject to sanctions
imposed by relative PRC regulatory agencies, or be required in the future to obtain approval or a license for financing guarantee business
to continue our cooperation with banks.
In July 2020, the CBIRC (which
was replaced by the National Financial Regulatory Administration, or the NFRA on May 18, 2023) published the Interim Measures for the
Administration of Internet Loans of Commercial Banks and amended in June 2021, or the Commercial Banks Measures, which stipulate several
rules on internet loans provided by commercial banks. In February 2021, the CBIRC issued the Notice on Further Regulating the Internet
Loan Business of Commercial Banks, or the Internet Loan Notice, which makes further provisions on the internet loan business by commercial
banks. In July 2022, the CBIRC issued the Notice on Strengthening the Management of the Internet Lending Business of Commercial Banks
to Improve the Quality and Efficiency of Financial Services, or the Commercial Banks Notice, aiming to further specify rules on internet
loans provided by commercial banks. We cannot assure you that our company and the VIEs’ cooperation with commercial banks will remain
in compliance with the Commercial Banks Measures, the Internet Loan Notice and the Commercial Banks Notice.
The laws, rules and regulations
continue to evolve in this emerging industry, and the interpretation of these laws, rules and regulations by the local authorities may
be different from our understanding. We cannot be certain that day-to-day practices of our company or the VIEs would not be deemed to
violate any existing or future laws, rules and regulations. For instance, since the online insurance industry in China is evolving rapidly,
the NFRA has been enhancing its supervision over this industry in recent years, and new laws, regulations and regulatory requirements
have been promulgated and implemented from time to time. Our company and the VIEs face challenges brought by these new laws, regulations
and regulatory requirements, as well as significant uncertainties in the interpretation and application thereof. Moreover, there exist
uncertainties as to how the regulatory environment might change.
15
The regulatory framework
in China’s insurance industry is evolving and undergoing significant changes. Further development of regulations applicable to us
may result in additional restrictions on our business operations. Our company and the VIEs may have to adjust our business practice and
operations to comply with the continuously changing regulatory requirements. For example, the Implementing Measures for Administrative
Licensing and Record-filing for Insurance Intermediaries, promulgated by the CBIRC on October 28, 2021, and effective on February 1, 2022,
which apply to both online and offline insurance intermediaries, require the CBIRC and its local offices to implement administrative license
and recordation of insurance intermediary business and senior executives. On December 7, 2020, the CBIRC published the Regulatory Measures
for Online Insurance Business, or the Regulatory Measures, which became effective on February 1, 2021, significantly changed the regulatory
regime for online insurance business in various aspects. For instance, the Regulatory Measures require insurance institutions (including
insurance carriers and insurance intermediary service providers, such as insurance brokerage companies and insurance agency companies)
to (i) establish internal policies with regard to personnel management, customer information protection and internal control, (ii) enhance
compliance management of promotional materials and marketing activities, (iii) meet certain detailed requirements for sales activities,
and (iv) protect the information right of consumers by making appropriate disclosure. In particular, the Regulatory Measures require online
insurance transactions being conducted through online interfaces operated by insurance institutions only, and prohibit insurance institutions
to set default option for customer and impose any restriction on the cancellation of automatic payment to affect a customer’s choice
during the sales process of insurance products. The Regulatory Measures prohibit entities which are not insurance institutions from conducting
insurance businesses, such as consultation of insurance products, comparison of insurance products, trial calculation of insurance premiums,
quotation and comparison of quotations, drafting insurance plans for policyholders, processing insurance application formalities and premium
collection. The Regulatory Measures also do not explicitly allow the entities which are not insurance institutions to conduct marketing
activities for online insurance products. In addition, the Regulatory Measures set a higher standard for insurance institutions and online
industry participants to improve IT infrastructure and cybersecurity protection. In particular, insurance institutions engaged in online
insurance products sales business shall have IT systems that are certified as Safety Level III Computer Information Systems or above level.
Insurance premium rates and
commissions are highly regulated in PRC. Pursuant to the PRC Insurance Law, insurance companies must formulate insurance clauses and insurance
premium rates fairly and reasonably. Based on the Administrative Measures for the Insurance Clauses and Premium Rates of Property Insurance
Companies, effective from October 1, 2021, the Circular on Issues Concerning the Implementation of the Administrative Measures for the
Insurance terms and Premium Rates of Property Insurance Companies, effective from May 1, 2010, and the Circular on Issues concerning Further
Strengthening and Improving the Regulation of Products of Property Insurances Companies, effective from March 1, 2020, insurance clauses
and insurance premium rates for certain property insurance products must be reported to the CBIRC for approval. If insurance companies
modify approved insurance clauses or insurance premium rates, they must submit the modifications for approval. In addition, insurance
companies should report insurance clauses and insurance premium rates for insurance products outside the scope set out above to the CBIRC
or, as the case may be, the local CBIRC bureau for filing within ten business days after the implementation. In case of revisions or amendments
to insurance liabilities in insurance clauses or insurance premium rates that have been filed, such revisions or amendments shall be filed
again.
Pursuant to the Circular
of the General Office of the China Banking and Insurance Regulatory Commission on Matters relating to Further Tightened Regulation of
Vehicle Insurance, promulgated and implemented by the CBIRC on January 14, 2019, property and casualty insurance companies must establish
terms and premium rates for automobile insurance policies in strict compliance with PRC laws and regulations. Insurance companies are
strictly prohibited from conducting the following activities: (i) amending any term or premium rate directly or in disguise without approval
of the CBIRC; (ii) providing premium rates beyond the approved range by offering or promising to offer payment of inappropriate interest
not stipulated in the insurance policies to insurance policyholders or owners of insured vehicles in disguise; (iii) paying commission
fee rates beyond the approved range by fabricating other expenses in disguise; and (iv) failing to apply the approved premium rate as
required for insurance policies for new cars. On January 17, 2024, the General Office of NFRA issued Notice on Matters Related to Regulating
the Bank Agency Channeling Business for Personal Insurance Companies, which provides that upon making filing for personal insurance products
sold through bank agency, the actuarial report shall clearly list the surcharge rate (including commissions paid to the bank agency) and
surcharge rate structure for each payment period. The commissions paid to bank agency channels shall not exceed the listed commission
rate ceiling.
16
In September 2020, the CBIRC
issued the Guiding Opinions on Implementing Comprehensive Reform of Auto Insurance. These opinions provided guidance for insurance carriers
to (i) optimize actuarial and pricing practices, (ii) expand protection coverages, and (iii) enhance customer service quality for auto
insurance. For commercial auto insurance products, insurance carriers must lower the cap on expense ratios from 35% to 25% of insurance
premiums. Insurance carriers are also encouraged to optimize their cost structures to maintain higher loss ratios, from 65% to 75% of
commercial auto insurance premiums. On December 30, 2022, the CBIRC issued the Circular of the China Banking and Insurance Regulatory
Commission on Relevant Matters Including Further Expanding the Floating Range of Independent Pricing Coefficients for Commercial Auto
Insurance, increasing the pricing autonomy of property insurance companies and the floating range of independent pricing coefficients
for commercial auto insurance shall be expanded to 0.5-1.5. As a result, insurance carriers may receive lower premiums from selling commercial
auto insurance, which adversely affected the service fees that we received from facilitating the sale of commercial auto insurance through
our platform.
In October 2021, the CBIRC
published the Circular on Further Regulating Certain Issues on Internet Life Insurance Business, or the Internet Life Insurance Circular.
The Internet Life Insurance Circular requires that each installment of premium of certain insurance products less than a one-year term
shall be equal. The Internet Life Insurance Circular also provides the upper limit for the predetermined fee rate and average supplemental
fee rate for certain insurance products. On August 8, 2024, the NFRA issued the Notice on Improving the Pricing Mechanism for Personal
Insurance Products, setting upper limits on interest rate of certain personal insurance product. These regulations may affect the amount
of insurance brokerage commission we charge on the relevant insurance products and adversely affect our financial condition. The attention
of our management team could be diverted to these efforts to cope with an evolving regulatory or competitive environment. Meanwhile, staying
compliant with the restriction may result in limitation to our business scope, limitation to our product and service offerings, and reduction
in our attraction to consumers.
On July 17, 2024, the NFRA
issued the Notice on Matters Concerning Strengthening and Improving the Supervision of Internet Property Insurance Business, providing
that insurance intermediaries shall meet the certain conditions when carrying out intermediary business related to Internet property insurance
business, including (i) the insurance intermediaries should be national institutions and have more than three years of experience in property
insurance business; and (ii) the insurance intermediaries should maintain proper information systems and business process management scheme,
and the institution meets the relevant requirements for retrospective management of internet property insurance business. The Notice of
the National Administration of Financial Regulation on Matters Concerning Strengthening Regulation of Non-Auto Insurance Business, effective
on November 1, 2025, requires that for non-auto property insurance, the property insurance carriers shall strictly implement the insurance
policy terms and insurance rates as filed, and paying commissions to insurance intermediaries through disguised forms such as promotional
fees, technical support fees, or prevention fees is strictly prohibited.
Our financing guarantee and
insurance brokerage business are subject to the supervision of financial authorities. On December 13, 2024, Hexiang Insurance Brokers
received a warning and a fine of RMB150,000 by Hubei Branch of NFRA for conducting business activities beyond its authorized operating
area and for seeking improper benefits for other institutions or individuals. We may be subject to other regulatory warnings, correction
orders, condemnation and fines and may be required to further modify our business if any of our financing guarantee or insurance brokerage
companies is deemed to have violated national, provincial or local laws and regulations or regulatory orders and guidance.
Furthermore, the PRC government has been continuously issuing new laws and regulations to govern loan facilitation businesses and related
internet financial activities. For example, on April 21, 2026, eight ministries and commissions including the PBOC issued the Measures
for Administration of Online Marketing of Financial Products (the “Online Marketing Measures”), which will take effect on
September 30, 2026. The Online Marketing Measures govern the online marketing of financial products by financial institutions and by third-party
internet platforms acting on their commission. Among the provisions most relevant to loan facilitation companies, the Online Marketing
Measures require that third-party internet platforms engage in online marketing of financial products only within the scope of a lawful
commission from a licensed financial institution, and prohibit platforms from intervening in core sales processes such as contract execution,
borrower suitability assessments, and loan limit evaluations. Third-party platforms providing referral channels must redirect users exclusively
to the financial institution’s own proprietary platform. All marketing content must be reviewed and approved by the financial institution
in advance. Online marketing content that is false, misleading, or based on unverified data is strictly prohibited. Platforms are prohibited
from use of algorithm-based recommendation systems to induce excessive consumption, and require that opt-out mechanisms be provided to
consumers. Platforms are also prohibited from using finance-related terminology in their names or applications without holding the corresponding
financial licenses. These requirements, upon taking effect, may require us to adjust our product offerings, revise our marketing practices,
or renegotiate cooperation agreements with our financial institution partners. In addition, the increasingly stringent regulatory environment
may raise our compliance costs and limit our revenue from certain fee streams.
17
The Administrative Measures
for Information Technologies of Securities Fund Operators, published by the CSRC in December 2018 and amended in January 2021, provide
that agencies providing information technology services for securities and funds business activities shall file record with the CSRC.
The Provisions on the Implementation of the Measures for the Supervision and Administration of Publicly-offered Securities Investment
Fund Distributors, or the Implementation Measures, issued by the CSRC on August 28, 2020, and effective on October 1, 2020, provide that
where a fund manager or a fund distributor rents cyberspace premises (such as websites or applications) of a third-party network platform
to deploy relevant webpages and feature modules and provide fund distribution services for investors, such third party shall, as a fund
service agency engaging in information technology system services, file record with the CSRC.
Yiren Select is our comprehensive
life service platform with a variety of consumption and lifestyle products and services. Yiren Select does not provide information technology
services for securities or fund business activities, so we believe that Yiren Select will not be required to file record with the CSRC.
As of the date of this annual report, we have not received any notification or punishment for failing to file record with the CSRC as
a fund service agency engaging in information technology system services. However, we cannot assure you that the PRC governmental authorities
would take the same view as us. Furthermore, Yiren Select’s operation is subject to various PRC regulations relating to internet
advertising. We cannot assure you that Yiren Select will remain in compliance with such regulations.
The PRC government has been
continuously issuing new laws and regulations to govern individual lending businesses. On April 1, 2025, the NFRA issued the Notice on
Strengthening the Management of Commercial Banks’ Internet Loan Facilitating Business and Enhancing the Quality and Efficiency of
Financial Services, which took effect on October 1, 2025. The notice imposes stricter regulatory requirements on loan facilitation companies’
cooperation with commercial banks in internet loan facilitation business. Specifically, loan facilitation companies must meet the commercial
banks’ enhanced access standards and undergo thorough due diligence. They are also required to adhere to transparent fee structures
and are prohibited from charging borrowers additional fees or inappropriately intervening in the banks’ loan approval processes.
On the other hand, the notice urges commercial banks to publicly disclose all platform operators and credit enhancement service providers
the banks cooperate with. Commercial banks are required to add enhance-credit service fees into the comprehensive financing cost on borrowers,
which shall be compliant with legal upper limit. The notice further requires that if commercial banks pay cooperation fees based on the
actual interest percentage, the payment schedule made to platform operators and credit enhancement service providers should match with
the schedule of loan principal recovery. On March 3, 2026, the NFRA promulgated the Provisions on Explicit Disclosure of the Comprehensive
Financing Cost of Personal Loans, which will take effect on August 1, 2026. The Provisions require lenders and loan facilitation participants
to clearly disclose to borrowers the all-in cost of personal loans, and mandate that such disclosure be made in a prominent and readily
understandable manner prior to the conclusion of the loan agreement. These regulatory developments could have certain impacts on our cooperation
with commercial banks in internet loan facilitating business and on our microlending operations
If our business
arrangements with certain institutional investors were deemed to violate PRC laws and regulations, our business and results of operations
could be materially and adversely affected.
As part of our strategy to
expand our institutional investor base, we may from time to time explore alternative funding initiatives, including through standardized
capital instruments, such as the issuance of asset-backed securities.
We have established business
relationships with trusts, asset backed special plans and funds (collectively referred to as the “assets backed financing entities,”
or “ABFE”), which were administered by trust companies and asset management companies. The ABFE were set up to invest solely
in the loans facilitated on our platform and provide returns to the beneficiaries of the ABFE through interest payments made by the borrowers.
Under the arrangements, we normally invest in all of subordinate tranches and portion of senior tranches. We were designated as the service
provider for the ABFE. Through the transaction fees charged, security funds deposited, and direct investment, we have the right to receive
benefits or bear losses from the ABFE. We are considered as the primary beneficiary of the ABFE and thus consolidated such ABFE’
assets, liabilities, results of operations and cash flows.
18
Although operating of our
online marketplace is not part of the fund-raising process by the ABFE, we cannot assure you that our provision of services to the ABFE
and investments through the ABFE will not be viewed by PRC regulators as violating any laws or regulations regarding capital pools. Also,
we transferred cash to certain trusts in amounts equal to certain percentages of the entire assets put into the trusts, as security funds
to protect the ABFE from potential losses from defaults of loans in which the ABFE have invested. Under limited circumstances, the remainder
of such funds may be returned to us, and we cannot assure you that we will not be viewed by PRC regulators as bearing some credit risk
or providing credit enhancement services under such arrangement. In addition, we cannot assure you that the purchase of beneficial rights
of the ABFE through the Shenzhen Stock Exchange, or the purchase of beneficial rights of ABFE in private placement would not be deemed
as investments in loans facilitated through the online marketplace we operate by using our own capital. If any of such business arrangements
were deemed to violate PRC laws and regulations, our business and results of operations could be materially and adversely affected. In
addition, as the laws, rules and regulations applicable to asset-backed securities are still developing, it remains uncertain as to the
application and interpretation of such laws, rules and regulations, particularly as they relate to the online lending information intermediary
service industry.
If we are unable
to maintain low default rates for loans facilitated by our platform, our business and results of operations may be materially and adversely
affected.
The ability of our company
and the VIEs to attract borrowers and institutional funding partners to, and build trust in, our marketplace is significantly dependent
on our ability to effectively evaluate a borrower’s credit profile and maintain low default rates. To conduct this evaluation, we
have employed a series of procedures and developed a proprietary credit assessment and decisioning model. Our credit scoring model aggregates
and analyzes the data submitted by a borrower, as well as the data we collect from a number of internal and external sources, and then
generates a score for the prospective borrower. The score will be further used to approve and classify the borrower into different segments
in our current risk grid. If our credit scoring model contains programming or other errors, is ineffective, or the data provided by borrowers
or third parties are incorrect or stale, our loan pricing and approval process could be negatively affected, resulting in misclassified
or mispriced loans or incorrect approvals or denials of loans. As a result, our company and the VIEs may not be able to effectively and
accurately assess the credit profiles of borrowers, segment borrowers into the appropriate grade in the risk grid, or maintain low default
rates of loans facilitated by our platform. In addition, the foregoing will also have an impact on collectability of service fees, resulting
in higher allowances for contract assets.
Once a loan application is
approved, we do not further monitor certain aspects of the borrower’s credit profile, such as changes in the borrower’s credit
report and the borrower’s purchasing pattern with online merchants. If the borrower’s financial condition deteriorates, we
may not be able to take measures to prevent default on the part of the borrower and thereby maintain low default rates for loans facilitated
by our platform. Prior to the completion of our business realignment with CreditEase, the borrowers that our company and the VIEs served
were primarily prime borrowers, who held credit cards with stable credit performance and sufficient repayment capabilities. If widespread
defaults were to occur, institutional funding partners may incur losses and cease collaboration with us, the guarantee companies that
cooperate with us may raise their guarantee service fees, which may cause us to lower fee rates to stay competitive in acquiring borrowers,
and our business and results of operations may be materially and adversely affected.
If our loan products
do not achieve sufficient market acceptance, our financial results and competitive position could be harmed.
Our company and the VIEs
incur expenses and consume resources upfront to develop, acquire and market new loan products. The expected M3+ Net Charge-off Rate and
actual observed results for each of these customer groups divide potential borrowers into distinctively different credit segments. For
a more detailed description of the risk grades we currently offer, please see “Item 4. Information on the Company—B. Business
Overview—Risk Management—Proprietary Credit Scoring Model and Loan Qualification System.” New loan products must achieve
high levels of market acceptance in order for us to recoup our investment in developing, acquiring and bringing them to market.
19
Our existing or new loan
products and changes to our platform could fail to attain sufficient market acceptance for many reasons, including, but not limited to:
● our failure to predict market demand accurately and supply loan products that meet this demand in a timely fashion;
● borrowers and institutional funding partners using our platform may not like, find useful or agree with any changes;
● our failure to properly price new loan products;
● defects, errors or failures on our platform;
● negative publicity about our loan products or our platform’s performance or effectiveness;
● views taken by regulatory authorities that the new products or platform changes do not comply with PRC laws, rules or regulations applicable to us; and
● the introduction or anticipated introduction of competing products by our competitors.
If our new loan products
do not achieve adequate acceptance in the market, our competitive position, results of operations and financial condition could be harmed.
Our business depends
on our ability to collect payment on the transactions we facilitate.
Our company and the VIEs
assist our institutional funding partners in the loan collection services upon their request. If requested, we utilize an automated process
for collecting scheduled loan payments from our borrowers. Upon loan origination, we establish a payment schedule with payment occurring
on a set business day each month. Borrowers then make scheduled loan repayments via a third-party payment platform or a payment platform
delegated by the institutional funding partners. As a day-to-day service to borrowers, we provide payment reminder services such as sending
reminder text messages or phone calls on the day a repayment is due. Once a repayment is past due, we send additional reminder text messages
and initiate the collection process once a loan is fifteen days delinquent. To facilitate repayment, the collection process is divided
into distinct stages based on the severity of delinquency, which dictates the level of collection steps taken. For example, reminder text
messages and emails are sent to a delinquent borrower as soon as the collection process commences, and if the payment is still outstanding,
a phone call will be made to further the collection process. Although most stages of the collection process are outsourced to our affiliate,
we handle all decisions to restructure or defer delinquent loans that are above a certain threshold, while the collection teams of our
affiliate have the discretion to make decisions for the loans that are below such threshold.
Despite such collection efforts,
we cannot assure you that we will be able to collect the relevant payments as expected. Failure to collect payments and maintain low default
rates for loans facilitated by our platform will have an adverse effect on our business operations, financial position and results of
operations. Furthermore, any misconduct in our collection practice (including that of CreditEase carried out on our behalf) that is considered
not to be in compliance with the relevant laws, rules and regulations may harm our reputation and business, which could further reduce
our ability to collect payments from borrowers, lead to a decrease in the willingness of prospective borrowers to apply for loans on our
platform, or fines and penalties imposed by the relevant regulatory authorities, any of which may have a material adverse effect on our
results of operations. In addition, if any laws, rules or regulations are adopted by the regulatory authorities in the future imposing
additional restrictions on debt collection practice, we may need to modify our collection efforts accordingly.
We face risks associated
with the use of AI technologies.
We utilize AI technologies
to automate and streamline various business operations, including marketing, customer services, risk management, and loan collections.
We have also developed the AI-Generated Content (AIGC) platform to quickly create images and videos for marketing purposes. However, given
the relatively short time since AI has become commercially viable and the rapid evolution of this technology, we may experience difficulties
in its application. Furthermore, the AI industry faces new and extensive regulations, and the use of AI technologies is subject to future
regulatory scrutiny and legal challenges. The application of AI technologies in our business operations, especially the use of AI-generated
design content, may be subject to additional intellectual property, cybersecurity, operational, and technological risks. For example,
it may raise issues related to copyright infringement if the AI algorithms are partially trained on copyrighted content, and there is
no guarantee that our use of AI-generated content would not infringe on the intellectual property rights of third parties. If we are unable
to secure the permissions or licenses for using AI tools as required, whether because we cannot identify the rights holder or for any
other reason, we might infringe on others’ rights which could lead to monetary claims, fines, or penalties.
20
In addition, the regulatory
and legal framework on AI in mainland China is evolving rapidly. In recent years, the PRC government authorities have released a series
of laws and regulations related to artificial intelligence, or AI, including the Administration Provisions on Algorithmic Recommendation
of Internet Information Services, the Administrative Provisions on Deep Synthesis of Internet Information Services and the Interim Measures
on the Management of Generative AI Services. These regulations may apply to certain AI technologies that we deploy, depending on their
specific use cases. For example, pursuant to the Administration Provisions on Algorithmic Recommendation of Internet Information Services,
internet-based information service providers with public opinion attributes or social mobilization capabilities shall fill in certain
information through the internet-based information service algorithm record-filing system, perform the record-filing procedures and conduct
security assessment in accordance with relevant provisions. Authorities may have different interpretation on “internet-based information
service providers with public opinion attributes or social mobilization capabilities.” As of the date of this annual report, we
have completed filing for utilizing algorithms recommendation technology in our services. As the regulatory framework of AI is still at
its nascent stage in China, the interpretation and implementation of the existing measures are evolving rapidly and the PRC regulatory
agencies, including the Cyberspace Administration of China, may adopt new laws, regulations, rules, implementation measures and interpretation
in the field of vertical AI. Therefore, we may need to comply with more compliance requirements in the field of generative AI, which could
increase our compliance costs.
Furthermore, as we expand
the use of AI into our product or service offerings, uncertainty with respect to new and emerging AI technologies, may require us to incur
additional investment in the development of appropriate protections and safeguards for handling the use of data with AI technologies,
which may be costly and could impact our expenses. AI technologies, may create outcome or content that is factually inaccurate or flawed.
Such content may adversely affect our business operation, expose us to brand or reputational harm and/or legal liability. It is not possible
to predict all of the risks related to the use of AI, and developments in regulatory frameworks governing the use of AI and in related
stakeholder expectations may adversely affect our ability to develop and use AI or subject us to liability.
If we are not able
to respond to changes in customer preferences for our products and services and provide a satisfactory customer experience on our platforms,
or our existing and new products and services do not maintain or achieve sufficient market acceptance, we will not be able to maintain
and expand our customer base and increase customer activities, and our financial results and competitive position will be harmed.
We believe that our customer
base is the cornerstone of our business. Our ability to maintain and expand our customer base depends on a number of factors, including
our ability to provide access to suitable loan products for our customers, and our ability to provide relevant and timely products and
services to meet changing customer needs. If our company and the VIEs are unable to respond to changes in user preference and deliver
satisfactory and distinguishable user experience, our users may switch to competing platforms or obtain the relevant products and services
directly from their providers. As a result, customer access to and customer activity on our platform will decline, our products and services
will be less attractive to our customers, and our business, financial performance and prospects will be materially and adversely affected.
Our company and the VIEs
have devoted significant resources to, and will continue to emphasize on, upgrading and marketing our existing loan products available
through our platforms and enhancing their market awareness. We also incur expenses and expend resources upfront to develop, acquire and
market new loan products that incorporate additional features, improve functionality or otherwise make our products more desirable to
borrowers. New loan products must achieve high levels of market acceptance in order for us to recoup our investment in developing, acquiring
and bringing them to market.
21
Our existing and new loan
products available through our platform could fail to attain sufficient market acceptance for many reasons, including:
● borrowers may not find terms of our loan products, such as borrowing costs and credit limit, competitive or appealing;
● institutional funding partners are not willing to deploy their funds in a timely or efficient manner;
● we may fail to predict market demand accurately and provide loan products that meet this demand in a timely fashion;
● users may not like, find useful or agree with, any changes;
● there may be defects, errors or failures on our platform;
● there may be negative publicity about our loan products available through our platform or our platform’s performance or effectiveness;
● regulatory authorities may take the view that the existing and new loan products or changes to our platform do not comply with PRC laws, regulations or rules applicable to us; and
● there may be competing products and services introduced or anticipated to be introduced by our competitors.
If our existing and new loan
products available through our platform do not achieve adequate acceptance in the market, our competitive position, results of operations
and financial condition could be harmed.
We cooperate with
business partners to provide services to borrowers and clients on our platforms. If we are unable to maintain relationships with existing
business partners and develop new relationships with potential business partners on terms acceptable to us, our reputation, business and
results of operations may be materially and adversely affected.
Our company and the VIEs
have established strategic partnerships with multiple financial institutions in the ordinary course of our business, including commercial
banks, internet banks, trusts, microloan companies, and consumer finance companies. For example, we cooperate with guarantee companies
to provide credit enhancement for loans facilitated through our marketplace. If these guarantee companies fail to perform any of their
contractual obligations, our institutional funding partners may cease collaboration with us, which could materially harm our reputation
and growth of our marketplace. If any of these guarantee companies is unable or unwilling to continue operating in the line of business
that is the subject of their cooperation with us for regulatory, business or other reasons, we may not be able to obtain similar relationships
on terms acceptable to us in a timely manner, or at all. If any of the foregoing were to occur, our reputation, business and results of
operations would be materially and adversely affected.
If we are unable
to compete effectively, our business and results of operations could be harmed.
The industries our company
and the VIEs are operating in are competitive and evolving. We compete with financial products and companies that attract borrowers and
clients, partners, or all of these. For our credit solution business, our company and the VIEs compete with other consumer finance marketplaces
and loan facilitation platforms that were intensely competitive before the year 2018. However, as the domestic regulations on the industry
evolve and entry barriers continue to increase in recent years, fewer national-level players like us remain in the market while smaller
platforms cease their operations, leaving more market share opportunities for us. Meanwhile, as we expand our credit solution businesses
overseas, such as in the Philippines, we are facing competition from regional peers. For our insurance brokerage business, our company
and the VIEs compete with other insurance brokerage companies in China. Given the overall low penetration rate of insurance services in
China compared with the US and the Europe, we believe that our strategic deployment in insurance business has navigated us towards a large
market with high growth potential. In light of a tightening regulatory landscape domestically, our ability to customize and innovate products,
coupled with robust channel partnerships, will play a vital role in maintaining our competitiveness. Our
primary goal in this segment is to enhance user experience and engagement, thereby increasing the long-term value of our existing customers
through enriched products and upgraded services. We are currently scaling back product offerings in our consumption and lifestyle business
and conducting a strategic review on how to better serve customers following the upgrade of our borrower segment and optimization of borrower
profiles.
22
Our competitors operate with
different business models, have different cost structures or participate selectively in different market segments. They may ultimately
prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and 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. Our competitors may also have longer operating histories, more extensive
borrower or client bases, greater brand recognition and brand loyalty and broader partner relationships than us. Additionally, a current
or potential competitor may acquire one or more of our existing competitors or form a strategic alliance with one or more of our competitors.
Our competitors may be better at developing new products, offering more attractive investment returns or lower fees, responding faster
to new technologies and undertaking more extensive and effective marketing campaigns. If we are unable to compete with such companies
and meet the need for innovation in our industry, the demand for our marketplace could stagnate or substantially decline, we could experience
reduced revenues or our marketplace could fail to achieve or maintain more widespread market acceptance, any of which could harm our business
and results of operations.
If we fail to promote
and maintain our brand in an effective and cost-efficient way, our business and results of operations may be harmed.
We believe that developing
and maintaining awareness of our brand effectively is critical to attracting new borrowers and clients and retaining existing borrowers
and clients on our marketplace. Successful promotion of our brand and our ability to attract qualified borrowers and sufficient clients
depend largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our marketplace. Our efforts
to build our brand have caused us to incur significant expenses, and it is likely that our future marketing efforts will require us to
incur significant additional expenses. These efforts may not result in increased revenues in the immediate future, or at all and, even
if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brand
while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impair
our ability to grow our business.
Credit and other
information that we receive from third parties about a borrower may be inaccurate, discontinued, or may not accurately reflect the borrower’s
creditworthiness, which may compromise the accuracy of our credit assessment.
For the purpose of credit
assessment, after obtaining borrower’s consent, our company and the VIEs obtain the borrowers’ credit information from third
parties, such as financial institutions and e-commerce providers, and assess applicants’ credit and assign credit scores to borrowers
based on such credit information. A credit score assigned to a borrower may not reflect that particular borrower’s actual creditworthiness
because the credit score may be based on outdated, incomplete or inaccurate consumer reporting data. We currently do not have a comprehensive
way to determine whether borrowers have obtained loans through other consumer finance marketplaces, creating the risk whereby a borrower
may borrow money through our marketplace in order to pay off loans on other consumer finance marketplaces. Additionally, there is a risk
that, following our obtaining a borrower’s credit information, the borrower may have:
● become delinquent in the payment of an outstanding obligation;
● defaulted on a pre-existing debt obligation;
● taken on additional debt; or
● sustained other adverse financial events.
Such inaccurate or incomplete
borrower credit information, and the potential discontinuation of borrower credit information from third parties could compromise the
accuracy of our credit assessment, require adjustments to our credit assessment model and adversely affect the effectiveness of our control
over our default rates, which could in turn harm our reputation and materially and adversely affect our business, financial condition
and results of operations.
23
Any harm to our
brand or reputation or any damage to the reputation of the online consumer finance marketplace industry may materially and adversely affect
our business and results of operations.
Enhancing the recognition
and reputation of our brand is critical to our business and competitiveness. Factors that are vital to this objective include, but are
not limited to, our ability to:
● maintain the quality and reliability of our platform;
● provide borrowers and clients with a superior experience in our marketplace;
● enhance and improve our credit assessment and decisioning model;
● effectively manage and resolve borrower and client complaints; and
● effectively protect personal information and privacy of borrowers and clients.
In addition, certain factors
that may adversely affect our reputation are beyond our control. Negative publicity about our partners, outsourced service providers or
other counterparties, such as negative publicity about their debt collection practices and any failure by them to adequately protect the
information of borrowers and clients, to comply with applicable laws and regulations or to otherwise meet required quality and service
standards could harm our reputation. Furthermore, any negative development in the online consumer finance marketplace industry, such as
bankruptcies or failures of consumer finance marketplaces as part of the industry, and especially a large number of such bankruptcies
or failures, or negative perception of the industry as a whole, such as that arises from any failure of other consumer finance marketplaces
to detect or prevent money laundering or other illegal activities, even if factually incorrect or based on isolated incidents, could compromise
our image, undermine the trust and credibility we have established and impose a negative impact on our ability to attract new borrowers
and clients. Negative developments in the online consumer finance marketplace industry, such as widespread borrower defaults, fraudulent
behavior and/or the closure of other online consumer finance marketplaces, may also lead to tightened regulatory scrutiny of the sector
and limit the scope of permissible business activities that may be conducted by online consumer finance marketplaces like us. If any of
the foregoing takes place, our business and results of operations could be materially and adversely affected.
We may not be able
to achieve profitability in the future.
We had a net income of RMB2,080.2
million, RMB1,582.3 million and RMB54.5 million (US$7.8 million) in 2023, 2024 and 2025, respectively. We also had accumulated surplus
of RMB2,985.4 million, RMB4,435.0 million and RMB4,205.6 million (US$601.4 million) as of December 31, 2023, 2024 and 2025. We cannot
assure you that we will be able to continue to generate net income or will have positive retained earnings in the future. Our operating
expenses may increase in the foreseeable future as we seek to continue to grow our business, attract borrowers, funding partners and further
enhance and develop our loan products and platform. These efforts may prove more expensive than we currently anticipate, and we may not
succeed in increasing our revenue sufficiently to offset these higher expenses. There are other factors that could negatively affect our
financial condition. For example, the default rates of the loans facilitated through our platform may be higher than expected, which may
lead to lower than expected net revenue. Furthermore, we adopted share incentive plans in September 2015, July 2017, June 2020 and June
2025, and we may grant equity-based awards to eligible participants from time to time under the plan, which will result in share-based
compensation expenses to us. As a result of the foregoing and other factors, our net revenue growth may slow, our net income margins may
decline or we may incur additional net losses in the future and may not be able to maintain profitability on a quarterly or annual basis.
24
Our quarterly results
may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of
operations, including the levels of our net revenue, expenses, net loss or net income and other key metrics, may vary significantly in
the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results
may not be meaningful, especially given our limited operating history. Accordingly, the results for any one quarter are not necessarily
an indication of future performance. Fluctuations in quarterly results may adversely affect the price of our ADSs. Factors that may cause
fluctuations in our quarterly financial results include:
● our ability to attract new borrowers and clients and maintain relationships with existing borrowers and clients;
● channels through which borrowers and clients are sourced, including the relative mix of online and offline channels;
● changes in our product mix and introduction of new loan products;
● the amount and timing of operating expenses related to acquiring borrowers and clients, and the maintenance and expansion of our business, operations and infrastructure;
● promulgation of new rules and regulations applicable to, or heightened regulatory scrutiny of, the online consumer finance industry;
● our decision to manage loan volume growth during the period;
● network outages or security breaches;
● general economic, industry and market conditions;
● our emphasis on borrower and client experience instead of near-term growth; and
● the timing of expenses related to the development or acquisition of technologies or businesses.
In addition, our company
and the VIEs experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal consumption
patterns, as our individual borrowers typically use their borrowing proceeds to finance their personal consumption needs. For example,
we generally experience a lower transaction volume on our online consumer finance marketplace during national holidays in China, particularly
during the Chinese New Year holiday season in the first quarter of each year. Our results of operations could be affected by such seasonality
in the future.
Failure to manage
our liquidity and cash flows may materially and adversely affect our financial condition and results of operations.
Although we had a positive
operating cash flow of RMB2,171.0 million, RMB1,424.1 million and RMB703.6 million (US$100.6 million) in 2023, 2024 and 2025, respectively,
we cannot assure you that we will be able to have a positive cash flow in the future. Going forward, our ability to collect fees from
customers, product providers and insurer partners, will continue to affect our liquidity and cash flow condition. Inability to collect
payments from customers in a timely and sufficient manner may adversely affect our liquidity, financial condition and results of operations.
We may acquire digital
assets that may be subject to volatile market prices and unique risks of loss.
To further diversify
and maximize returns on our cash that is not required to maintain adequate operating liquidity, we have invested and may in the
future continue to invest a portion of such cash in certain digital assets. Consistent with FASB ASU 2023-08 (codified in ASC
350-60), such investments are classified as in-scope crypto assets, which we measure at fair value in our statement of financial
position, with gains and losses from changes in fair value recognized in net income each reporting period. Besides, some of our
equity investments are in underlying companies that may also hold such digital assets. As with any investment and consistent with
how we manage fiat-based cash and cash equivalent accounts, we may increase or decrease our holdings of digital assets at any time
based on business needs and our view of market and environmental conditions.
25
The prices of digital assets
have historically been highly volatile and may continue to be so due to various associated risks and uncertainties. For example, the prevalence
of such assets represents a relatively recent trend, and their long-term adoption by investors, consumers and businesses remains unpredictable.
Moreover, the absence of a physical form, reliance on technology for creation and transactional validation, and decentralization may expose
their integrity to threats from malicious attacks and technological obsolescence. Additionally, it is uncertain how or to what extent
securities laws or other regulations may apply to these assets in the future, which could change over time. If we hold digital assets
and their values decrease relative to our purchase prices, our financial condition may be harmed.
As intangible assets without
centralized issuers or governing bodies, digital assets have been, and may in the future be, subject to security breaches, cyberattacks
or other malicious activities, as well as human errors or computer malfunctions that may result in the loss or destruction of private
keys needed to access such assets. While we intend to take all reasonable measures to secure any digital assets, if such threats are realized
or the measures or controls we create or implement to secure our digital assets fail, it could result in a partial or total misappropriation
or loss of our digital assets, and our financial condition and operating results may be harmed.
We are subject to
risks associated with legal, political or other conditions or developments regarding holding of digital assets, which could negatively
affect our business, results of operations and financial position.
Digital assets are relatively
novel and are subject to significant uncertainty, which could adversely impact their price. The application of laws and regulations to
digital assets is unclear in certain respects, and it is possible that regulators in the PRC or the other countries may interpret or apply
existing laws and regulations in a manner that adversely affects the price of digital assets.
For example, the PRC government
has been actively advancing a crackdown on virtual currency mining and trading in China in recent years. On February 6, 2026, the People’s
Bank of China, or PBOC, with seven other Chinese government authorities, jointly released the Notice on Further Preventing and Handling
Risks Related to Virtual Currencies and Other Matters (《关于进一步防范和处置虚拟货币等相关风险的通知》)
(the “2026 Notice”) reiterates and expands the PRC government’s comprehensive prohibition on virtual currency-related
business activities. The 2026 Notice emphasizes that virtual currencies do not have the same legal status as fiat currency, prohibits
financial institutions and relevant entities from providing services related to virtual currencies, and strengthens cross-border regulatory
coordination and enforcement. The 2026 Notice explicitly provides that PRC onshore entities and their controlled offshore entities may
not issue virtual currencies offshore without prior regulatory approval, imposes strict supervision over offshore activities by PRC-connected
entities on a “same business, same risk, same rules” basis, and establishes a comprehensive cross-ministerial and central-local
enforcement coordination mechanism involving several executive and judicial authorities. Although our cryptocurrency holdings are maintained
at our offshore entities and are not directly held by our PRC operating subsidiaries, given that our controlling shareholder and most
managements are PRC citizens and our business operations are primarily conducted in China through our PRC subsidiaries and the VIEs, there
remains substantial uncertainty as to whether, and to what extent, our offshore cryptocurrency holdings and related activities could be
subject to scrutiny, restrictions, or enforcement actions by PRC regulators. PRC regulatory authorities may in the future adopt additional
laws, regulations, or policies that could directly or indirectly restrict or prohibit the holding, transfer, or use of cryptocurrencies
by companies with substantial PRC connections. Any further order of the PRC government to limit, eliminate, clean up and terminate cryptocurrency-related
business may result in a crackdown on the cryptocurrency market and require us to liquidate our cryptocurrency holdings, result in penalties,
restrict our ability to repatriate funds, or otherwise adversely affect our financial position.
26
Regulatory bodies in other
jurisdictions, governmental or semi-governmental, have shown an interest in regulating or investigating companies engaged in the blockchain
or cryptocurrency business. Restrictions imposed by the regulatory bodies in other jurisdictions may force us to restructure operations,
perhaps significantly, which could result in significant costs and inefficiencies that harm our profitability. Cryptocurrency is a recent
technological innovation and the regulatory schemes to which cryptocurrency and the related exchange may be subject have not been fully
explored or developed in many countries. Thus, cryptocurrency faces an uncertain regulatory landscape in many countries. We cannot assure
you that these jurisdictions will not enact new laws or regulations that further restrict activities relate to cryptocurrencies. In addition,
cryptocurrencies may be used by market participants for black market transactions, to conduct fraud, money laundering and terrorism-funding,
tax evasion, economic sanction evasion or other illegal activities. As a result, governments may seek to regulate, restrict, control or
ban the mining, use, holding and transferring of cryptocurrencies. Our business, financial condition and results of operations may be
materially and adversely affected by these adverse changes in the regulatory and policy environment in the markets where we operate.
Our historical financial
statements do not reflect the potential variability in earnings that we may experience in the future relating to our digital assets holdings
Our historical financial
statements do not fully reflect the potential variability in earnings that we may experience in the future from holding or selling significant
amounts of digital assets.
The price of digital assets
has historically been subject to dramatic price fluctuations and is highly volatile. In December 2023, the FASB issued ASU 2023-08, Accounting
for and Disclosure of Crypto Assets, which we adopted effective January 1, 2025— the first day of our interim and annual periods
for which the standard is required to be applied. ASU 2023-08 requires us to measure our digital assets holdings at fair value in our
statement of financial position, and to recognize gains and losses from changes in the fair value of our digital assets in net income
each reporting period. The standard also requires us to provide certain interim and annual disclosures with respect to our digital assets
holdings. As we did not hold any digital assets prior to January 1, 2025, the adoption of ASU 2023-08 did not result in a cumulative-effect
adjustment to the opening balance of retained earnings and had no impact on our financial statements upon transition. Due in particular
to the volatility in the price of our digital assets, we expect the adoption of ASU 2023-08 to increase the volatility of our financial
results and significantly affect the carrying value of our digital assets on our balance sheet.
Because we intend to purchase additional digital assets in future periods,
we expect that the proportion of our total assets represented by our digital assets holdings will increase in the future. As a result,
and in particular with respect to the quarterly periods and full fiscal year with respect to which ASU 2023-08 applies (and all future
periods thereafter) volatility in our earnings may be significantly greater than what we experienced in prior periods.
Our digital assets
holdings subject us to enhanced regulatory oversight.
There has been increasing
focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities,
or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine. While
we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering
and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation
and related compliance rules in the United States, PRC and other jurisdictions, if we are found to have purchased any of our bitcoin from
bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any
further transactions or dealings in bitcoin by us may be restricted or prohibited.
We may consider pursuing
strategies to create income streams or otherwise generate funds using our digital assets holdings. These transactions are the subject
of enhanced regulatory oversight and may subject us to additional regulatory compliance requirements and scrutiny.
27
Due to the unregulated
nature and lack of transparency surrounding the operations of many digital assets trading venues, digital assets trading venues may experience
greater fraud, security failures or regulatory or operational problems than trading venues for more established asset classes, which may
result in a loss of confidence in digital assets trading venues and adversely affect the value of our digital assets.
Digital assets trading venues
are relatively new and, in many cases, unregulated. For example, there are many bitcoin trading venues which do not provide the public
with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance. As
a result, the marketplace may lose confidence in digital assets trading venues, including prominent exchanges that handle a significant
volume of digital assets trading and/or are subject to regulatory oversight, in the event one or more these trading venues cease or pause
for a prolonged period the trading of bitcoin or other digital assets, or experience fraud, significant volumes of withdrawal, security
failures or operational problems.
Our digital assets
holdings are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the
same extent as cash and cash equivalents.
Historically, the digital
assets markets, for example, the bitcoin market, have been characterized by significant volatility in price, limited liquidity and trading
volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market
abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic,
virtual form and decentralized network. During times of market instability, we may not be able to sell our digital assets at favorable
prices or at all. For example, a number of bitcoin trading venues temporarily halted deposits and withdrawals in 2022. As a result, our
digital assets holdings may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.
Additionally, we may be unable
to enter into term loans or other capital raising transactions collateralized by our unencumbered digital assets or otherwise generate
funds using our digital assets holdings, including in particular during times of market instability or when the price of bitcoin has declined
significantly. If we are unable to sell our digital assets, or otherwise generate funds using our digital assets holdings, or if we are
forced to sell our digital assets at a significant loss, in order to meet our working capital requirements, our business and financial
condition could be negatively impacted.
If we or our third-party
service providers experience a security breach or cyberattack and unauthorized parties obtain access to our digital assets, or if our
private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our digital assets and
our financial condition and results of operations could be materially adversely affected.
Substantially all of the
digital assets we own is held in custody accounts at institutional-grade digital asset custodians. Security breaches and cyberattacks
are of particular concern with respect to our digital assets. Bitcoin and other blockchain-based cryptocurrencies and the entities that
provide services to participants in the bitcoin ecosystem have been, and may in the future be, subject to security breaches, cyberattacks,
or other malicious activities. A successful security breach or cyberattack could result in:
● a partial or total loss of our digital assets in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold our digital assets;
● harm to our reputation and brand;
● improper disclosure of data and violations of applicable data privacy and other laws; or
● significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure.
Further, any actual or perceived
data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks,
regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader Bitcoin blockchain ecosystem
or in the use of the Bitcoin network to conduct financial transactions, which could negatively impact us.
28
Attacks upon systems across
a variety of industries, including industries related to digital assets and bitcoin, are increasing in frequency, persistence, and sophistication,
and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The
techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets),
disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized
or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service
providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats, system errors
or vulnerabilities or other irregularities. In particular, unauthorized parties have attempted, and we expect that they will continue
to attempt, to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through
various means, such as hacking, social engineering, phishing and fraud.
We face risks relating
to the custody of our digital assets, including the loss or destruction of private keys required to access our digital assets and cyberattacks
or other data loss relating to our digital assets.
We hold our digital assets
with regulated custodians that have duties to safeguard our private keys. Our custodial services contracts do not restrict our ability
to reallocate our digital assets among our custodians, and our digital assets holdings may be concentrated with a single custodian from
time to time. We continually seek to engage additional custodians to achieve a greater degree of diversification in the custody of our
digital assets as the extent of potential risk of loss is dependent, in part, on the degree of diversification. If there is a decrease
in the availability of digital asset custodians that we believe can safely custody our digital assets, for example, due to regulatory
developments or enforcement actions that cause custodians to discontinue or limit their services, we may need to enter into agreements
that are less favorable than our current agreements or take other measures to custody our digital assets, and our ability to seek a greater
degree of diversification in the use of custodial services would be materially adversely affected.
As of December 31, 2025,
the insurance that covers losses of our digital assets holdings covers only a portion of the value of the entirety of our digital assets
holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such
coverage will cover losses with respect to our digital assets. Moreover, our use of custodians exposes us to the risk that the digital
assets our custodians hold on our behalf could be subject to insolvency proceedings and we could be treated as a general unsecured creditor
of the custodian, inhibiting our ability to exercise ownership rights with respect to such digital assets. Any loss associated with such
insolvency proceedings is unlikely to be covered by any insurance coverage we maintain related to our digital assets.
Digital assets, such as bitcoins,
are controllable only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet
in which the bitcoin is held. While the blockchain ledger requires a public key relating to a digital wallet to be published when used
in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital assets
held in such wallet. To the extent the private key(s) for a digital wallet are lost, destroyed, or otherwise compromised and no backup
of the private key(s) is accessible, neither we nor our custodians will be able to access the digital assets held in the related digital
wallet. Furthermore, we cannot provide assurance that our digital wallets, nor the digital wallets of our custodians held on our behalf,
will not be compromised as a result of a cyberattack. The bitcoin and blockchain ledger, as well as other digital assets and blockchain
technologies, have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities.
Fraudulent activities
on our marketplace could negatively impact our operating results, brand and reputation and cause the use of our loan products and services
to decrease.
Our company and the VIEs
are subject to the risk of fraudulent activities both on our marketplace and associated with borrowers, clients and third parties handling
our clients’ information. For example, we detected an organized fraud incident concerning our FastTrack loan products in July 2016.
After uncovering the fraud incident, we suspended the offering of the FastTrack loan products until late July 2016 when we implemented
more stringent requirements aiming to prevent similar types of fraud incidents. Our resources, technologies and fraud detection tools
may be insufficient to accurately detect and prevent fraud. Significant increases in fraudulent activities could negatively impact our
brand and reputation, reduce the volume of loan transactions facilitated through our platform and lead us to take additional steps to
reduce fraud risk, which would increase our costs. High profile fraudulent activities could even lead to regulatory intervention and may
divert our management’s attention and cause us to incur additional expenses and costs. If any of the foregoing were to occur, our
results of operations and financial condition would be materially and adversely affected.
29
Failure to maintain
successful strategic relationships with partners may have an adverse impact on our future success.
We anticipate that our company
and the VIEs will continue to leverage our strategic relationships with existing partners in China’s online consumer finance marketplace
industry to grow our business while we will also pursue new relationships with additional partners, such as traditional financial institutions
and merchants in more sectors. Identifying, negotiating and documenting relationships with partners require significant time and resources
as do integrating third-party data and services into our system. Our current agreements with partners often 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, which may in turn reduce the volume of loans facilitated through our marketplace. Certain types of
partners may devote more resources to support their own competing businesses. In addition, these partners may not perform as expected
under our agreements with them, and we may have disagreements or disputes with such partners, which could adversely affect our brand and
reputation. If our company and the VIEs cannot successfully enter into and maintain effective strategic relationships with business partners,
our business will be harmed.
Misconduct, errors
and failure to function by our employees and third-party service providers could harm our business and reputation.
Our company and the VIEs
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 interact with potential clients, process large numbers of transactions
and support the loan collection process, all of which involve the use and disclosure of personal information. We could be materially and
adversely affected if transactions were improperly executed, if personal information was disclosed to unintended recipients or if an operational
breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent
manipulation of our operations or systems. In addition, the manner in which we store and use certain personal information and interact
with clients through our marketplace is governed by various PRC laws. 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. If any of our employees or third-party service providers take, convert or misuse documents
or data or fail to follow protocol when interacting with clients, we could be liable for damages and subject to regulatory actions and
penalties. Our company and the VIEs could also be perceived to have facilitated or participated in the illegal use of documents or data,
or the failure to follow protocol, and therefore be subject to civil or criminal liability.
Wealth solutions
we provide access to are subject to risks related to lawsuits and other claims brought by our clients.
Our company and the VIEs
may be subject to lawsuits and other claims in the ordinary course of providing access to wealth solutions for our clients, even though
we do not directly offer these solutions. We may also be subject to claims for failing to provide sufficient information on investment
risks or for failing to provide access to such relevant information in a manner that is clear and readily accessible to clients. Actions
brought against us may result in settlements, awards, injunctions, fines, penalties or other results adverse to us including harm to our
reputation and our results of operations. Even if we are successful in defending against these actions, the defense of such matters may
result in our incurring significant expenses, divert management attention and damage our reputation.
Aggressive practices
or misconduct by any of our third-party service providers, including CreditEase, in the course of collecting loans could damage our reputation.
As our company and the VIEs
rely on certain third-party service providers, such as third-party payment platforms and custody and settlement service providers, to
conduct our business, if these third-party service providers failed to function properly, we cannot assure you that our company or the
VIEs would be able to find an alternative in a timely and cost-efficient manner, or at all. Any of these occurrences could result in our
diminished ability to operate our business, potential liability to borrowers and clients, inability to attract borrowers and clients,
reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results
of operations.
30
Fluctuations in
interest rates could negatively affect transaction volume and business.
The profitability of our
business depends on the interest and fee rates at which our borrowers are willing to borrow, and the interest at which our institutional
funding partners are willing to lend, subject to limitations of PRC laws and regulations. Our company and the VIEs have taken measures
to aim to react to the fluctuations in the interest rate environments. However, if we fail to respond to the fluctuations in interest
rates in a timely manner and reprice our loan products, our loan products may become less attractive to our institutional funding partners.
For example, in a falling interest rate environment, potential borrowers may seek lower priced loans from other channels if we do not
lower the interest and fee rates on our loan products.
A severe or prolonged
downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
Our revenues and financial
results may be adversely affected by any economic slowdown in China as well as globally. In particular, general economic factors and conditions
in China or worldwide, including the general interest rate environment and unemployment rates, may affect borrower willingness to seek
loans and client ability and desire to invest. As a result, our revenues and financial results are impacted to a significant extent by
economic conditions in China and globally, as well as economic conditions specific to consumer credit and wealth businesses. The global
macroeconomic environment is facing numerous challenges. The growth rate of the Chinese economy has gradually slowed since 2010 and the
trend may continue. Any slowdown could significantly reduce domestic commerce in China, including through the internet generally and through
us. In addition, 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.
The conflict in Ukraine and the imposition of broad economic sanctions on Russia could raise energy prices and disrupt global markets.
Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe.
There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which
may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United
States and China with respect to trade policies, treaties, government regulations and tariffs. In recent years, the U.S. government imposed
additional tariffs on goods from China, including new tariffs implemented in 2025. In response, China has imposed retaliatory tariffs
on goods imported from the United States. Economic conditions in China are sensitive to global economic conditions, as well as changes
in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged
slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.
Adverse economic conditions could also reduce the number of qualified borrowers seeking loans through our marketplace, as well as their
ability to make payments. Should any of these situations occur, the amount of loans facilitated through our marketplace and our net revenue
will decline, and our business and financial condition will be negatively impacted. Additionally, continued turbulence in the international
markets may adversely affect our ability to access the capital markets to meet liquidity needs.
We may need additional
capital, and financing may not be available on terms acceptable to us, or at all.
As of December 31, 2023,
2024 and 2025, we had cash and cash equivalents of RMB5,791.3 million, RMB3,841.3 million and RMB3,348.1 million (US$478.8 million), respectively.
Although we believe that our cash on hand 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 cannot assure you
this will be the case. 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. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand
at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would
result in further dilution to our 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.
31
Our ability to protect
the confidential information of our borrowers and clients may be adversely affected by cyber-attacks, computer viruses, physical or electronic
break-ins or similar disruptions.
Our platform collects, stores
and processes certain personal and other sensitive data from our borrowers and clients, which makes it an attractive target and potentially
vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. Under the PRC Cyber Security Law,
which was amended on October 28, 2025 and took effect on January 1, 2026, our PRC subsidiaries and the VIEs are required to formulate
security management system and operational procedures, take measures to prevent acts that jeopardize cyber security such as computer virus,
network attacks and network intrusion, and safeguard personal information, user information and business secrets. If our PRC subsidiaries
and the VIEs are deemed a critical information infrastructure under the PRC Cyber Security Law, we will be subject to an additional requirement
regarding the construction, security protection, purchase of products and services, secrecy, localization of data, and annual evaluation
of the infrastructure. While our PRC subsidiaries and the VIEs have taken steps to protect the confidential information that we have access
to, our security measures could be breached. 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, our PRC subsidiaries and the VIEs may be unable to anticipate
these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access
to our platform could cause confidential information of our borrowers and clients 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,
adverse regulatory consequences, time-consuming and expensive litigation and negative publicity. If security measures are breached because
of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited,
our relationships with borrowers and clients could be severely damaged, we could incur significant liability and our business and results
of operations could be adversely affected.
If we fail to maintain
an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent
fraud.
We are subject to reporting
obligations under the U.S. securities laws. Section 404 of the U.S. Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and related
rules require that we include a report from management on the effectiveness of our internal control over financial reporting in our annual
report on Form 20-F for the fiscal year ended December 31, 2025. Our management has concluded that our internal control over financial
reporting was effective as of December 31, 2025. See “Item 15. Controls and Procedures.”
In the future, 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 an adverse opinion audit report 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.
During the course of documenting
and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, or Section
404, we may identify weaknesses and deficiencies in our internal control over financial reporting. Even if no material weakness in our
internal control over financial reporting has been identified by the management, we cannot guarantee that there does not exist any deficiency.
In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented
or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial
reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer
material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose
confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations,
and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose
us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we
list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior
periods.
32
Our operations depend
on the performance of the internet infrastructure and fixed telecommunications networks in China.
Almost all access to the
internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision
of the MIIT. Our company and the VIEs primarily rely on a limited number of telecommunication service providers to provide us with data
communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to
alternative networks or services in the event of disruptions, failures or other problems with China’s internet infrastructure or
the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required
to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet
infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth
in internet usage.
In addition, we have no control
over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet
services rise significantly, our results of operations may be adversely affected. Furthermore, if internet access fees or other charges
to internet users increase, our user traffic may decline and our business may be harmed.
Any significant
disruption in service on our platform or in our computer systems, including events beyond our control, could prevent us from processing
or posting loans on our marketplace, reduce the attractiveness of our marketplace and result in a loss of borrowers or clients.
In the event of a platform
outage and physical data loss, the ability of our company and the VIEs to perform our servicing obligations, process applications or make
loans available on our marketplace would be materially and adversely affected. The satisfactory performance, reliability and availability
of our platform and our underlying network infrastructure are critical to our operations, customer service, reputation and our ability
to retain existing and attract new borrowers and clients. Our operations depend on our ability to protect our systems 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 in service or damage to our leased Beijing facilities,
our company and the VIEs 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 errors, our errors, natural disasters or security breaches, whether accidental or willful,
could harm our relationships with our borrowers and clients 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. 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 loans, damage our brand and reputation, divert our employees’
attention, subject us to liability and cause borrowers and clients to abandon our marketplace, any of which could adversely affect our
business, financial condition and results of operations.
Our platform and
internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Our platform and internal
systems rely on software that is highly technical and complex. In addition, our platform and internal systems depend on the ability of
such software to store, retrieve, process and manage immense amounts of data. The software on which our company and the VIEs 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
released for external or internal use. Errors or other design defects within the software on which we rely may result in a negative experience
for borrowers and clients using our platform, delay introductions of new features or enhancements, result in errors or compromise our
ability to protect borrower or client 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 clients or liability for damages, any of which could adversely affect
our business, results of operations and financial condition.
33
We may not be able
to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our trademarks,
domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination
of intellectual property laws and contractual arrangements, including confidentiality, invention assignment and non-competition agreements
with our employees to protect our proprietary rights. As of the date of this annual report, our subsidiaries and the VIEs had 459 registered
trademarks with the Trademark Office of the National Intellectual Property Administration. “Item 4. Information on the Company—B.
Business Overview—Intellectual Property” and “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation
on Intellectual Property Rights.” We cannot assure you that any of the intellectual property rights owned by our subsidiaries or
the VIEs would not be challenged, invalidated, circumvented or misappropriated, or such intellectual property will be sufficient to provide
us with competitive advantages. In addition, because of the rapid pace of technological change in our industry, parts of our business
rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies
from these third parties on reasonable terms, or at all.
It is often difficult to
register, 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-competition 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. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate
to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property
rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. 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 consultants 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 in protecting or enforcing intellectual
property rights owned by our subsidiaries or the VIEs could have a material adverse effect on our business, financial condition and results
of operations.
We may be subject
to intellectual property infringement claims, which may be expensive to defend and may disrupt our business operations.
Our company and the VIEs
cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks,
patents, copyrights, know-how or other intellectual property rights held by third parties. We may from time to time in the future be subject
to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks,
patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our
business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against
us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced
to divert our management’s time and other resources from our business and operations to defend against these claims, regardless
of their merits.
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 our company or the VIEs were found to have violated 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.
34
Our business is
subject to complex and evolving Chinese and international laws and regulations regarding data privacy and cybersecurity. Failure to protect
confidential information of our customers and network against security breaches could damage our reputation and brand and substantially
harm our business and results of operations.
As the regulations regarding
data privacy and cybersecurity are quickly evolving in China and globally, our company and the VIEs may become subject to new laws and
regulations applying to the solicitation, collection, processing or use of personal or consumer information that could affect how we store,
process and share data with our customers, suppliers and third-party merchants. Significant capital, managerial and human resources may
be required to comply with those legal requirements, enhance information security and to address any issues caused by security failures.
For example, the PRC Data
Security Law and Civil Code are relatively new and subject to interpretation by the regulators. The exact scopes of certain critical concepts
such as important data and state core data remain unclear and may be subject to further interpretation. If any data that we are in possession
of constitute important data or state core data, we may be required to adopt stricter measures for protection and management of such data.
See “Item 4. Information on the Company—B. Business Overview—Regulations.”
In addition, pursuant to
the Administrative Regulation on Network Data Security issued on September 24, 2024, cyber data processors engaging in data processing
activities that affect or may affect national security shall, in accordance with relevant state provisions, apply for cybersecurity review
with the Office of Cybersecurity Review. For more details of such cybersecurity review requirements, see “Item 4. Information on
the Company—B. Business Overview—Regulations,” and “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required
in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to
obtain such approval or complete such filing.” As of the date of this annual report, our company and the VIEs, were not required
to go through a cybersecurity review by CAC for our previous issuance of securities to foreign investors according to the Measures for
Cybersecurity Review. Pursuant to the Overseas Listing Regulations issued on February 17, 2023, companies in China that directly or indirectly
offer or list their securities in an overseas market must file with the CSRC within three business days after submitting their listing
application documents to the regulator in the place of intended listing. The Overseas Listing Regulations also provide that a company
in China must file with the CSRC within three business days after completion of its follow-on offering of securities after it is listed
in an overseas market. Thus, our company will be required to file with the CSRC within three business days after completion of any of
its follow-on offering of securities in the New York Stock Exchange, i.e., the overseas market where it is listed, or after submitting
its listing application documents to the overseas regulator related to a secondary or dual primary listing of securities in any other
overseas market. For secondary listing, dual primary listing or other new foreign listings, our company also needs to apply for a CAC
cybersecurity review if it falls in the categories that require such a review under the Measures for Cybersecurity Review.
Furthermore, Measures for
Cybersecurity Review, or the Measures, further restate and expand the applicable scope of the cybersecurity review. Pursuant to the Measures,
critical information infrastructure operators that procure internet products and services, and online platform operators engaging in data
processing activities, must be subject to the cybersecurity review if their activities affect or may affect national security. As of the
date of this annual report, our company or the VIEs have not been informed as a critical information infrastructure operator by any government
authorities. However, the exact scope of “critical information infrastructure operators” under the current regulatory regime
remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws. If our
company or the VIEs are deemed as a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we
must fulfill certain obligations as required under the PRC cybersecurity laws and regulations and we may be subject to cyber security
review when purchasing internet products and services or engaging in data processing activities. See “Item 4. Information on the
Company—B. Business Overview—Regulations.” We cannot predict the impact of the Measures and the Draft Regulations, if
any, at this stage, and we will closely monitor and assess any development in the rule-making process. See “Item 4. Information
on the Company—B. Business Overview—Regulations.”
In addition, the Measures
on Security Assessment of Cross-border Transfer of Data, or the Security Assessment Measures, were promulgated in July 2022, which provide
circumstances in which a data processor is required to declare security assessment for its outbound data transfer to the CAC through the
provincial cyberspace administration, and specified requirement for self-assessment and the administrative procedure for declaration of
security assessment with cyberspace department at the provincial level. Furthermore, the CAC issued Regulations on Promoting and Regulating
Cross-Border Data Flows, or the Cross-border Data Flows Regulations, on March 22, 2024, which specify the thresholds for conducting security
assessments and filing standard contracts for outbound data transfer. Given the recency of the issuance and effectiveness of the Security
Assessment Measures and the Cross-border Data Flows Regulations, substantial uncertainties exist with respect to their implementation.
It is unclear whether and to what extent our company or the VIEs will be subject to these new requirements. As of the date of this annual
report, our company or the VIEs have not conducted any of cross-border transfer of critical data or personal data generated from or collected
in the PRC that should be subject to a security assessment.
35
We may also need to comply
with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere.
For example, the European Union adopted the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. Compliance
with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR)
and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks.
Our company and the VIEs
generally comply with industry standards and are subject to the terms of our own privacy policies. For a detailed description of our cybersecurity
governance, see “Item 16K. Cybersecurity.” We update our privacy policies from time to time to meet the latest regulatory
requirements of the CAC and other authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way.
On May 12, 2025, the National Computer Virus Emergency Response Center, or NCVERC published on its website that Yiren Select (version
10.8.0) was found to have certain compliance issues regarding personal information protection, including (1) failing to provide users
with a method to withdraw their consent to the collection of personal information, not offering a convenient way for users to withdraw
consent, and processing sensitive personal information without obtaining separate consent from users; and (2) failing to inform individuals
of the necessity of processing sensitive personal information and the impact on their rights and interests when processing such data.
We have made necessary rectifications to Yiren Select according to the requirement of NCVERC, and have launched the new compliant version
of Yiren Select. We believe, as of the date of this annual report, to the best of our knowledge, our business operations are compliant
with the currently effective PRC laws relating to cybersecurity, data security, and personal data and privacy laws in all material respects.
Based on the foregoing, our PRC legal counsel does not expect that, as of the date of this annual report, the current applicable PRC laws
on cybersecurity would have a material adverse impact on our business.
Compliance with any additional
laws could be expensive, and may place restrictions on the conduct of our business and the manner in which our company and the VIEs interact
with our customers. We are constantly in the process of evaluating the potential impact of the laws, regulations and policies relating
to cybersecurity, privacy, data protection and information security on our current business practices, and have taken and will continue
to take reasonable measures to comply with such laws and regulations. We may be required to make further adjustments to our business practices
to comply with the personal information protection laws and regulations. All these laws and regulations may result in additional expenses
and obligations to us and subject us to negative publicity, which could harm our reputation and negatively affect the trading price of
the ADSs. If we are not able to comply with the cybersecurity, network data security, and personal data and privacy requirements in a
timely manner, or at all, we may be subject to government enforcement actions and investigations, fines, penalties, suspension of our
non-compliant operations, or removal of our app from the relevant application stores, among other sanctions, which could materially and
adversely affect our business, results of operations and reputation.
From time to time
we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention,
disrupt our business and adversely affect our financial results.
We may evaluate and consider
strategic investments, combinations, acquisitions or alliances to further increase the value of our marketplace and better serve borrowers
and clients. These transactions could be material to our financial condition and results of operations if consummated. If we are unable
to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate
such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.
Strategic investments or
acquisitions will involve risks commonly encountered in business relationships, including:
● difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business;
36
● inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits;
● difficulties in retaining, training, motivating and integrating key personnel;
● diversion of management’s time and resources from our normal daily operations;
● difficulties in successfully incorporating licensed or acquired technology and rights into our platform and loan products;
● difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;
● difficulties in retaining relationships with customers, employees and suppliers of the acquired business;
● risks of entering markets in which we have limited or no prior experience;
● regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business;
● assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability;
● failure to successfully further develop the acquired technology;
● liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
● potential disruptions to our ongoing businesses; and
● unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
We may not make any investments
or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate
sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot
assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new
or enhanced products and services or that any new or enhanced products and services, if developed, will achieve market acceptance or prove
to be profitable.
Acquisitions could
expose us to significant business risks.
We have made and may continue
to make strategic acquisitions that could, among other goals, complement our existing services, expand our customer base, improve user
acquisition efficiency, lower operating costs and/or enhance technological capabilities. For example, in July 2019, we consummated a business
realignment transaction with CreditEase, the controlling shareholder of our company, pursuant to which we have assumed from CreditEase
and its affiliates certain business operations. After the business realignment, we will continue to receive certain business consulting
and other support services from CreditEase. See “Item 4. Information on the Company—A. History and Development of the Company.”
In July 2023, we acquired 100% equity interest in Chongqing Jintong Financing Guarantee Co., Ltd., a licensed financing guarantee company
in China, to enhance our offering of financing guarantee services in China. In May 2025, we acquired 100% equity interest in Hubei Jiushi,
which has obtained an ICP license and a Network Culture Operation License. In July 2025, we acquired 100% equity interest in Hainan Guatian,
which has obtained an ICP license, a Network Culture Operation License and a Permit for Production and Operation of Radio and TV Programs.
37
While we believe the business
realignment would enhance our market position as a leading comprehensive fintech platform, enable us to better leverage synergies between
our existing businesses and the businesses we assumed from CreditEase and improve our overall operating efficiency, this transaction,
as well as other acquisitions, could expose us to business risks, including but not limited to financial and operational risks.
Financial risks from the
business realignment and other acquisitions include, among other things, (i) the use of our cash resources; (ii) paying a price that exceeds
the future value realized from the acquisition; (iii) potential known and unknown liabilities of the acquired businesses; (iv) the incurrence
of additional debt; (v) the dilutive effect of the issuance of any additional equity securities by our company as consideration for, or
to finance, the acquisition; (vi) the financial impact of incorrectly valuing goodwill and other intangible assets involved in any acquisitions;
(vii) potential future impairment write-downs of goodwill and indefinite-life intangibles and the amortization of other intangible assets;
and (viii) possible adverse tax and accounting effects.
In addition, there are possible
operational risks, including, among other things, difficulty in assimilating and integrating the operations, services, products, technology,
information systems and personnel of acquired companies; losing key personnel of acquired entities; and compliance with additional laws
relating to the acquired business and regulatory risks associated with the past violation of law by the acquired businesses. We may incur
significant acquisition, administrative and other costs in connection with these transactions, including costs related to the integration
of acquired businesses. Acquisitions could expose us to significant integration risks and increased organizational complexity, including
more complex and costly accounting processes and internal controls, which may challenge management and may adversely impact the realization
of an increased contribution from such acquisitions. In addition, while we execute acquisitions and related integration activities, our
attention may possibly be diverted from our ongoing operations, which may have a negative impact on our business. Failure to adequately
anticipate and address these risks could adversely affect our business and financial performance.
Although we performed due
diligence investigations of the businesses and assets that we will assume, and will also do so for future acquisitions, there may be liabilities
related to the acquired business or assets that we fail to, or are unable to, uncover during the due diligence investigation and for which
we, as a successor owner, may be responsible. When feasible, we seek to minimize the impact of these types of potential liabilities by
obtaining indemnities and warranties from the seller, which may in some instances be supported by a price adjustment mechanism and/or
deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the
liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor, or for other reasons.
These strategic acquisitions involve risks commonly encountered in business relationships, such as potential unknown liabilities for activities
of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes,
tax liabilities and other unknown liabilities, which may adversely affect our reputation, business and results of operations.
Our business depends
on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their
present positions, our business may be severely disrupted.
Our business operations depend
on the continued services of our senior management, particularly the executive officers named in this annual report. While we have provided
different incentives to our management, we cannot assure you that we can continue to retain their services. 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, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition,
although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member
of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former
officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable
to enforce them at all.
38
Competition for
employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe the success of
our company and the VIEs depends on the efforts and talent of our employees, including risk management, software engineering, financial
and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled
employees. Competition for highly skilled technical, risk management 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. Some 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 expenses 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 clients could diminish, resulting in a material adverse effect
on our business.
Increases in labor
costs in the PRC may adversely affect our business and results of operations.
The economy in China has
experienced increases in labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition,
our company and the VIEs 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. The relevant government agencies may examine whether an employer has made adequate payments to the statutory
employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties.
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 users by increasing the fees of our services, our financial condition and results
of operations may be adversely affected.
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 develop the infrastructure of a public company and continue to 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.
We are subject to
changing laws and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs
and the risk of non-compliance.
Our company and the VIEs
are subject to rules and regulations by various governing bodies, including, for example, the United States Securities and Exchange Commission,
or the SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and
the various regulatory authorities in China and the Cayman Islands, and to new and evolving regulatory measures under applicable law.
Our efforts to comply with new and changing laws and regulations have resulted in, and are likely to continue to result in, increased
general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities.
Moreover, because these laws,
regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes
available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing
revisions to our disclosure and governance practices. If our company and the VIEs fail to address and comply with these regulations and
any subsequent changes, we may be subject to penalty and our business may be harmed.
39
We do not have any
business insurance coverage.
Insurance companies in China
currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, our
company and the VIEs 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.
Changes in U.S.
and international trade policies, particularly with regard to China, may adversely impact our business and operating results.
There have been changes in
international trade policies and rising political tensions, particularly between the U.S. and China, but also as a result of the conflict
in Ukraine and sanctions on Russia. While cross-border business may not be an area of focus for us, any unfavorable government policies
on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact the competitive
position of our products or prevent us from selling products in certain countries. If any new tariffs, legislation and/or regulations
are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions
due to recent U.S.-China trade tensions or the conflict in Ukraine and sanctions on Russia, such changes could have an adverse effect
on our business, financial condition and results of operations.
In addition, we have been
closely monitoring domestic policies in the United States designed to restrict certain Chinese companies from supplying or operating in
the U.S. market. These policies include the Clean Network project initiated by the U.S. Department of State in August 2020 and new authorities
granted to the Department of Commerce to prohibit or restrict the use of information and communications technology and services, or ICTS,
and the Executive Order on Protecting America’s Sensitive Data from Foreign Adversaries published in June 2021. While a substantial
majority of our business is conducted in China, policies like these may deter U.S. users from accessing and/or using our apps, products
and services, which could adversely impact our user experience and reputation. Similarly, India has permanently banned a large number
of apps since 2020 out of national security concerns, many of which are China-based apps, escalating regional political and trade tensions.
Likewise, we are monitoring
policies in the United States that are aimed at restricting U.S. persons from investing in or supplying certain Chinese companies. The
United States and various foreign governments have imposed controls, license requirements and restrictions on the import or export of
technologies and products. In addition, the U.S. government has implemented regulations to prohibit or subject to notification requirements
certain transactions between U.S. persons and certain non-U.S. counterparties that have a qualifying nexus to China, Hong Kong, or Macau
and deal in specified technologies, including semiconductors and microelectronics, quantum information technology, and artificial intelligence.
Measures such as these could deter suppliers in the United States and/or other countries that impose export controls and other restrictions
from providing technologies and products to, making investments in, or otherwise engaging in transactions with Chinese companies. As a
result, Chinese companies would have to identify and secure alternative supplies or sources of financing, while they may not be able to
do so in a timely manner and at commercially acceptable terms, or at all. In addition, Chinese companies may have to limit and reduce
their research and development and other business activities, or cease conducting transactions with parties, in the United States and
other countries that impose export controls or other restrictions. Like other Chinese companies, our business, financial condition and
results of operations could be adversely affected as a result.
We may be unsuccessful
in expanding and operating our business internationally, which could adversely affect our results of operations.
We initiated the offering
of credit solution business in the Philippines at the end of 2022 to expand our business internationally. We will continue expanding our
operations in other jurisdictions in the future. However, the entry and operation of our business in these markets could cause us to be
subject to unexpected, uncontrollable, and rapidly changing events and circumstances outside China. Our ability to manage our business
and conduct our operations internationally requires considerable management’s attention and resources and is subject to the particular
challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems,
alternative dispute systems and commercial markets. Future international expansion will also require investment of significant funds and
other resources. If we are less successful than we expect in a new market, we may not be able to achieve an adequate return on our initial
investment and our operating results could suffer.
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Operating internationally
subjects us to new risks and may increase risks that we currently face, including risks associated with:
● varied, unfamiliar, unclear, and changing legal and regulatory restrictions, including different legal and regulatory standards applicable to real estate development and sales;
● compliance with laws and regulations of the jurisdictions in which we operate;
● difficulties in staffing and managing foreign operations;
● longer collection cycles;
● differing intellectual property laws that may not provide sufficient protections for our intellectual property;
● proper compliance with local tax laws, which can be complex and may result in unintended adverse tax consequences;
● difficulties in enforcing agreements through foreign legal systems;
● fluctuations in currency exchange rates that may affect service demand and may adversely affect the profitability in RMB of services provided by us in foreign markets where payment for our services is made in the local currency;
● changes in general economic, health, and political conditions in countries where our properties are sold;
● potential labor strike, lockouts, work slowdowns, and work stoppages; and
● different consumer preferences and requirements in specific international markets.
Our current and any future
international expansion plans will require management attention and resources and may be unsuccessful. We may find it impossible or prohibitively
expensive to continue expanding internationally or we may be unsuccessful in our attempt to do so, and our results of operations could
be adversely impacted.
We face risks related
to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
We are vulnerable to natural
disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist
attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet
failures, which could cause the loss or corruption of data or malfunctions of software or hardware, as well as adversely affect our ability
to provide products and services on our platform.
Our business could be adversely
affected by the effects of epidemics, including COVID-19, avian influenza, severe acute respiratory syndrome (SARS), influenza A (H1N1),
Ebola or another epidemic. Any such occurrences could cause severe disruption to our daily operations, including our fulfillment infrastructure
and our customer service centers, and may even require a temporary closure of our facilities. In recent years, there have been outbreaks
of epidemics in China and globally.
As COVID-19 has negatively
affected the broader Chinese economy and the global economy, China may continue to experience great economic uncertainty, which may impact
our business in a materially negative way as our users may be less inclined to borrow loans on our platform. Borrowers may also have less
propensity or ability to repay their loans as a result of the economic problems caused by COVID-19, which may then impact credit quality.
The operations of some of our business partners and service providers may be constrained and impacted, which may have a negative impact
on our business. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect
of heightening many of the other risks described in this annual report.
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Risks Related to Our Carve-out
from CreditEase and Our Relationship with CreditEase
We rely on our parent
company, CreditEase, for the successful operation of our business.
We have limited experience
operating as a stand-alone company. We commenced our online consumer finance marketplace business in March 2012, and Yirendai Ltd. was
incorporated in 2014 in the Cayman Islands (and was renamed as Yiren Digital Ltd. in 2019) as a wholly owned subsidiary of CreditEase.
Founded in 2006 by our executive chairman, Mr. Ning Tang, CreditEase is a large financial services company focusing on providing inclusive
finance and wealth solutions in China. Inclusive finance focuses on providing access to affordable and responsible financing solutions
to those in China who are often unable to gain such access. We completed our carve-out from CreditEase in the first quarter of 2015. Historically,
CreditEase provided us with origination and servicing, financial, administrative, sales and marketing, risk management, human resources
and legal services, and also with the services of a number of its executives and employees. In July 2019, we consummated a business realignment
transaction with CreditEase, the controlling shareholder of our company, pursuant to which we assumed from CreditEase and its affiliates
certain business operations. On December 31, 2020, as a result of a business restructuring, we disposed of the online consumer lending
platform targeting individual investors as the funding source, and CreditEase paid the designated subsidiaries of our company an aggregate
amount of RMB67.0 million in cash.
Although we have become a
stand-alone company, we expect CreditEase to continue to provide us with certain support services going forward. After the business realignment
with CreditEase closed in July 2019, we continue to receive certain business consulting and other support services from CreditEase. Although
we have entered into a series of agreements with CreditEase relating to our ongoing business cooperation and service arrangements with
CreditEase, we cannot assure you that we will continue to receive the same level of support from CreditEase as we used to. The cost of
services which CreditEase provides to us may from time to time increase based on commercial negotiations between CreditEase and us. Furthermore,
borrowers, clients and business partners may react negatively to our carve-out from or business restructuring with CreditEase. As such,
our carve-out from or business restructuring with CreditEase may materially and adversely affect our business. In addition, as a result
of our carve-out from or business restructuring with CreditEase, our historical financial performance may not be indicative of our future
performances as a stand-alone public company.
Our financial information
included in this annual report may not be representative of our financial condition and results of operations if we had been operating
as a stand-alone company.
Prior to our establishment,
our online consumer finance marketplace business was carried out by various subsidiaries and the consolidated variable interest entities
of CreditEase. We completed our carve-out from CreditEase in the first quarter of 2015, and all of our online consumer finance marketplace
business is now carried out by our own subsidiaries and the consolidated variable interest entities. Since we and the subsidiaries and
the consolidated variable interest entities that operated our online marketplace business are under common control of CreditEase, our
consolidated financial statements include the assets, liabilities, revenues, expenses and cash flows that were directly attributable to
our business for all periods presented. In particular, our consolidated balance sheets include those assets and liabilities that are specifically
identifiable to our business; and our consolidated statements of operations include all costs and expenses related to us, including costs
and expenses allocated from CreditEase to us. Allocations from CreditEase, including amounts allocated to origination, servicing and other
operating costs, sales and marketing expenses and general and administrative expenses, were made using a proportional cost allocation
method and based on headcount or transaction volume for the provision of services attributable to us. We made numerous estimates, assumptions
and allocations in our historical financial statements because we did not operate as a stand-alone company prior to our carve-out from
CreditEase in the first quarter of 2015. Although our management believes that the assumptions underlying our historical financial statements
and the above allocations are reasonable, our historical financial statements may not necessarily reflect our results of operations, financial
position and cash flows as if we had operated as a stand-alone company during those periods. See “Item 7. Major Shareholders and
Related Party Transactions—B. Related Party Transactions” for our arrangements with CreditEase and “Item 5. Operating
and Financial Review and Prospects” and the notes to our consolidated financial statements included elsewhere in this annual report
for our historical cost allocation. In addition, upon becoming a stand-alone company, we have established our own financial, administrative
and other support systems to replace CreditEase’s systems, the cost of which may have been significantly different from the cost
allocation with CreditEase for the same services. Therefore, you should not view our historical results as indicators of our future performance.
42
Any negative development
in CreditEase’s market position, brand recognition or financial condition may materially and adversely affect our marketing efforts
and the strength of our brand.
Prior to our initial public
offering, we were a wholly owned subsidiary of CreditEase, and after our initial public offering, CreditEase remains our controlling shareholder.
We have benefited significantly and expect to continue to benefit significantly from our association with CreditEase in marketing our
brand and our marketplace. We used to rely on CreditEase’s nationwide service network for offline borrower acquisition. As part
of a business realignment with CreditEase in 2019, we acquired CreditEase Puhui, an entity managing CreditEase’s national service
network for offline borrower acquisition. We also benefit from CreditEase’s strong brand recognition in China, which provides us
with credibility and a broad marketing reach. If CreditEase loses its market position, the effectiveness of our marketing efforts through
our association with CreditEase may be materially and adversely affected. In addition, any negative publicity associated with CreditEase
or any negative development in respect of CreditEase’s market position, financial condition, or in terms of its compliance with
legal or regulatory requirements in China, will likely have an adverse impact on the effectiveness of our marketing, as well as our reputation
and brand.
Our agreements with
CreditEase may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our second
amended and restated non-competition agreement with CreditEase limits the scope of business that we are allowed to conduct.
We have entered into a series
of agreements with CreditEase and the terms of such agreements may be less favorable to us than would be the case if they were negotiated
with unaffiliated third parties. In particular, under our second amended and restated non-competition agreement with CreditEase, we agree
during the non-competition period, which will end on the earliest of (i) the first anniversary of the control ending date, (ii) the date
on which the ADSs representing ordinary shares of Yiren Digital cease to be listed on Nasdaq or the New York Stock Exchange (except for
temporary suspension of trading of the ADSs), and (iii) December 31, 2035, the fifteenth anniversary of December 31, 2020, the date of
the second amended and restated non-competition agreement, not to, subject to certain exceptions, compete with CreditEase in the business
or any business that is of the same nature as the business currently conducted by CreditEase, in each case unless as may otherwise be
approved in writing by CreditEase. The control ending date refers to the earlier of (i) the first date when CreditEase no longer owns
at least 20% of the voting power of our then outstanding securities, or (ii) the first date when CreditEase ceases to be the largest beneficial
owner of our then outstanding voting securities (without considering holdings by certain institutional investors).
Such contractual limitations
may significantly affect our ability to diversify our revenue sources and may materially and adversely impact our business and prospects
should the growth of the online consumer finance marketplace industry in China slow down. In addition, pursuant to our master transaction
agreement with CreditEase, we agree to indemnify CreditEase for liabilities arising from litigation and other contingencies related to
our business and assume these liabilities as part of our carve-out from CreditEase. The allocation of assets and liabilities between CreditEase
and our company may not reflect the allocation that would have been reached by two unaffiliated parties. Moreover, so long as CreditEase
continues to control us, we may not be able to bring a legal claim against CreditEase in the event of contractual breach, notwithstanding
our contractual rights under the agreements described above and other inter-company agreements entered into from time to time.
CreditEase will
control the outcome of shareholder actions in our company.
As of March 31, 2026, CreditEase
held 82.0% of our outstanding ordinary shares and total voting power. CreditEase’s voting power gives it the power to control certain
actions that require shareholder approval under Cayman Islands law, our current memorandum and articles of association and the New York
Stock Exchange, or the NYSE, requirements, including approval of mergers and other business combinations, changes to our memorandum and
articles of association, the number of shares available for issuance under any share incentive plans, and the issuance of significant
amounts of our ordinary shares in private placements.
43
CreditEase’s voting
control may cause transactions that might not be beneficial to the holders of our ADSs to occur and may prevent transactions that would
be beneficial to the holders of our ADSs. For example, CreditEase’s voting control may prevent a transaction involving a change
of control of us, including transactions in which a holder of our ADSs might otherwise receive a premium for the securities held by such
holder over the then-current market price. In addition, CreditEase is not prohibited from selling a controlling interest in us to a third
party and may do so without the approval of the holders of our ADSs and without providing for a purchase of the ADSs. If CreditEase is
acquired or otherwise undergoes a change of control, any acquirer or successor will be entitled to exercise the voting control and contractual
rights of CreditEase, and may do so in a manner that could vary significantly from that of CreditEase. In addition, the significant concentration
of share ownership may adversely affect the trading price of the ADSs due to investors’ perception that conflicts of interest may
exist or arise. See “—We may have conflicts of interest with CreditEase and, because of CreditEase’s controlling ownership
interest in our company, we may not be able to resolve such conflicts on favorable terms for us” below.
We may have conflicts
of interest with CreditEase and, because of CreditEase’s controlling ownership interest in our company, we may not be able to resolve
such conflicts on favorable terms for us.
Conflicts of interest may
arise between CreditEase and us in a number of areas relating to our ongoing relationships. Potential conflicts of interest that we have
identified include the following:
● Non-competition arrangements with CreditEase. We and CreditEase entered into a second amended and restated non-competition agreement on December 31, 2020, under which we agree not to compete with each other’s core business. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Carve-out Agreements with CreditEase—Second amended and restated non-competition agreement.”
● Employee recruiting and retention. Because both CreditEase and we are engaged in consumer finance related businesses in China, we may compete with CreditEase in the hiring of new employees, in particular with respect to risk management related matters. We have a non-solicitation arrangement with CreditEase that restricts us and CreditEase from hiring any of each other’s employees.
● Our board members or executive officers may have conflicts of interest. Our executive chairman, Mr. Ning Tang, and one of our directors, Tina Ju, are members of the board of directors of CreditEase, and Mr. Ning Tang is the chief executive officer of CreditEase. Ning Tang has also become our chief executive officer upon the closing of the business realignment with CreditEase in July 2019. See “Item 4. Information on the Company—A. History and Development of the Company.” In addition, we have granted and may in the future continue to grant incentive share compensation to CreditEase’s employees and consultants. These relationships could create, or appear to create, conflicts of interest when these persons are faced with decisions with potentially different implications for CreditEase and us.
● Sale of shares in our company. CreditEase may decide to sell all or a portion of our shares that it holds to a third party, including to one of our competitors, thereby giving that third-party substantial influence over our business and our affairs. Such a sale could be contrary to the interests of our employees or our other shareholders.
● Allocation of business opportunities. Under our second amended and restated non-competition agreement with CreditEase, we agree not to compete with CreditEase in the businesses conducted by CreditEase. There may arise other business opportunities that both we and CreditEase find attractive and which would complement our respective businesses. CreditEase may decide to take such opportunities itself, which would prevent us from taking advantage of those opportunities.
● Developing business relationships with CreditEase’s competitors. So long as CreditEase remains our controlling shareholder, we may be limited in our ability to do business with its competitors. This may limit our ability to market our services for the best interests of our company and our other shareholders.
44
Although our company has
become a stand-alone public company, we expect to operate, for as long as CreditEase is our controlling shareholder, as an affiliate of
CreditEase. CreditEase may from time to time make strategic decisions that it believes are in the best interests of its business as a
whole, including our company. These decisions may be different from the decisions that we would have made on our own. For example, we
may be required to pay CreditEase for services that we currently enjoy free of charge from CreditEase, such as the information and data
sharing. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Carve-out Agreements
with CreditEase—Amended and Restated Intellectual Property License Agreement.” CreditEase’s decisions with respect to
us or our business may be resolved in ways that favor CreditEase and therefore CreditEase’s own shareholders, which may not coincide
with the interests of our other shareholders. We have an audit committee, consisting of three independent directors, to review and approve
all proposed related party transactions, including any transactions between us and CreditEase. However, we may not be able to resolve
any potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with a non-controlling
shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved between
unaffiliated parties, this may not succeed in practice. Furthermore, if CreditEase sought to alter or violate the terms of the second
amended and restated non-competition agreement with us in order to compete with us in the online consumer finance marketplace or otherwise,
such conflicts may not be resolved in our favor in light of CreditEase’s controlling interest in us. If CreditEase were to compete
with us, our business, financial condition, results of operations and prospects could be materially and adversely affected.
Our executive chairman
and chief executive officer, Mr. Ning Tang, has considerable influence over us and our corporate matters.
Our executive chairman and
chief executive officer, Mr. Ning Tang, has considerable influence over us and our corporate matters. As of March 31, 2026, Mr. Tang beneficially
owns 43.4% of the total outstanding shares of CreditEase, which is our controlling shareholder. As Mr. Tang is the sole director of CreditEase,
he controls the decision-making of CreditEase and indirectly has considerable influence over us, our corporate matters and matters requiring
shareholder approval, such as electing directors and approving material mergers, acquisitions or other business combination transactions.
This concentrated control will limit the ability of the holders of our ordinary shares and our ADSs to influence corporate matters and
could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the
effect of depriving the holders of our ordinary shares and our ADSs of the opportunity to sell their shares at a premium over the prevailing
market price.
We are a “controlled
company” within the meaning of the NYSE Listed Company Manual and, as a result, will rely on exemptions from certain corporate governance
requirements that provide protection to shareholders of other companies.
We are a “controlled
company” as defined under the NYSE Listed Company Manual because CreditEase beneficially owns more than 50% of our outstanding ordinary
shares. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain
exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent
directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate
governance requirements.
Risks Related to Our Corporate
Structure
If the PRC government
deems that the contractual arrangement in relation to the consolidated variable interest entity do not comply with PRC regulatory restrictions
on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the
future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of internet-based
businesses, such as distribution of online information, is subject to restrictions under current PRC laws and regulations. For example,
foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (except
for e-commerce, domestic multi-party communication, storage and forwarding classes and call centers) in accordance with the Special Administrative
Measures for Access of Foreign Investment (Negative List) (2024 Edition), or the 2024 Negative List, effective from November 1, 2024,
as amended, and other applicable laws and regulations.
45
We are a Cayman Islands company
and our PRC subsidiaries are considered foreign-invested enterprises. To comply with PRC laws and regulations, we conduct our operations
in China through a series of contractual arrangements entered into among Chongqing Hengyuda Technology Co., Ltd., or Hengyuda, Yiren Financial
Information Service (Beijing) Co., Ltd., or Yiren Financial Information, and the shareholders of Yiren Financial Information. Accordingly,
we consolidate the operating results of Yiren Financial Information in our financial statements under U.S. GAAP. We also used to conduct
our operations in China through (i) a series of contractual arrangements entered into among YouRace Hengchuang Technology Development
(Beijing) Co., Ltd., or YouRace Hengchuang, Hengcheng, and the shareholders of Hengcheng, which was terminated on December 31, 2020, (ii)
a series of contractual arrangements entered into among YouRace Hengchuang, Tianjin Linyang Information and Technology Co., Ltd., or Tianjin
Linyang, and the shareholders of Tianjin Linyang, which was terminated on December 5, 2022, and (iii) a series of contractual arrangements
entered into among YouRace Hengchuang, CreditEase Puhui, and the shareholders of CreditEase Puhui, which was terminated on October 31,
2025. For a detailed description of these contractual arrangements, see “Item 4. Information on the Company—C. Corporate History
and Structure.”
In the opinion of our PRC
counsel, Han Kun Law Offices, (i) our current ownership structure, the ownership structure of Hengyuda, our PRC subsidiary, and Yiren
Financial Information, the consolidated variable interest entity, and (ii) the contractual agreements among Hengyuda, Yiren Financial
Information and the shareholders of Yiren Financial Information, as described in “Item 4. Information on the Company—C. Organizational
Structure—Contractual Arrangements with Yiren Financial Information,” are, in each case, not in violation of existing PRC
laws, rules and regulations; and these contractual agreements are valid, binding and enforceable in accordance with their terms and
applicable PRC laws and regulations currently in effect. The equity pledge under each equity pledge agreement has been registered with
the competent office of the State Administration for Market Regulation in accordance with the PRC laws.
However, we are a Cayman
Islands holding company with no equity ownership in the consolidated variable interest entities and we conduct our operations in China
primarily through the consolidated variable interest entities with which we have maintained contractual arrangements. Investors in our
ordinary shares or the ADSs thus are not holding equity interest in the consolidated variable interest entities in China but instead are
holding equity interest in a Cayman Islands holding company. If the PRC government deems that our contractual arrangements with the consolidated
variable interest entities do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these
regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to
severe penalties or be forced to relinquish our interests in those operations. We may not be able to repay the notes and other indebtedness,
and our shares may decline in value or become worthless, if we are unable to assert our contractual control rights over the assets of
our PRC subsidiaries, which contributed to 81.4% of our revenues in 2025. Our holding company in the Cayman Islands, the consolidated
variable interest entities, and investors of our company face uncertainty about potential future actions by the PRC government that could
affect the enforceability of the contractual arrangements with the consolidated variable interest entities and, consequently, significantly
affect the financial performance of the consolidated variable interest entities and our company as a group.
Our PRC counsel, Han Kun
Law Offices, has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future
PRC laws and regulations and there can be no assurance that the PRC government will ultimately take a view that is consistent with the
opinion of our PRC counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structure will
be adopted or if adopted, what they would provide. For example, on February 17, 2023, the CSRC issued the Trial Administrative Measures
of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Regulations, and five supporting guidelines,
which was aimed to regulate both direct and indirect overseas offering and listing of PRC domestic companies’ securities by adopting
a filing-based regulatory regime. Companies in China that seek to offer and list securities in overseas markets, in direct or indirect
means, are required to fulfill the filing procedures with the CSRC and submit relevant information. At the press conference in relation
to the promulgation of the Overseas Listing Regulations on February 17, 2023, the CSRC officials clarified that, as for companies seeking
overseas offering and listing with VIE structures and applying to file with the CSRC, the CSRC will solicit opinions from relevant PRC
regulatory authorities and proceed with the filing of the overseas listing of such companies if such companies duly meet the compliance
requirements. If we fail to complete the filing with the CSRC in a timely manner, or at all, for our further capital raising activities,
which are subject to filing requirements under the Overseas Listing Regulations, due to our VIE structure, we may be required to unwind
the VIEs or adjust our business operations to meet the filing requirements and our ability to raise or utilize funds could be materially
and adversely affected. However, as the Overseas Listing Regulations was recently promulgated, it remains uncertain as to its interpretation,
implementation and enforcement, in particular, for companies with VIE structures, and there also remain uncertainties as to how they will
affect our operations in China and our future capital-raising activities.
46
The PRC government has broad
discretion in determining rectifiable or punitive measures for non-compliance with or violations of PRC laws and regulations. If the PRC
government determines that we or the consolidated variable interest entities do not comply with applicable law, it could revoke the consolidated
variable interest entities’ business and operating licenses, require the consolidated variable interest entities to discontinue
or restrict the consolidated variable interest entities’ operations, restrict the consolidated variable interest entities’
right to collect revenues, block the consolidated variable interest entities’ websites, require the consolidated variable interest
entities to restructure our operations, impose additional conditions or requirements with which the consolidated variable interest entities
may not be able to comply, impose restrictions on the consolidated variable interest entities’ business operations or on their customers,
or take other regulatory or enforcement actions against the consolidated variable interest entities that could be harmful to their business.
Any of these or similar occurrences could significantly disrupt our or the consolidated variable interest entities’ business operations
or restrict the consolidated variable interest entities from conducting a substantial portion of their business operations, which could
materially and adversely affect the consolidated variable interest entities’ business, financial condition and results of operations.
If any of these occurrences results in our inability to direct the activities of any of the consolidated variable interest entities that
most significantly impact its economic performance, and/or our failure to receive the economic benefits from any of the consolidated variable
interest entities, we may not be able to consolidate these entities in our consolidated financial statements in accordance with U.S. GAAP.
We rely on contractual
arrangements with the consolidated variable interest entity, and its shareholders for certain business operations in China, which may
not be as effective as direct ownership.
We have relied and expect
to continue to rely on contractual arrangements with Yiren Financial Information and its shareholders to operate certain website and mobile
application and insurance referral business. For a description of these contractual arrangements, see “Item 4. Information on the
Company—C. Organization Structure.” These contractual arrangements may not be as effective as direct ownership. For example,
Yiren Financial Information and its shareholders could breach their contractual arrangements with us by, among other things, failing to
conduct their operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking
other actions that are detrimental to our interests.
If we had direct ownership
of Yiren Financial Information, the consolidated variable interest entity, we would be able to exercise our rights as a shareholder to
effect changes in the board of directors of such consolidated variable interest entity, which in turn could implement changes, subject
to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements,
we rely on the performance by Yiren Financial Information and its shareholders of its obligations under the contracts. The shareholders
of Yiren Financial Information may not act in the best interests of our company or may not perform its obligations under these contracts.
Such risks exist throughout the period in which we intend to operate our business through the contractual arrangements with Yiren Financial
Information. Although we have the right to replace any shareholder of Yiren Financial Information under its respective contractual arrangements,
if any shareholder of Yiren Financial Information is uncooperative or any dispute relating to these contracts remains unresolved, we will
have to enforce our rights under these contracts through the operations of PRC laws and arbitration, litigation and other legal proceedings
and therefore will be subject to uncertainties in the PRC legal system. See “—Any failure by the consolidated variable interest
entity, or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect
on our business” below. Therefore, our contractual arrangements with the consolidated variable interest entities may not be as effective
in ensuring us to conduct the business operations of the relevant portion of our business operations as direct ownership would be.
47
Any failure by the
consolidated variable interest entity or its shareholders to perform their obligations under our contractual arrangements with them would
have a material adverse effect on our business.
If Yiren Financial Information,
the consolidated variable interest entity, or its shareholders fail to perform their respective obligations under the contractual arrangements,
we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal
remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you
will be effective under PRC laws. For example, if the shareholders of Yiren Financial Information were to refuse to transfer their equity
interest in Yiren Financial Information, as the case may be, to us or our designee if we exercise the purchase option pursuant to these
contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them
to perform their contractual obligations.
All the agreements under
our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly,
these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures.
The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties
in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and
little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced
under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary.
In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings
are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a
prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition
proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements,
or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to
conduct the business operations of the consolidated variable interest entities, and our ability to conduct our business may be negatively
affected. See “—Risks Related to Doing Business in China—Uncertainties with respect to the legal system in Chinese mainland
could adversely affect us. Certain laws and regulations in Chinese mainland can evolve quickly, which bring risks and uncertainties to
their interpretation and enforcement. Administrative and court proceedings in Chinese mainland may be protracted. Some government policies
and internal rules may not be published on a timely manner. These risks and uncertainties may make it difficult for us to meet or comply
with requirements under the applicable laws and regulations.”
The shareholders
of the consolidated variable interest entity may have potential conflicts of interest with us, which may materially and adversely affect
our business and financial condition.
We have one
consolidated variable interest entity, namely Yiren Financial Information as of the date of this annual report. The equity interests
of Yiren Financial Information are held by Mr. Ning Tang, our founder and executive chairman, CreditEase Pucheng Credit Assessment
and Management (Beijing) Co., Ltd., and Ms. Yan Tian. Their interests in Yiren Financial Information may differ from the interests
of our company as a whole. These shareholders may breach, or cause Yiren Financial Information to breach, the existing contractual
arrangements we have with them and Yiren Financial Information, as the case may be, which would have a material adverse effect on
our ability to conduct the business operations of Yiren Financial Information and receive economic benefits from Yiren Financial
Information. For example, the shareholders may be able to cause our agreements with Yiren Financial Information to be performed in a
manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely
basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests
of our company or such conflicts will be resolved in our favor.
Currently, we do not have
any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise
our purchase option under the exclusive option agreement with these shareholders to request them to transfer all of their equity interests
in such consolidated variable interest entity to a PRC entity or an individual designated by us, to the extent permitted by PRC laws.
If we cannot resolve any conflicts of interest or dispute between us and the shareholders of Yiren Financial Information, we would have
to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the
outcome of any such legal proceedings.
48
Contractual arrangements
in relation to the consolidated variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine
that we owe additional taxes, which could negatively affect our financial condition and the value of your investment.
Under applicable PRC laws
and regulations, arrangements and other transactions among related parties may be subject to audit or challenge by the PRC tax authorities
within ten years after the taxable year when the transactions are conducted. The PRC Enterprise Income Tax Law requires every enterprise
in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant
tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions
that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities
determine that the contractual arrangements between Hengyuda, our wholly owned subsidiary in China, Yiren Financial Information, the variable
interest entity in China, and the shareholders of Yiren Financial Information were not entered into on an arm’s length basis in
such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income
of Yiren Financial Information, the consolidated variable interest entity, in the form of a transfer pricing adjustment. A transfer pricing
adjustment could, among other things, result in a reduction of expense deductions recorded by such consolidated variable interest entity
for PRC tax purposes, which could in turn increase their tax liabilities without reducing the tax expenses of Yiren Financial Information.
In addition, if Hengyuda requests the shareholders of Yiren Financial Information, as the case may be, to transfer their equity interests
in such consolidated variable interest entity, as the case may be, at nominal or no value pursuant to these contractual arrangements,
such transfer could be viewed as a gift and subject Hengyuda to PRC income tax. Furthermore, the PRC tax authorities may impose late payment
fees and other penalties on Yiren Financial Information for the adjusted but unpaid taxes according to the applicable regulations. Our
financial position could be materially and adversely affected if the consolidated variable interest entity’ tax liabilities increase
or if they are required to pay late payment fees and other penalties.
We may lose the
ability to use and benefit from assets held by the consolidated variable interest entity that are material to the operation of our business
if any of these entities goes bankrupt or becomes subject to a dissolution or liquidation proceeding.
Yiren Financial Information,
the consolidated variable interest entity and its subsidiaries, hold certain assets that are material to the operation of our business.
Under the contractual arrangements, the consolidated variable interest entity may not, and its shareholders may not cause it to, in any
manner, sell, transfer, mortgage or otherwise dispose of its assets or its legal or beneficial interests in the business without our prior
consent. However, in the event the shareholders of Yiren Financial Information breach these contractual arrangements and voluntarily liquidate
Yiren Financial Information, or Yiren Financial Information declares bankruptcy and all or part of its assets become subject to liens
or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to continue some or all of our
business activities, which could materially and adversely affect our business, financial condition and results of operations. If the consolidated
variable interest entity undergo a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights
to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our
business, financial condition and results of operations.
If the chops of
our PRC subsidiaries, and the consolidated variable interest entities are not kept safely, are stolen or are used by unauthorized persons
or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.
In China, a company chop
or seal serves as the legal representation of the company in dealing with third parties even when unaccompanied by a signature. Each legally
registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In
addition to this mandatory company chop, companies may have several other chops that can be used for specific purposes. The chops of our
principal PRC subsidiaries and the consolidated variable interest entities are generally held securely by personnel designated or approved
by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized
persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those
corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked
the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience a disruption
to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources while
distracting management from our operations to resolve these issues.
49
Risks Related to Doing
Business in China
Changes in China’s
or global economic, political or social conditions or government policies could have a material adverse effect on our business and results
of operations.
Substantially all of our
operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced
to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a
whole.
The Chinese economy differs
from the economies of most developed countries in many respects, including 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 allocating resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries
or companies.
While the Chinese economy
has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the
economy, and the rate of growth has been slowing. 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, the global macroeconomic
environment is facing challenges. 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 been concerns over unrest and terrorist threats in the Middle East, Europe and Africa and over the conflicts involving
Iran, Ukraine, Syria and North Korea. There have also been concerns on the relationship among China and other Asian countries, which may
result in or intensify potential conflicts in relation to territorial disputes, and the current trade tension between the United States
and China. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the
global political and economic conditions in the long term.
Uncertainties with
respect to the legal system in Chinese mainland could adversely affect us. Certain laws and regulations in Chinese mainland can evolve
quickly, which bring risks and uncertainties to their interpretation and enforcement. Administrative and court proceedings in Chinese
mainland may be protracted. Some government policies and internal rules may not be published on a timely manner. These risks and uncertainties
may make it difficult for us to meet or comply with requirements under the applicable laws and regulations.
The PRC legal system is based
on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and
the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement
of these laws, regulations and rules involves uncertainties.
From time to time, our company
and the VIEs may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult
to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy 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) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and
rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property
(including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to
continue our operations.
PRC government has significant
oversight over the conduct of our business and it has recently indicated an intent to exert more oversight over offerings that are conducted
overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability
to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
50
Uncertainties exist
with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current
corporate structure, corporate governance and business operations.
On March 15, 2019, the National
People’s Congress approved the Foreign Investment Law, which became effective on January 1, 2020, and replaced the trio of prior
laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative
Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations.
The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with
prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic
investments. However, there are still uncertainties in relation to the interpretation and implementation of the Foreign Investment Law
and its implementation regulations. For instance, under the Foreign Investment Law, “foreign investment” refers to the investment
activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly
classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement
would not be interpreted as a type of indirect foreign investment activity under the definition in the future. In addition, the definition
contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative
regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations
or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these
cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for
foreign investment under the PRC laws and regulations. In addition, the Supreme People’s Court issued Certain Opinions Concerning
the Application of the Foreign Investment Law on December 26, 2019, or the Foreign Investment Law Judicial Interpretations, which provides
that investment contract in relation to the investment by foreign investor in a field which is prohibited from foreign investment under
the 2024 Negative List may be invalidated by the courts. Although we believe contractual arrangements would not be deemed as “investment
contract” under the Foreign Investment Law Judicial Interpretations, we cannot assure you that the PRC courts would take the same
view as us. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions
to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can
complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar
regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business
operations. See “—Risks Related to Our Corporate Structure” and “Item 4. Information on the Company—C. Organizational
Structure.”
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.
We only have contractual
control over operators of our websites and mobile applications providing value-added telecommunication services in China. We do not directly
own operators of such websites and mobile applications due to the restriction of foreign investment in businesses providing value-added
telecommunication services in China, including internet information provision services. This may significantly disrupt our business, subject
us to sanctions, compromise enforceability of related contractual arrangements, or have other harmful effects on us.
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 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.
51
On September 25, 2000, the
State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which were amended in
January 2011 and December 2024. Under the Internet Measures, commercial internet information services operators shall obtain an ICP license
from the relevant government authorities before engaging in any commercial internet information services operations within mainland China.
The Telecommunications Regulations of the PRC, or the Telecommunications Regulations, which were promulgated by the State Council on September
25, 2000 and last amended on February 6, 2016, and took effect as of the date of its promulgation, provide a regulatory framework for
telecommunications services providers in the PRC. The Telecommunications Regulations classify telecommunications services into two categories,
namely basic telecommunications services and value-add telecommunications services. According to the Catalog of Telecommunications Businesses
attached to the Telecommunications Regulations last amended by the MIIT on June 6, 2019, information services provided via public communication
network or Internet, and online data processing and transaction processing fall within the scope of value-added telecommunications services.
The Telecommunications Regulations require value-added telecommunications services providers to obtain an operating license from the MIIT
or its provincial-level counterparts prior to the commencement of their operations. An ICP License is a value-added telecommunications
business operating license required for provision of commercial internet information services. An EDI License is a value-added telecommunications
business operating license required for provision of online data processing and transaction processing.
Yiren Select, our comprehensive
life service platform that targets the mass affluent population with a variety of consumption and lifestyle products and services, may
be deemed as providing commercial internet information services and required to obtain an ICP license and an EDI License. While Yiren
Select is operated by Yiren Zhisheng, a variable interest entity holding an ICP license and an EDI License, the domain name and mobile
application in connection with Yiren Select was historically owned by Yiren Finance and is currently owned by Xiangyu Safety Technology Service (Beijing) Co., Ltd. (formerly known as Yiren Information Consulting (Beijing) Co., Ltd.), or Xiangyu
Safety. Xiangyu Safety is also the current registrant of ICP and mobile application filings for
Yiren Select. Xiangyu Safety does not hold any ICP license or EDI License.
In addition, the Circular
on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MIIT
in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business
operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for its
illegal operation of a telecommunications business in China. According to this circular, either the holder of a value-added telecommunication
services operation permit or its shareholders must directly own the domain names and trademarks used by such license holders in their
provision of value-added telecommunication services. The circular also requires each license holder to have the necessary facilities,
including servers, for its approved business operations and to maintain such facilities in the regions covered by its license.
Yiren Zhisheng, who owns
ICP License and EDI License, operates Yiren Select, but the relevant trademarks in connection with Yiren Select are held by Yourace Hengchuang.
While our PRC subsidiary YouRace Hengchuang and the subsidiary of the consolidated variable entity, Kechuang Xinlian, owns the trademarks
and domains names of Yixianghua respectively, Hainan CreditEase Puhui Micro Loan Co., Ltd., an entity of CreditEase that owns ICP License
and EDI License, is the actual operator of Yixianghua. If an ICP License holder fails to comply with the requirements and also fails to
remedy such non-compliance within a specified period of time, the MIIT or its local counterparts have the discretion to take administrative
measures against such license holder, including revoking its ICP License, which could affect the operation of relevant mobile applications.
In December 2007, the State
Administration of Press Publication Radio Film and Television, or the SAPPRFT, the predecessor of Administration of Radio and Television
newly established in April 2018, and the MIIT, issued the Administrative Measures Regarding Internet Audio-Video Program Services, or
the Internet Audio-Video Program Measures, which became effective on January 31, 2008, and amended on August 28, 2015. Among other things,
the Internet Audio-Video Program Measures stipulates that no entities or individuals may provide internet audio-video program services
without a “License for Disseminating Audio-Video Programs through Information Network” issued by the SAPPRFT or its local
bureaus or completing the required registration with the SAPPRFT or its local bureaus, and only entities wholly owned or controlled by
the PRC government may engage in the production, editing, integration or consolidation, and transmission to the public through the internet
of audio-video programs, or the provision of audio-video program uploading and transmission services. The Official Answers to Press Questions
Regarding the Internet Audio-video Program Regulations published by the SAPPRFT and MIIT on February 3, 2008 confirmed the above guidelines.
There are still significant uncertainties relating to the interpretation and implementation of the Internet Audio-Video Program Measures,
in particular, the scope of “Internet Audio-Video Programs.”
52
Furthermore, on April 1,
2010, the SAPPRFT promulgated the Test Implementation of the Tentative Categories of Internet Audio-Visual Program Services, amended on
March 10, 2017, which clarified the scope of internet audio-video programs services. According to the tentative categories, there are
four categories of internet audio-visual program services which are further divided into seventeen sub-categories. The third sub-category
to the second category covers the making and editing of certain specialized audio-video programs concerning, among other things, economic,
financial and technological content, and broadcasting such content to the general public online.
On July 19, 2004, the SAPPRFT
promulgated the Regulations on the Administration of Production and Operation of Radio and Television Programs, or the Radio and TV Programs
Regulations, which came into effect as of August 20, 2004 and was last revised on June 3, 2025. Under the Radio and TV Programs Regulations,
any entity that engages in the production of radio and television programs is required to apply for a license from SAPPRFT or its provincial
branches. Entities with the license, i.e., the Permit for Production and Operation of Radio and TV Programs, must conduct their business
operations in strict compliance with the approved scope of production and operation. Furthermore, entities other than radio and TV stations
are strictly prohibited from producing radio and TV programs covering contemporary political news or similar subjects and columns.
Yiren Select provides livestreaming
programs where guests comment on broad economic, financial and technological topics. As a result, we may be subject to the Internet Audio-Video
Program Measures. If the governmental authorities determine that our provision of livestreaming falls within the Internet Audio-Video
Program Measures, we may not be able to obtain the License for Disseminating Audio-Video Programs through Information Network as it would
only be granted to state-owned entities. If this occurs, we may become subject to significant penalties, fines, legal sanctions or an
order to suspend our use of audio-video content, all of which could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Furthermore, we offer playbacks
of the livestreaming on Yiren Select. If the governmental authorities find these playbacks constitute radio and television programs produced
by us, we will be required to apply for the Permit for Production and Operation of Radio and TV Programs, absence of which may subject
us to penalties, fines and legal sanctions. Governmental authorities may also determine that our online content services fall within the
scope of “internet publishing,” and therefore require us to apply for an Internet Publishing License, which we have not obtained
from the SAPPRFT as of the date of this annual report. We may not be able to obtain such a license if we are requested to obtain one in
the future, and we may therefore become subject to penalties, fines, legal sanctions or be ordered to suspend the video content on the
website, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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 our company and the VIEs 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.
Any failure by us
or our third-party service providers to comply with applicable anti-money laundering laws and regulations could damage our reputation.
In cooperation with our partnering
custody banks and payment companies, our company and the VIEs have adopted various policies and procedures, such as internal controls
and “know-your-customer” procedures, for anti-money laundering purposes. In addition, we rely on our third-party service providers,
in particular the custody banks and payment companies that handle the transfer of funds between borrowers and funding partners, to have
their own appropriate anti-money laundering policies and procedures. The custody banks and payment companies are subject to anti-money
laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by the PBOC. If any
of our third-party service providers fails to comply with applicable anti-money laundering laws and regulations, our reputation could
suffer and we could become subject to regulatory intervention, which could have a material adverse effect on our business, financial condition
and results of operations. Any negative perception of the industry, such as that arises from any failure of other consumer finance marketplaces
to detect or prevent money laundering activities, even if factually incorrect or based on isolated incidents, could compromise our image
or undermine the trust and credibility we have established.
53
The Guiding Opinions on Promoting
the Healthy Development of Internet Finance jointly released by ten PRC regulatory agencies in July 2015 purport, among other things,
to require internet finance service providers, to comply with certain anti-money laundering requirements, including the establishment
of a customer identification program, the monitoring and reporting of suspicious transactions, the preservation of customer information
and transaction records, and the provision of assistance to the public security department and judicial authority in investigations and
proceedings in relation to anti-money laundering matters. On October 10, 2018, the PBOC, the CBIRC and the CSRC, jointly promulgated the
Administrative Measures for Anti-money Laundering and Counter-terrorism Financing by Internet Finance Service Agencies (for Trial Implementation),
effective as of January 1, 2019, which specifies the anti-money laundering obligations of internet finance service agencies and regulate
that the internet finance service agencies shall (i) adopt continuous customer identification measures; (ii) implement the system
for reporting large-value or suspicious transactions; (iii) conduct real-time monitoring of the lists of terrorist organizations
and terrorists; and (iv) properly keep the information, data and materials such as customer identification and transaction reports
etc. We cannot assure you that the anti-money laundering policies and procedures our company and the VIEs have adopted will be effective
in protecting our marketplace from being exploited for money laundering purposes or will be deemed to be in compliance with applicable
anti-money laundering implementing rules if and when adopted.
The PRC government’s
significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value
of our ADSs.
We conduct our business primarily
through the consolidated variable interest entities and their subsidiaries in China. Our operations in China are governed by PRC laws
and regulations. The PRC government has significant oversight and discretion over the conduct of our business, and it may influence our
operations, which could result in a material adverse change in our operation and/or the value of our ADSs. Also, the PRC government has
recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment
in China-based issuers and published new regulations and policies that significantly affected certain industries, and we cannot rule out
the possibility that the PRC government will in the future release regulations or policies that directly or indirectly affect our industry
or require us to seek additional permission to continue our operations, which could result in a material adverse change in our operation
and/or the value of our ADSs. Therefore, investors of our company and our business face potential uncertainty from actions taken by the
PRC government affecting our business.
We rely on dividends
and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation
on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a holding company,
and we rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including
the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries
incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other
distributions to us. In addition, the PRC tax authorities may require Hengyuda to adjust its taxable income under the contractual arrangements
it currently has in place with Yiren Financial Information in a manner that would materially and adversely affect its ability to pay dividends
and other distributions to us. See “—Risks Related to Our Corporate Structure—Contractual arrangements in relation to
the consolidated variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that we owe additional
taxes, which could negatively affect our financial condition and the value of your investment” above.
Under PRC laws and regulations,
our PRC subsidiaries may pay dividends only out of their respective accumulated after-tax profits as determined in accordance with PRC
accounting standards and regulations. In addition, a PRC enterprise, when distributing its after-tax profits to shareholders, is required
to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate
amount of such funds reaches 50% of its registered capital.
54
Any limitation on the ability
of our PRC subsidiaries to pay dividends or make other distributions 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. See also
“—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable
tax consequences to us and our non-PRC shareholders or ADS holders” below.
PRC regulation of
loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay
or prevent us from using the proceeds of our initial public offering and the concurrent private placement to make loans to or make additional
capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand
our business.
Under PRC laws and regulations,
we are permitted to utilize the proceeds from our initial public offering and the concurrent private placement to fund our PRC subsidiaries
by making loans to or additional capital contributions to our PRC subsidiaries, subject to applicable government registration and approval
requirements.
Any loans to our PRC subsidiaries,
which are treated as foreign-invested enterprises under PRC laws, are subject to PRC regulations and foreign exchange loan registrations.
For example, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with
the local counterpart of the SAFE. According to the Interim Measures on the Management of Foreign Debts promulgated by SAFE, the Ministry
of Finance and the National Development and Reform Commission on January 8, 2003, and amended on September 1, 2022, the statutory limit
for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment and the amount
of registered capital of such foreign-invested company. According to the Circular of the People’s Bank of China on Matters relating
to the Comprehensive Macro-prudential Management of Cross-border Financing issued by the People’s Bank of China in January 2017,
or Circular 9, and the announcement by the People’s Bank of China and the SAFE to increase the macro-prudential regulation parameter
for full-covered cross-border financing on January 13, 2025, the maximum amount of foreign debt that each company may borrow is determined
by reference to its so-called risk-weighted balance of cross-border financing, which may not exceed three and a half times its net assets
as indicated in its latest audited financial report. The risk-weighted balance of cross-border financing of a company is calculated based
on its outstanding amounts of RMB and foreign currency cross-border debt, multiplied by risk conversion factors corresponding to their
respective remaining terms, loan categories and currency. Moreover, according to the Administrative Measures for Review and Registration
of Medium- and Long-term Foreign Debts of Enterprises issued by the National Development and Reform Commission on January 5, 2023, which
took effect on February 10, 2023, any loans we extend to the consolidated variable interest entities or other PRC operating companies
that are domestic PRC entities for more than one year must be registered with the National Development and Reform Commission and must
also be registered with SAFE or its local branches.
We may also decide to finance
our PRC subsidiaries by means of capital contributions. These capital contributions must be filed for record with MOFCOM or its local
counterpart. On March 30, 2015, SAFE promulgated Circular of the State Administration of Foreign Exchange on Reforming the Management
Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or Circular 19, which expands a pilot reform
of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. On June 9, 2016,
SAFE promulgated Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign
Exchange Settlement of Capital Accounts, or Circular 16, to further expand and strengthen such reform. Circular 16 was partly amended
on December 4, 2023. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange
funds under capital accounts and RMB funds from exchange settlement for expenditure under current accounts within their business scope
or expenditure under capital accounts permitted by laws and regulations, except that such funds shall not be used for (i) expenditure
beyond the enterprise’s business scope or expenditure prohibited by laws and regulations; (ii) securities investment or other investment
and wealth management (except for wealth management products and structured deposits with risk rating results of not higher than Grade
II) unless otherwise specified; (iii) granting loans to non-affiliated enterprises, except where it is expressly permitted in the business
license; and (iv) purchasing residential real estate not for self-use (except for enterprises engaging in real estate development and
leasing operation). On October 23, 2019, the SAFE issued the Notice of the State Administration of Foreign Exchange on Further Facilitating
Cross-border Trade and Investment, which, among other things, expanded the use of foreign exchange capital to domestic equity investments.
Non-investment foreign-funded enterprises are allowed to lawfully make domestic equity investments on the premise by using capital funds
without violation to prevailing special administrative measures for access of foreign investments (negative list) and the authenticity
and compliance with the regulations of domestic investment projects. If the consolidated variable interest entities need financial support
from us or our wholly owned subsidiaries in the future and we find it necessary to use foreign currency-denominated capital to provide
such financial support, our ability to fund the consolidated variable interest entities’ operations will be subject to statutory
limits and restrictions, including those described above.
55
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 to our PRC subsidiaries or future 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 initial public offering
and our private placement 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.
Fluctuations in
exchange rates could result in foreign currency exchange losses and have a material adverse effect on the price of our ADSs.
Fluctuations in exchange
rates could have a material and adverse effect on our results of operations and the value of your investment. The conversion of RMB into
foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The RMB has fluctuated against
the U.S. dollar, at times significantly and unpredictably. The value of RMB against the U.S. dollar and other currencies is affected by
changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot
assure you that RMB 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 RMB and the U.S. dollar in the future.
Any significant appreciation
or depreciation of RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends
payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive into RMB to pay our operating
expenses, appreciation of RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion.
Conversely, a significant depreciation of RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings,
which in turn could adversely affect the price of our ADSs.
Very limited hedging options
are available in China to reduce our exposure to exchange rate fluctuations. To date, our company and the VIEs have not entered into any
hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge
our exposure, or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict
our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your
investment.
Governmental control
of currency conversion may limit our ability to utilize our net revenue effectively and affect the value of your investment.
The PRC government imposes
controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive
substantially all of our net revenue in RMB. Under our current corporate structure, our company in the Cayman Islands relies on dividend
payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations,
payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made
in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiaries
are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of
such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment
registrations by the beneficial owners of our company who are PRC residents. However, approval from or registration with appropriate government
authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the
repayment of loans denominated in foreign currencies.
56
In light of the flood of
capital outflows of China in 2016 due to the weakening RMB, the PRC government has imposed more restrictive foreign exchange policies
and stepped-up scrutiny of major outbound capital movement. More restrictions and a substantial vetting process are put in place by SAFE
to regulate cross-border transactions falling under the capital account. For example, on January 26, 2017, SAFE promulgated the Circular
on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3,
which sets out certain measures tightening genuineness and compliance verification of cross-border transactions and cross-border capital
flow, including (i) improving the statistics of current account foreign currency earnings deposited offshore; (ii) requiring banks to
verify board resolutions, tax filing forms, and audited financial statements before wiring foreign-invested enterprises’ foreign
exchange distributions above US$50,000; and (iii) strengthening genuineness and compliance verification of foreign direct investments.
The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If
the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands,
we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs. As a result, the funds in
our PRC subsidiaries or the consolidated variable interest entities in Chinese mainland may not be available to fund operations or for
other use outside of Chinese mainland due to interventions in, or the imposition of restrictions and limitations on, the ability of our
holding company, our subsidiaries, or the consolidated variable interest entities by the PRC government on currency conversion.
Failure to make
adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
Our company and the VIEs
are required under PRC laws and regulations 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. We have accrued the employee
benefits according to the local governments’ regulations in financial statements and made adequate employee benefits payments as
of the date of this annual report. However, certain entities we acquired in March 2019 as part of our business realignment with CreditEase
did not make adequate employee benefits payment in the past. Although we have obtained indemnities and warranties from CreditEase to protect
us for any potential liability associated with unpaid employee benefits, we may be required to make up the contributions for these plans
and pay late penalties and fines in the first place before we could claim compensation from CreditEase. If we are subject to late penalties
or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be materially and adversely
affected.
The 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 Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006
and amended in 2009, and some other 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, including requirements in some
instances that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic
enterprise. In addition, the Provisions of the Ministry of Commerce on the Implementation of the Safety Review System for Merger and Acquisition
of Domestic Enterprises by Foreign Investors issued by MOFCOM that became effective in September 2011 specify that mergers and acquisitions
by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign
investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict
review by MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction
through a proxy or contractual control arrangement. 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, which could affect our ability to expand our business or maintain our market share. On March 25, 2019,
we entered into a set of definitive agreements with CreditEase regarding a business realignment between CreditEase and us. Meanwhile,
we acquired CreditEase Puhui through a series of internal re-organization transactions. If MOFCOM or any of its local counterparts challenges
the aforementioned transaction structure or requires us to complete relevant approval process, we may have to adjust the transaction structure,
amend or terminate the definitive agreements or be subject to fines and other administrative sanctions. If such situations occur, our
business, financial condition and prospects would be materially and adversely affected.
57
PRC regulations
relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered
capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners 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 is 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 promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign
Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring
PRC residents or entities to register with qualified banks rather than 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.
If our shareholders who are
PRC residents or entities do not complete their registration as required, 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 are committed to complying
with and to ensuring that our shareholders who are subject to these regulations will comply with the SAFE rules and regulations. However,
due to the inherent uncertainty in the implementation of the regulatory requirements by the PRC authorities, such registration might not
be always practically available in all circumstances as prescribed in those regulations.
Additionally, we may not
be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel
our beneficial owners to comply with SAFE registration requirements. 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 subsidiaries, could subject us to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us
or affect our ownership structure, which could adversely affect our business and prospects.
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Any failure to comply
with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants
or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated
the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of
Overseas Publicly Listed Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC
citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas
publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could
be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution
must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests.
We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less
than one year and who have been granted options or other awards are subject to these regulations. Failure to complete the SAFE registrations
may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries
and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict
our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4.
Information on the Company—B. Business Overview—Regulation—Regulations Related to Foreign Exchange—Regulations
on Stock Incentive Plans.”
If we are classified
as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our
non-PRC shareholders or ADS holders.
Under the Enterprise Income
Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within
the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%.
The implementation rules define the term “de facto management body” as the body that exercises full and substantial control
over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State
Administration of Taxation issued a circular, known as 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. Although this
circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals
or foreigners like us, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position
on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises.
According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded
as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income
tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management
is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval
by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and
board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives
habitually reside in the PRC.
We believe none of our entities
outside of China is a PRC resident enterprise for PRC tax purposes. “Item 10. Additional Information—E. Taxation—People’s
Republic of China Taxation.” However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities
and uncertainties remain with respect to the interpretation of the term “de facto management body.” As substantially all of
our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities
determine that Yiren Digital Ltd. or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax
purposes, then Yiren Digital Ltd. or such subsidiary could be subject to PRC tax at a rate of 25% on its worldwide income, which could
materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore,
if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale
or other disposition of our ADSs or ordinary shares may be subject to PRC 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), if such gains are deemed
to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties
between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce
the returns on the investment in our ADSs.
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Discontinuation
of preferential tax treatment or imposition of any additional taxes could adversely affect our financial condition and results of operations.
The Enterprise Income Tax
Law and its implementing rules have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China. The Enterprise
Income Tax Law and its implementing rules also permit companies qualified as “software enterprises” to enjoy a two-year income
tax exemption starting from the first profit making year, followed by a reduced tax rate of 12.5% for the subsequent three years. YouRace
Hengchuang, one of our PRC subsidiaries, was qualified as a “high and new technology enterprise” in November 2018 and the
status was reaffirmed in 2024. Accordingly, it has been eligible for a preferential income tax rate of 15%. However, YouRace Hengchuang’s
qualification as a “high and new technology enterprise” is subject to evaluation by the relevant authorities in China every
three years. If YouRace Hengchuang fails to maintain its “high and new technology enterprise” qualification, its applicable
corporate income tax rate would increase to 25%, which could have adverse effects on our financial condition and results of operations.
Chongqing Hengfengyi Technology Co., Ltd, or Hengfengyi, one of our PRC subsidiaries, was also qualified as a “software
enterprise” in April 2025, and accordingly has been eligible for an exemption of enterprise income tax for 2024 and 2025 and a reduced
enterprise income tax at the rate of 12.5% from 2026 through 2028. However, Hengfengyi’s qualifications as “software
enterprises” are subject to annual evaluation by the relevant authorities in China. If Hengfengyi fails to maintain
its “software enterprise” qualification, its applicable corporate income tax rate would increase to 25%, which could have
adverse effects on our financial condition and results of operations. In addition, Hengyuda, one of our PRC subsidiaries, has been eligible
for a reduced enterprise income tax rate of 15% since 2017 pursuant to the Catalogue of Encouraged Industries in Western Regions, the
Catalogue of Industries for Guiding Foreign Investment, Announcement on Renewing the Enterprise Income Tax Policy for Great Western Development,
and the related rules granting favorable tax treatment to companies in specified industries in western China under the PRC government’s
policy initiative to promote the development of the western region of China. However, the favorable tax treatments for Hengyuda are subject
to an annual filing requirement. Besides, Beihai Youce Yike Technology Co., Ltd., Beihai Hengze Innovation Technology Co., Ltd., and Beihai
Youjia Innovation Technology Co., Ltd., as newly setup PRC subsidiaries are also eligible for a reduced enterprise income tax rate of
15% pursuant to the same set of policies and regulations applicable to Hengyuda. Beihai Youce Yike Technology Co., Ltd., Beihai Hengze
Innovation Technology Co., Ltd., and Beihai Youjia Innovation Technology Co., Ltd. are also eligible for an exemption of local portion
of enterprise income tax for five years since the tax year they generate their first sum of main business revenue according to the Notice
on Several Policies to Promote High-Level Opening-Up and High-Quality Development of the Beibu Gulf Economic Zone in the New Era. In addition,
Xinjiang Hengyu Innovation Technology Development Co., Ltd., Hesi Shengju Technology Development (Xinjiang) Co., Ltd., and Hesi Shengrui
Technology Development (Xinjiang) Co., Ltd., as newly setup PRC subsidiaries are eligible for an exemption of enterprise tax for five
years since the tax year they generate their first sum of production and business revenue according to the Notice on Corporate Income
Tax Incentives for Newly Established Enterprises in Xinjiang’s Difficult Areas and the Kashgar and Khorgos Special Economic Development
Zones. However, the relevant rules and policy initiative may change, and the favorable tax treatment under these rules is available only
to companies meeting certain qualifications. Therefore, there is uncertainty as to whether and for how long these companies can continue
to enjoy such favorable tax treatment after 2025. If such favorable tax treatment becomes unavailable to these companies in the future,
their applicable corporate income tax rate would increase to 25%, which may affect our financial condition and results of operations.
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
incorporated 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. Furthermore, the Administrative Measures for Non-Resident Taxpayers to Enjoy Treaty Benefits, or Circular 35,
which became effective on January 1, 2020, require non-resident enterprises to determine whether they are qualified to enjoy the preferential
tax treatment under the tax treaties and file relevant report with the tax authorities. There are also other conditions for enjoying the
reduced withholding tax rate according to other relevant tax rules and regulations. See “Item 10. Additional Information—E.
Taxation—People’s Republic of China Taxation.” We cannot assure you that our determination regarding our qualification
to enjoy the preferential tax treatment will not be challenged by the relevant tax authority or we will be able to complete the necessary
filings with the relevant 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 Yiren Digital Hong Kong Limited, our Hong Kong subsidiary.
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Enhanced scrutiny
over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
The PRC tax authorities have
enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in
a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing Circular on Issues Concerning Treatment of Enterprise
Income Tax in Enterprise Restructuring Business promulgated by the State Administration of Taxation, which became effective in January
2008 and later amended in 2014, or Circular 59, the Announcement of the State Administration of Taxation on Several Issues concerning
the Enterprise Income Tax on the Indirect Transfers of Properties by Non-Resident Enterprises promulgated by the State Administration
of Taxation in February 2015, or Circular 7, and the Announcement of the State Administration of Taxation on Matters Concerning Withholding
of Income Tax of Non-resident Enterprises at Source promulgated by the State Administration of Taxation in October 2017, taken into effect
in December 2017 and amended in June 2018, or SAT Circular 37.
Under Circular 7, where a
non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise”
or other taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being
the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure
without reasonable commercial purposes.
In addition, Circular 7 provides
clearer criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and
the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and
transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts
an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding
company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets
may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority
may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose
of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income
tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently
at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.
SAT Circular 37 provides
certain changes to the current withholding regime. For example, SAT Circular 37 requires that the transferor shall declare to the competent
tax authority for payment of tax within seven days after the tax payment obligation comes into being if the withholding agent fails to
withhold the tax due or withhold the tax due in full. However, according to SAT Circular 37, if the withholding agent fails to withhold
and remit the income tax payable, or is unable to perform its obligation in this regard, as long as the non-resident enterprise that earns
the income voluntarily declares and pays the tax payable before the tax authority orders it to do so within required time limits, it shall
be deemed that such enterprise has paid the tax in time.
We face uncertainties on
the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer
of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises
with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the
filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or
being taxed, under Circular 59, Circular 7 and SAT Circular 37, and may be required to expend valuable resources to comply with Circular
59, Circular 7 and SAT Circular 37 or to establish that we and our non-resident enterprises should not be taxed under these circulars,
which may have a material adverse effect on our financial condition and results of operations.
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The PRC tax authorities have
the discretion under Circular 59, Circular 7 and SAT Circular 37 to make adjustments to the taxable capital gains based on the difference
between the fair value of the taxable assets transferred and the cost of investment. We may pursue acquisitions from time to time that
may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if
the PRC tax authorities make adjustments to the taxable income of the transactions under Circular 59, Circular 7 and SAT Circular 37,
our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial
condition and results of operations.
The approval of
and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law,
and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.
The Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and
amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies
and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose
vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our
offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how
long it will take us to obtain the approval and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to
obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval if obtained by us,
would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our
operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may
materially and adversely affect our business, financial condition, and results of operations.
On July 6, 2021, the relevant
PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions
emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based
companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the
risks and incidents faced by China-based overseas-listed companies. As a follow-up, on February 17, 2023, the CSRC issued Trial Administrative
Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Regulations, and five supporting guidelines,
which became effective on March 31, 2023.
Pursuant to the Overseas
Listing Regulations, companies in China that directly or indirectly offer or list their securities in an overseas market must file with
the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing.
The Overseas Listing Regulations also provides that a company in China must file with the CSRC within three business days after completion
of its follow-on offering of securities after it is listed in an overseas market. If the company fails to complete the filing procedure
or conceals any material fact or falsifies any major content in its filing documents, it may be subject to administrative penalties, such
as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other
directly liable persons may also be subject to administrative penalties, such as warnings and fines. According to the Notice on Administration
of the Filing of Overseas Offering and Listing by Domestic Companies issued by the CSRC on February 17, 2023, the companies in China that
have been listed overseas before March 31, 2023 are not required to file with the CSRC in connection with the historical offerings, although
these companies are required to fulfill filing obligations with the CSRC in connection with their additional capital raising activities
in accordance with the Overseas Listing Regulations. Based on the foregoing, we are not required to complete filing with the CSRC for
our historical offerings, but may be subject to the filing requirements for our future capital raising activities, if any, under the Overseas
Listing Regulations. However, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted
overseas and/or foreign investment in China-based issuers like us and published a series of rules in this regard, the interpretation and
implementation of most of which are subject to changes. Therefore, there remains substantial uncertainties with respect to how the CSRC
filing procedures under the Overseas Listing Regulations would be applied to, and implicate, the procedures, timetables and outcomes of
our future offering or other capital raising activities.
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On February 24, 2023, the
CSRC, jointly with other relevant governmental authorities, published the Provisions on Strengthening Confidentiality and Archives Management
of Overseas Securities Issuance and Listing by Domestic Enterprises, or the Confidentiality and Archives Management Provisions, which
became effective on March 31, 2023. Pursuant to the Confidentiality and Archives Management Provisions, China-based companies that offer
and list securities in overseas markets shall establish a confidentiality and archives system. These China-based companies shall obtain
approval from the relevant authorities and file with the confidential administration authorities, either by itself or its offshore listing
entity, when providing or publicly filing documents and materials related to state secrets or secrets of the governmental authorities
to the relevant securities companies, securities service institutions or offshore regulatory authorities. In addition, these companies
shall complete relevant procedures if the documents or materials filed may adversely affect national security or public interests once
publicly disclosed, or if these companies provide accounting files or copies to relevant securities companies, securities service institutions,
overseas regulators and individuals.
Relatedly, on September 6,
2024, the NDRC and the Ministry of Finance, or the MOF, jointly issued the 2024 Negative List, which became effective on November 1, 2024.
Pursuant to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2024 Negative
List seeks an overseas offering and listing, it shall obtain the approval from the competent governmental authorities. Besides, the foreign
investors of the company shall not be involved in the company’s operation and management, and their shareholding percentage shall
be subject, mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign investors. If we are required
to comply with these requirements and fail to do so on a timely basis, if at all, our business operation, financial conditions and business
prospect may be adversely and materially affected.
In addition, we cannot assure
you that any new rules or regulations promulgated in the future will not impose additional requirements on us. If it is determined in
the future that approval and filing from the CSRC or other regulatory authorities or other procedures, including the cybersecurity review
under the enacted version of the revised Measures for Cybersecurity Review and the Regulation on Network Data Security Management, are
required for our offshore offerings, it is uncertain whether we can or how long it will take us to obtain such approval or complete such
filing procedures and any such approval or filing could be rescinded or rejected. Any failure to obtain or delay in obtaining such approval
or completing such filing procedures for our offshore offerings, or a rescission of any such approval or filing if obtained by us, would
subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government
authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit
our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds
from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition,
results of operations, and prospects, as well as the trading price of our listed securities. The CSRC or other PRC regulatory authorities
also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the
shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and
delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities
later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory
procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures
are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially
and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities.
Risks Related to our American
Depositary Shares
The market price
for our ADSs may be volatile.
The trading price of our
ADSs has ranged from US$3.70 to US$8.61 per ADS in 2025. The trading prices of our ADSs are likely to be volatile and could fluctuate
widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation
in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have
listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility
since their initial public offerings, including, in some cases, substantial decline in their trading prices. The trading performances
of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed
in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.
In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure
or other matters of us or other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general,
including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time
experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse
effect on the market price of our ADSs.
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In addition to the above
factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the following:
● regulatory developments affecting us, our users or our industry;
● announcements of studies and reports relating to our loan products and service offerings or those of our competitors;
● changes in the economic performance or market valuations of other online consumer finance marketplaces;
● actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;
● changes in financial estimates by securities research analysts;
● conditions in the internet and consumer finance industries;
● announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;
● additions to or departures of our senior management;
● detrimental negative publicity about us, our management or our industry;
● fluctuations of exchange rates between the RMB and the U.S. dollar;
● release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs;
● sales or perceived potential sales of additional ordinary shares or ADSs; and
● any share repurchase program.
We cannot guarantee
that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term shareholder value,
and share repurchases could increase the volatility of the price of our ADSs and could diminish our cash reserves.
In June 2018, our board of
directors authorized a share repurchase program, under which we may repurchase up to US$20.0 million of our ADSs or ordinary shares. In
September 2022, our board of directors adopted a share repurchase program, which approves and authorizes us to repurchase through one
or more transactions up to US$20 million worth of our ADSs representing our ordinary shares. The share repurchase program previously adopted
in 2018 was simultaneously terminated. As of March 31, 2026, we had repurchased a total of 5,210,527 ADSs at an average price of US$3.4
per ADS under the new share repurchase program. For detailed information on our share repurchase programs, see “Item 16E. Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.” Our share repurchase program could affect the price of our stock
and increase volatility and may be suspended or terminated at any time.
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If securities or
industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs
and trading volume could decline.
The trading market for our
ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research
analysts do not establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our ADSs or
publish inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these
analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets,
which, in turn, could cause the market price or trading volume of our ADSs to decline.
We cannot assure
you that our existing dividend policy will not change in the future or the amount of dividends you may receive, and as such, you must
rely on price appreciation of our ADSs for return on your investment.
Our board of directors has
discretion as to whether to distribute dividends, subject to our memorandum and articles of association and certain restrictions under
Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances
may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our
board of directors. On July 29, 2017, our board of directors approved a semi-annual dividend policy. Under this policy, semi-annual dividends
were set at an amount equivalent to approximately 15% of our anticipated net income after tax in each half year commencing from the second
half of 2017. Our board of directors decided in August 2018 to suspend the previously adopted semi-annual dividend policy. On August 14,
2024, our board of directors approved an amended dividend policy, under which semi-annual dividends are set at an amount equivalent to
no less than 10% of our anticipated net income after tax in each half year commencing from the first half of 2024. The determination to
declare and pay such semi-annual dividend and the amount of dividend in any particular half year will be made at the discretion of our
board of directors and will be based upon our operations and earnings, cash flow, financial condition and other relevant factors that
the board may deem appropriate. As such, the amount of dividends that you will receive are subject to change. In addition, there can be
no assurance that we will not adjust our dividend policy in the future. Accordingly, the return on your investment in our ADSs will likely
depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain
the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire
investment in our ADSs.
Substantial future
sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs in the
public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of March 31, 2026,
we had 174,976,922 ordinary shares outstanding. Among these shares, 28,967,598 ordinary shares are in the form of ADSs. All our ADSs are
freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares outstanding
are available for sale, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. To the
extent shares are sold into the market, the market price of our ADSs could decline.
Certain holders of our ordinary
shares may cause us to register under the Securities Act the sale of their shares. Registration of these shares under the Securities Act
would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon
the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price
of our ADSs to decline.
We adopted share incentive
plans in September 2015, July 2017, June 2020 and June 2025, under which we have the discretion to grant a broad range of equity-based
awards to eligible participants. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive
Plans.” We have registered certain ordinary shares that we may issue under our share incentive plans and intend to register all
ordinary shares that we may issue under our share incentive plans. Once we register these ordinary shares, they can be freely sold in
the public market in the form of ADSs upon issuance, subject to volume limitations applicable to affiliates and relevant lock-up agreements.
If a large number of our ordinary shares or securities convertible into our ordinary shares are sold in the public market in the form
of ADSs after they become eligible for sale, the sales could reduce the trading price of our ADSs and impede our ability to raise future
capital. In addition, any ordinary shares that we issue under our share incentive plans would dilute the percentage ownership held by
the investors who purchased ADSs.
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You, as holders
of ADSs, may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.
Holders of ADSs do not have
the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance
with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary.
Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares representing your ADSs in accordance
with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying ordinary shares representing
your ADSs unless you withdraw the shares and become the registered holder of such shares prior to the record date of the general meeting.
Under our current memorandum and articles of association, the minimum notice period required to convene a general meeting is seven days.
When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw the
shares underlying your ADSs and become the registered holder of such shares prior to the record date of the general meeting to allow you
to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions
to you or carry out your voting instructions in a timely manner. Under our current memorandum and articles of association, for the purposes
of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of
members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record
date may prevent you from withdrawing the ordinary shares underlying your ADSs and becoming the registered holder of such shares prior
to the record date, so that you would not be able to attend the general meeting or to vote directly. We will make all reasonable efforts
to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials
in time to ensure that you can instruct the depositary to vote the shares underlying your ADSs. Furthermore, the depositary and its agents
will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect
of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if the shares underlying your
ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’
meeting.
Except in limited
circumstances, the depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you
do not vote at shareholders’ meetings, which could adversely affect your interests.
Under the deposit agreement
for our ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’
meetings if you do not give voting instructions to the depositary, unless:
● we have failed to timely provide the depositary with our notice of meeting and related voting materials;
● we have instructed the depositary that we do not wish a discretionary proxy to be given;
● we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;
● matter to be voted on at the meeting would materially and adversely affect the rights of shareholders; or
● voting at the meeting is made on a show of hands.
The effect of this discretionary
proxy is that, if you fail to give voting instructions to the depositary, you cannot prevent our ordinary shares underlying your ADSs
from being voted, absent the situations described above. This may make it more difficult for shareholders to influence our management.
Holders of our ordinary shares are not subject to this discretionary proxy.
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Your rights to pursue
claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.
Under the deposit agreement,
any action or proceeding against or involving the depositary, arising out of or based upon the deposit agreement or the transactions contemplated
thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder
of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably
submitted to the exclusive jurisdiction of such courts in any such action or proceeding. However, the depositary may, in its sole discretion,
require that any dispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled
by an arbitration conducted under the terms described in the deposit agreement. Also, we may amend or terminate the deposit agreement
without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit
agreement as amended. See “Item 12. Description of Securities Other Than Equity Securities—D. American Depositary Shares”
for more information.
Your right to participate
in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time
distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make such rights available to you
in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption
from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless
both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt
from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights
or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary
exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the future
and may experience dilution in your holdings.
You may not receive
cash dividends if the depositary decides it is impractical to make them available to you.
The depositary will pay cash
dividends on the ADSs only to the extent that we decide to distribute dividends on our ordinary shares or other deposited securities.
To the extent that there is a distribution, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions
it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive
these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion,
decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may
determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be
less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you.
You may be subject
to limitations on transfer of your ADSs.
Your ADSs are transferable
on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient
in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of
ADSs generally when our books or the books of the depositary are closed, or at any time if we deem or the depositary deems it advisable
to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement,
or for any other reason.
We were previously subject
to two shareholder class action lawsuits that were subsequently dismissed. However, we cannot assure you that we will not be subject to
other shareholder class action lawsuits in the future.
We were previously subject
to two shareholder class action lawsuits that were subsequently dismissed. On July 12, 2017, the United States District Court for the
Central District of California dismissed the class action lawsuits and concluded that the plaintiff’s action, which was not certified
as a class action, shall be dismissed with prejudice. However, we cannot assure you that we will not be subject to other shareholder class
action lawsuits in the future. If we are subject to other shareholder class action lawsuits, we will be unable to estimate the possible
loss or possible range of loss, if any, associated with the resolution of these lawsuits. In the event that our initial defense of these
lawsuits is unsuccessful, there can be no assurance that we will prevail in any appeal. Any adverse outcome of these cases, including
any plaintiff’s appeal of a judgment in these lawsuits, could have a material adverse effect on our business, financial condition,
results of operation, cash flows and reputation. In addition, there can be no assurance that our insurance carriers will cover all or
part of the defense costs, or any liabilities that may arise from these matters. The litigation process may utilize a significant portion
of our resources and divert our management’s attention from the day-to-day operations of our company, all of which could harm our
business. We also may be subject to claims for indemnification related to these matters, and we cannot predict the impact that indemnification
claims may have on our business or financial results.
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Certain judgments
obtained against us by our shareholders may not be enforceable.
We are an exempted company
limited by shares incorporated under the laws of the Cayman Islands. We conduct substantially all of our operations in China and substantially
all of our assets are located in China. In addition, a majority of our directors and executive officers reside within China, and most
of the assets of these persons are located within China. As a result, it may be difficult or impossible for you to effect service of process
within the United States upon us or these individuals, or to bring an action against us or against these individuals in the United States
in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful
in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against
our assets or the assets of our directors and officers.
Although there is no statutory
enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are
not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts of the Cayman Islands will recognize
and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle
that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been
given provided certain conditions are met. For such a foreign judgment to be enforced in the Cayman Islands, such judgment must be final
and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands
judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement
of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be
held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought
elsewhere. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions
of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make
payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it
is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.
The recognition and enforcement
of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance
with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made
or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United
States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures
Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates
the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what
basis a PRC court would enforce a judgment rendered by a court in the United States.
You may face difficulties
in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated
under Cayman Islands law.
We are an exempted company
limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles
of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders
to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands
law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts
are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties
of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some
jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States.
Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United
States.
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Shareholders of Cayman Islands
exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of
shareholders of these companies (save for our memorandum and articles of association, our register of mortgages and charges, special resolutions
of our shareholders, and a list of the names of our current directors upon a payment made to the Cayman Registrar). Our directors have
discretion under our current memorandum and articles of association to determine whether or not, and under what conditions, our corporate
records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult
for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from other
shareholders in connection with a proxy contest.
As a result of all of the
above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members
of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
It may be difficult
for overseas regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory
investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For
example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation
initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory
authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities
regulatory authorities in the United States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore,
according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator
is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. The Provisions on Strengthening
Confidentiality and Archives Management of Overseas Securities Issuance and Listing by Domestic Enterprises, or the Confidentiality and
Archives Management Provisions, which became effective on March 31, 2023, provides that the investigation and evidence collection in relation
to the overseas securities offering and listing of the PRC domestic companies by the overseas securities regulatory authorities and relevant
authorities shall be conducted through the cross-border cooperation mechanism for supervision and administration and the domestic companies
in China shall obtain the prior consent from the CSRC or relevant authorities before cooperating with such overseas securities regulatory
authorities or relevant authorities in connection with relevant inspections or investigations or providing relevant documents to such
overseas securities regulatory authorities or relevant authorities. The inability for an overseas securities regulator to directly conduct
investigations or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
Our memorandum and
articles of association contain anti-takeover provisions that could discourage a third party from acquiring us and adversely affect the
rights of holders of our ordinary shares and ADSs.
Our memorandum and articles
of association contain certain provisions that could limit the ability of others to acquire control of our company, including a provision
that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without
action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. These
provisions could have the effect of depriving our shareholders and ADSs holders of the opportunity to sell their shares or ADSs at a premium
over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar
transactions.
We are a foreign private
issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic
public companies.
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Because we qualify as a foreign
private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States
that are applicable to U.S. domestic issuers, including:
● the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;
● the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;
● the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and
● the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an
annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly
basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and
material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the
SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you
may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
As a company incorporated
in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ
significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they
would enjoy if we complied fully with the NYSE corporate governance listing standards.
As a Cayman Islands company
listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer
like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands,
which is our home country, may differ significantly from the NYSE corporate governance listing standards. We rely on the exemption available
to foreign private issuers for the requirements in terms of (i) shareholder approval of equity compensation plans and any material revisions
to the terms of such plans under Section 303A.08 of the NYSE Listed Company Manual, (ii) shareholder approval of issuance of common stock
in any transaction or series of related transactions under Section 312.03 of the NYSE Listed Company Manual, and (iii) the requirement
of holding an annual meeting during each fiscal year under Section 302.00 of the NYSE Listed Company Manual. As a result of our election
to follow home country practices with respect to the foregoing matters, our shareholders will not have the same protection that they otherwise
would enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers. Other than the home country practices
disclosed above, we have followed and intend to continue to follow the applicable corporate governance standards under NYSE rules.
If we were deemed
to be an investment company under the U.S. Investment Company Act of 1940, as amended, or the 1940 Act, applicable restrictions could
make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial
condition and results of operations.
Under Sections 3(a)(1)(A)
and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if
(i) it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or
trading in securities, or (ii) it is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading
in securities, and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets
(exclusive of U.S. government securities and cash items) on an unconsolidated basis. We intend to conduct our operations so that we will
not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act could
make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial
condition and results of operations.
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We believe that
we may be or may have been a passive foreign investment company, or PFIC, for United States federal income tax purposes for the taxable
year ended December 31, 2025, which could subject United States holders of our ADSs or ordinary shares to significant adverse United States
federal income tax consequences.
For United States federal
income tax purposes, we generally will be classified as a passive foreign investment company, or PFIC, for any particular taxable year,
in which, after the application of certain look-through rules with respect to our subsidiaries, either (i) 75% or more of our gross income
for such year consists of certain types of passive income or (ii) 50% or more of the value of our assets (generally determined on the
basis of a quarterly average) during such year produce or are held for the production of passive income. Although the law in this regard
is unclear, we intend to treat the consolidated variable interest entities as being owned by us for United States federal income tax purposes,
not only because we conduct the business operations of these entities but also because we are entitled to substantially all of their economic
benefits, and, as a result, we consolidate their results of operations in our consolidated financial statements. Based upon our analysis
of the nature and composition of our income and assets, the value of our assets (in particular the retention of a substantial amount of
cash), activities and market capitalization, we believe that we may be or may have been a PFIC for United States federal income tax purposes
for our taxable year ended December 31, 2025. However, the determination of whether or not we are a PFIC is a fact-intensive determination
made on an annual basis and because the applicable law is subject to varying interpretations, we cannot provide any assurance regarding
our PFIC status and our United States counsel expresses no opinion with respect to our PFIC status for any taxable year.
If we are classified as a
PFIC in any taxable year during which U.S. holders (as defined in “Item 10. Additional Information—E. Taxation—Material
United States Federal Income Tax Considerations”) hold our ADSs or ordinary shares, U.S. holders could be subject to adverse tax
consequences regardless of whether we continue to qualify as a PFIC, including incurring significantly increased United States federal
income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the
ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the United States
federal income tax rules and such U.S. holders may be subject to burdensome reporting requirements. Further, if we are a PFIC for any
year during which a U.S. holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC by that holder for
all succeeding years during which such U.S. holder holds our ADSs or ordinary shares even if we cease to meet the threshold requirements
for PFIC status, unless a U.S. holder makes a taxable “deemed sale” election with respect to the ADSs or ordinary shares.
The tax consequences that
would apply if we were classified as a PFIC would be different from those described above if a U.S. holder of ADSs or ordinary shares
were able to make a valid qualified electing fund, or QEF, election, or, in some circumstances, a “mark-to-market” election.
We do not intend to provide information necessary for U.S. holders to make QEF elections, which, if available, would result in tax treatment
different from the general tax treatment for PFICs described above. For more information see “Item 10. Additional Information—E.
Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
We may incur increased
costs as a result of being a public company, particularly after we ceased to qualify as an “emerging growth company.”
As a public company, we incur
significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as
rules subsequently implemented by the SEC and the NYSE, impose various requirements on the corporate governance practices of public companies.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more
time-consuming and costly. As we are no longer an “emerging growth company,” we expect to incur significant expenses and devote
substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the
SEC. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It
may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently
evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree
of certainty the amount of additional costs we may incur or the timing of such costs.
In the past, shareholders
of a public company often brought securities class action suits against the company following periods of instability in the market price
of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s
attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant
expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability
to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages,
which could have a material adverse effect on our financial condition and results of operations.
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We may be unable
to comply with the applicable continued listing requirements of the NYSE.
ADSs representing our ordinary
shares are currently listed on the NYSE. In order to maintain this listing, we must satisfy minimum financial and other continued listing
requirements and standards. On November 7, 2022, we received a notice from the NYSE, notifying us that we were below compliance criteria
in connection with the performance of trading price of our ADSs pursuant to Section 802.01C of the NYSE Listed Company Manual, which requires
a minimum average closing price of $1.00 per share over a consecutive 30 trading-day period. We were granted a grace period of six months
following receipt of the notice to regain compliance. On December 1, 2022, NYSE informed us that we had successfully regained compliance
with the NYSE’s continued listing requirement and the matter was closed. In the future, if we are unable to comply with any applicable
listing requirements of the NYSE, our ADSs may be subject to delisting. In the event that our ADSs are delisted from the NYSE and are
not eligible for quotation or listing on another market or exchange, trading of our ADSs could be conducted only in the over-the-counter
market established for unlisted securities such as OTC Markets. In such event, it could become more difficult to dispose of, or obtain
accurate price quotations for our ADSs, which could cause the price of our ADSs to decline.