Yiren Digital Ltd.
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F (Mark One) ooREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGEACT OF 1934 OR xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017. OR ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to OR ooSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . . Commission file number: 001-37657 Yirendai Ltd.(Exact name of Registrant as specified in its charter) N/A(Translation of Registrant’s name into English) Cayman Islands(Jurisdiction of incorporation or organization) 10/F, Building 9, 91 Jianguo RoadChaoyang District, Beijing 100022The People’s Republic of China(Address of principal executive offices) Yu Cong, Chief Financial OfficerTelephone: +86 10 5395-3680Email: ir@yirendai.com10/F, Building 9, 91 Jianguo RoadChaoyang District, Beijing 100022The People’s Republic of China(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each className of each exchange on which registered American depositary shares (one Americandepositary share representing two ordinary shares,par value US$0.0001 per share)New York Stock Exchange Ordinary shares, par value US$0.0001 per share*New York Stock Exchange * Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares. Securities registered or to be registered pursuant to Section 12(g) of the Act: None(Title of Class) Table of Contents Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None(Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.121,343,424 ordinary shares, par value US$0.0001 per share, as ofDecember 31, 2017. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yes x No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934.o Yes x No Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).x Yes o No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. Seedefinition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer x Non-accelerated filer o Emerging growth company x If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of theExchange Act. x †The term ‘‘new or revised financial accounting standard’’ refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP x International Financial Reporting Standards as issuedby the International Accounting Standards Board o Other o If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.o Item 17 o Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yes x No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No Table of Contents TABLE OF CONTENTS Page INTRODUCTIONiiFORWARD-LOOKING INFORMATIONiiiPART I1Item 1.Identity of Directors, Senior Management and Advisers1Item 2.Offer Statistics and Expected Timetable1Item 3.Key Information1Item 4.Information on the Company54Item 4A.Unresolved Staff Comments88Item 5.Operating and Financial Review and Prospects88Item 6.Directors, Senior Management and Employees120Item 7.Major Shareholders and Related Party Transactions130Item 8.Financial Information135Item 9.The Offer and Listing136Item 10.Additional Information137Item 11.Quantitative and Qualitative Disclosures about Market Risk148Item 12.Description of Securities Other than Equity Securities149PART II151Item 13.Defaults, Dividend Arrearages and Delinquencies151Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds151Item 15.Controls and Procedures152Item 16A.Audit Committee Financial Expert152Item 16B.Code of Ethics152Item 16C.Principal Accountant Fees and Services152Item 16D.Exemptions from the Listing Standards for Audit Committees153Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers153Item 16F.Change in Registrant’s Certifying Accountant153Item 16G.Corporate Governance153Item 16H.Mine Safety Disclosure153PART III153Item 17.Financial Statements153Item 18.Financial Statements154Item 19.Exhibits154SIGNATURES157 iTable of Contents INTRODUCTION Unless otherwise indicated or the context otherwise requires in this annual report: · “ADSs” refers to our American depositary shares, each of which represents two ordinary shares; · “China” or the “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau andTaiwan; · “CreditEase” refers to CreditEase Holdings (Cayman) Limited, our parent company and controlling shareholder; · “M3+ Net Charge-off Rate,” with respect to loans facilitated during a specified time period, which we refer to as a vintage, is defined as thedifference between (i) the total balance of outstanding principal of loans that become over three months delinquent during a specified period, and(ii) the total amount of recovered past due payments of principal and accrued interest in the same period with respect to all loans in the same vintagethat have ever become over three months delinquent, divided by (iii) the total initial principal of the loans facilitated in such vintage; · “ordinary shares” refers to our ordinary shares, par value US$0.0001 per share; · “payout ratio” refers to the percentage of an investor’s outstanding principal and accrued interest paid out to the investor from our quality assuranceprogram in the event of loan default. We currently implement a 100% payout ratio allowing investors to fully recover their outstanding principaland accrued interest in the event of loan default; · “Online lending information intermediary service providers” refer to marketplaces connecting borrowers and investors; · “prime borrower” refers to credit card holders with stable credit performance and salary income. In determining whether a prospective borrower hasstable credit performance and salary income, we review such borrower’s credit card statement for the last six months and/or credit report from thePeople’s Bank of China, or the PBOC, for the last five years, as well as the borrower’s salary for the last six months; · “RMB” and “Renminbi” refer to the legal currency of China; · “US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States; and · “Yirendai,” “we,” “us,” “our company” and “our” refer to Yirendai Ltd., its subsidiaries and its consolidated variable interest entities. iiTable of Contents FORWARD-LOOKING INFORMATION This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. Thesestatements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-lookingstatements by terminology such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,”“continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about futureevents and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to: · our goals and strategies; · our future business development, financial condition and results of operations; · the expected growth of the online consumer finance marketplace market in China; · our expectations as to the charge-off rates of loans facilitated through our platform and the sufficiency of our quality assurance program; · our expectations regarding demand for and market acceptance of our products and services; · our expectations regarding our relationships with investors and borrowers; · our plans to invest in our proprietary technologies in the areas of data collection and processing algorithms as well as new business initiatives; · competition in our industry; and · relevant government policies and regulations relating to our industry. We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunctionwith the risk factors disclosed in “Item 3D. Key Information—Risk Factors.” Those risks are not exhaustive. We operate in an evolving environment. Newrisks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business orthe extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do notundertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this annual report andthe documents that we reference in this annual report completely and with the understanding that our actual future results may be materially different fromwhat we expect. iiiTable of Contents PART I Item 1. Identity of Directors, Senior Management and Advisers Not applicable. Item 2. Offer Statistics and Expected Timetable Not applicable. Item 3. Key Information A. Selected Financial Data The following summary consolidated statements of operations for the years ended December 31, 2015, 2016 and 2017, summary consolidatedbalance sheet as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included in this annual reportbeginning on page F-1. The following summary consolidated statements of operations for the years ended December 31, 2013 and 2014, and the summaryconsolidated balance sheet as of December 31, 2013, 2014 and 2015 have been derived from our audited consolidated financial statements not included inthis annual report. Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data should beread in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and the related notes and “Item 5.Operating and Financial Review and Prospects” below. Our audited consolidated financial statements are prepared and presented in accordance with U.S.GAAP. For the Year Ended December 31, 2013 2014 2015 2016 2017 RMB RMB RMB RMB RMB US$ (in thousands, except for share, per share and per ADS data, and percentages) Summary Consolidated Statements ofOperations:Net revenues19,247196,5251,313,6393,237,9915,543,350851,998Operating costs and expenses:Sales and marketing32,091137,746679,7711,571,0382,921,236448,986Origination and servicing7,71521,82086,360180,076417,88264,227General and administrative30,72464,637137,114402,111526,84580,976Total operating costs and expenses(70,530)(224,203)(903,245)(2,153,225)(3,865,963)(594,189)Interest income——4,79936,843114,85117,652Fair value adjustments related toconsolidated asset backed financingentities——(11,333)(19,735)(40,124)(6,167)Non-operating income, net———575876135(Loss)/income before provision for incometaxes(51,283)(27,678)403,8601,102,4491,752,990269,429Income tax (expense)/benefit—(30)(128,521)13,949(381,207)(58,590)Net (loss)/income(51,283)(27,708)275,3391,116,3981,371,783210,839Weighted average number of ordinaryshares outstanding:Basic100,000,000100,000,000100,652,055118,240,414120,457,573120,457,573Net (loss)/income per ordinary shareBasic(0.5128)(0.2771)2.73569.441811.38811.7503Net (loss)/income per ADSBasic(1.0256)(0.5542)5.471218.883622.77623.5006Weighted average number of ordinaryshares outstanding:Diluted100,000,000100,000,000100,652,055118,937,082122,256,838122,256,838Net (loss)/income per ordinary shareDiluted(0.5128)(0.2771)2.73569.386511.22051.7246Net (loss)/income per ADSDiluted(1.0256)(0.5542)5.471218.773022.44103.4492 1(1)(1)(1)(1)(1)(2)(3)(2)(3)Table of Contents (1) Starting from the second quarter of 2016, we changed our reporting currency from the U.S. dollar to the Renminbi, to reduce the impact of increasedvolatility of the RMB to US$ exchange rate on our reported operating results. The change in our reporting currency has been retroactively reflected forall periods presented herein. (2) On January 5, 2015, we effected a 10,000-for-1 share split, such that our authorized share capital of US$50,000 was divided into 500,000,000 ordinaryshares with a par value of US$0.0001 each, of which 10,000 ordinary shares were issued and outstanding and were owned by CreditEase. On June 25,2015, we issued 99,990,000 ordinary shares, par value US$0.0001 each to CreditEase for an aggregate purchase price of US$9,999. The share split andthe share issuance have been retroactively reflected for all periods presented herein. (3) Each ADS represents two ordinary shares. As of December 31, 2013 2014 2015 2016 2017 RMB RMB RMB RMB RMB US$ (in thousands)Summary Consolidated Balance Sheet:Cash and cash equivalents—1,378846,120968,2251,857,175285,443Restricted cash——483,9651,218,2861,805,693277,530Loans at fair value——221,268371,033791,681121,679Held-to-maturity investments——30,00098,9179,9441,528Available-for-sale investments———1,158,000963,253148,049Total assets29,860402,1442,190,0034,783,3887,518,6641,155,597Liabilities from quality assurance program——546,3321,471,0002,793,948429,422Total liabilities10,740178,7361,213,0612,643,4694,548,611699,108Total equity19,120223,408976,9422,139,9192,970,053456,489 Exchange Rate Information Our business is primarily conducted in China and almost all of our revenues are denominated in RMB. However, periodic reports made toshareholders will include current period amounts translated into U.S. dollars using the then current exchange rates, for the convenience of the readers. Unlessotherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.5063 to US$1.00,the exchange rate set forth in the H.10 Statistical release of the Board of Governors of the Federal Reserve System as of December 29, 2017, the last businessday of 2017. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the casemay be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of theconversion of RMB into foreign exchange and through restrictions on foreign trade. On April 20, 2018, the exchange rate was RMB 6.2945 to US$1.00. The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. Exchange RatePeriodPeriod-End Average Low High(RMB per U.S. Dollar)20126.23016.29906.38796.222120136.05376.14126.24386.053720146.20466.17046.25916.040220156.47786.28696.48966.187020166.94306.65496.95806.448020176.50636.73506.95756.4773October6.63286.62546.65336.5712November6.60906.62006.63856.5967December6.50636.59326.62106.50632018January6.28416.42336.52636.2841February6.32806.31836.34716.2649March6.27266.31746.35656.2685April (through April 20)6.29456.28596.30456.2655 2(1)Table of Contents Source: Federal Reserve Statistical Release (1) Annual averages are calculated using the average of month-end rates of the relevant year. Monthly averages are calculated using the average of the dailyrates during the relevant period. 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 have a limited operating history in a new and evolving market, which makes it difficult to evaluate our future prospects. The market for China’s online consumer finance marketplaces is new and may not develop as expected. The regulatory framework for this market isalso evolving and may remain uncertain for the foreseeable future. Potential borrowers and investors may not be familiar with this market and may havedifficulty distinguishing our services from those of our competitors. Convincing potential new borrowers and investors of the value of our services is criticalto increasing the volume of loan transactions facilitated through our marketplace and to the success of our business. We launched our online marketplace in March 2012 and have a limited operating history. In addition, starting in the fourth quarter of 2014, webegan offering new loan products with different pricing grades. In the second quarter of 2017, we further launched a new credit scoring system, the Yirenscore, which can be used to more accurately characterize borrower’s credit profile. We have also recently established an open fintech sharing platform“Yirendai Enabling Platform,” or the YEP, to provide big-data-backed anti-fraud, risk management and precise customer acquisition solutions to industrypartners. As our business develops or in response to competition, we may continue to introduce new products or make adjustments to our existing products,or make adjustments to our business model. In connection with the introduction of new products or in response to general economic conditions, we mayimpose more stringent borrower qualifications to ensure the quality of loans on our platform, which may negatively affect the growth of our business. Anysignificant change to our business model, such as our offering of a quality assurance program starting in January 2015 and the revision to the qualityassurance program funding policy in the fourth quarter of 2015, may not achieve expected results and may have a material and adverse impact on ourfinancial condition and results of operations. It is therefore difficult to effectively assess our future prospects. The risks and challenges we encounter or mayencounter in this developing and rapidly evolving market may have impacts on our business and prospects. These risks and challenges include our ability to,among other things: · navigate an evolving regulatory environment; 3Table of Contents · expand the base of borrowers and investors served on our marketplace; · acquire borrowers and investors in a cost-effective manner; · broaden our loan product offerings; · enhance our risk management capabilities; · 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. If we fail to educate potential borrowers and investors about the value of our platform and services, if the market for our marketplace does notdevelop as we expect, or if we fail to address the needs of our target market, or other risks and challenges, our business and results of operations will beharmed. If we are unable to maintain or increase the volume of loan transactions facilitated through our marketplace or if we are unable to retain existingborrowers or investors or attract new borrowers or investors, our business and results of operations will be adversely affected. The volume of loan transactions facilitated through our marketplace has grown rapidly since our inception. The total amount of loans facilitatedthrough our marketplace was RMB41,406.1 million (US$6,364.0 million) in 2017, which increased substantially from RMB20,486.1 million in 2016 andRMB9,557.6 million in 2015. To maintain the high growth momentum of our marketplace, we must continuously increase the volume of loan transactions byretaining current participants and attracting more users. We intend to continue to dedicate significant resources to our user acquisition efforts, includingestablishing new acquisition channels, particularly as we continue to grow our marketplace and introduce new loan products. We utilize online channels,such as search engine marketing, search engine optimization, partnerships with internet companies and internet traffic acquisition from third-party onlineloan products marketplaces, as well as CreditEase’s nationwide service network for user acquisition. In 2015, 2016 and 2017, 49.5%, 42.5% and 27.1% ofour borrowers were acquired through referrals from CreditEase, respectively, contributing 67.0%, 62.0% and 45.6% of the total amount of loans facilitatedthrough our marketplace, respectively. If there are insufficient qualified loan requests, investors may be unable to deploy their capital in a timely or efficientmanner and may seek other investment opportunities. If there are insufficient investor commitments, borrowers may be unable to obtain capital through ourmarketplace and may turn to other sources for their borrowing needs and investors who wish to exit their investments prior to maturity on the secondary loanmarket may not be able to do so in a timely manner. The overall transaction volume may be affected by several factors, including our brand recognition and reputation, the interest rates offered toborrowers and investors relative to market rates, the effectiveness of our risk control, the repayment rate of borrowers on our marketplace, the efficiency of ourplatform, the macroeconomic environment and other factors. In connection with the introduction of new products or in response to general economicconditions, we may also impose more stringent borrower qualifications to ensure the quality of loans on our platform, which may negatively affect the growthof loan volume. In addition, although we have entered into a cooperation framework agreement with CreditEase, pursuant to which CreditEase will provideus offline user acquisition services, we cannot assure you that we will continue to receive sufficient support from CreditEase. If any of our current useracquisition channels become less effective, if we are unable to continue to use any of these channels or if we are not successful in using new channels, wemay not be able to attract new borrowers and investors in a cost-effective manner or convert potential borrowers and investors into active borrowers andinvestors, and may even lose our existing borrowers and investors to our competitors. If we are unable to attract qualified borrowers and sufficient investorcommitments or if borrowers and investors do not continue to participate in our marketplace at the current rates, we might be unable to increase our loantransaction volume and revenues as we expect, and our business and results of operations may be adversely affected. 4Table of Contents The laws and regulations governing the online lending information intermediary service industry in China are developing and evolving and subject tochanges. If we fail to obtain and maintain requisite approvals, licenses or permits applicable to our business, our business, financial condition and resultsof operations would be materially and adversely affected. Due to the relatively short history of the online lending information intermediary service industry in China, the laws and regulations governing ourindustry have undergone significant changes in recent years and may continue to evolve. In July 2015, the China Banking Regulatory Commission, or theCBRC, the predecessor of China Banking and Insurance Regulatory Commission newly established in April 2018, together with nine other PRC regulatoryagencies jointly issued a series of policy measures applicable to the online lending information intermediary service industry titled the Guidelines onPromoting the Healthy Development of Online Finance Industry, or the Guidelines. The Guidelines formally introduced for the first time the regulatoryframework and basic principles for administering the online lending information intermediary service industry in China. Based on the core principles of theGuidelines, in August 2016, the CBRC together with three other PRC regulatory agencies jointly issued the Interim Measures on Administration of BusinessActivities of Online Lending Information Intermediaries, or the Interim Measures. The Interim Measures require online lending information intermediariesand their branches that propose to carry out the online lending information intermediary services to file a record with the local financial regulatorydepartment at the place where it is registered within ten business days after obtaining the business license. Local financial regulatory departments have thepower to assess and classify the online lending information intermediaries which have submitted filings, and to publicize the filed information and theclassification results on their official websites. An online lending information intermediary must apply for appropriate telecommunication license inaccordance with the relevant requirements of telecommunication authorities subsequent to completion of the filing, and is required to explicitly identifyitself as an online lending information intermediary in the business scope set forth in its business license. In accordance with the Guidelines and the Interim Measures, the CBRC, the Ministry of Industry and Information Technology, or the MIIT, and theState Administration for Industry and Commerce, the predecessor of the State Administration for Market Regulation newly established in April 2018, jointlyissued the Guide to the Record-filing of Online Lending Information Intermediaries in November 2016, or the Record-filing Guidelines, which outlines therules, procedures and required documents for the record-filing of online lending information intermediaries, and directs local financial regulatorydepartments to adopt detailed implementation rules for the record-filing by online lending information intermediaries within their jurisdictions. However,specific rules and procedures regarding, among other things, assessment standards and classification rules for the filings by online lending informationintermediaries with local financial regulatory departments, application for appropriate telecommunication business licenses and the addition of onlinelending information intermediary services to the business scope on business licenses have yet to be formulated and issued. In December 2017, the Office ofLeading Group on Special Rectification of Risks in the Online Lending, the regulator for administration and supervision on the nationwide Internet financeand online lending, or the National Rectification Office, issued the Notice on Rectification and Inspection Acceptance of Risk of Online Lending, or Circular57, which provides further clarification on several matters in connection with the rectification and record-filling of online lending information intermediaries.Circular 57, among other things, requires certain local governmental authorities to establish an inspection team to conduct risk rectification inspections ononline lending information intermediaries within their jurisdictions. If an online lending information intermediary institution passes the inspection, the localgovernmental authorities shall complete its record-filling. Circular 57 also requires local governmental authorities to complete record-filings of onlinelending information intermediaries within its jurisdiction by the end of April 2018, except that the deadline for certain complicated cases may be postponedto May 2018 or June 2018. However, the local financial regulatory department has not formally issued the detailed implementation rules for record-filing, thedeadline for record-filing might be postponed. We have not so far completed such inspection and there are uncertainties that whether we are able to meet therequirements of the Interim Measures, the Record-filing Guidelines and Circular 57 regarding filing with the local financial regulatory department,application for the appropriate telecommunication license and revision to our business scope. In addition, Yi Ren Wealth Management, our consolidatedvariable interest entity, which operates an online wealth management platform, has not obtained a telecommunication business operating license. We cannotassure you that the PRC regulatory authorities will not view us as failing to complete the necessary filing or obtain the necessary license applicable to ourbusiness. 5Table of Contents Furthermore, we are unable to predict with certainty the impact, if any, that future legislation, judicial precedents, rules or regulations relating to theonline lending information intermediary service industry will have on our business, financial condition and results of operations. Due to the uncertainty ofthe relevant laws, regulations and requirements, we may face remarkable increased risk of default or delinquency of borrowers, and our third-party serviceproviders may implement new internal control and compliance procedures which prohibiting them from working with us, which could lead to significantlyhigher default rates and adverse impacts on our reputation, business, results of operations and financial positions. In addition, if our practice is deemed toviolate any laws, rules or regulations, or if we are unable to obtain and maintain any requisite approvals, licenses or permits required for our business, we mayface regulatory warning, fines, injunction or other punitive measures, and our business, financial condition and prospects may be materially and adverselyaffected. If our practice is deemed to violate any PRC laws, rules or regulations, our business, financial condition and results of operations would be materially andadversely affected. According to the Guidelines and the Interim Measures, an online lending information intermediary must not engage in certain activities, including,among other things, (i) fund raising for the intermediary itself, (ii) holding investors’ funds or setting up capital pool with investors’ funds, (iii) providingsecurity or guarantee to investors as to the principals and interest of the investments, (iv) promoting its financing products on physical premises other thanthrough the permitted electronic channels, such as telephones, mobile phones and internet, (v) making loans, (vi) splitting the terms of projects seekingfinancing, (vi) issuing or selling wealth management or other financial products, or selling wealth management products, funds, insurance, trust or otherfinancial products as an agent, (viii) conducting securitization or similar business, or conducting loan transfers through packaging, securitization, trust orfund units, (ix) engaging in any form of mixture, bundling or agency activities with other businesses such as institutional investment, commission sale orbrokerage, (x) making false or misleading statement regarding projects seeking financing, (xi) providing information intermediary services for loans to beused in high-risk financing transactions such as investment in stocks, over-the-counter financing, futures contracts, structured products and other derivatives,and (xii) equity crowd-funding. The Interim Measures prohibits online lending information intermediaries from making any decision on behalf of investorswithout authorization. In addition, under the Interim Measures, online lending information intermediaries must adequately disclose on their websites toinvestors information such as basic information of borrowers and projects seeking financing, risk assessment and possible risk outcome, and use of proceedsof loans facilitated and not yet due; each online lending information intermediary must also disclose prominently on its website information concerning itsbusiness operation such as financing transactions facilitated, set up a dedicated portion on its website for information disclosure, and regularly announce tothe public its annual report as well as laws, regulations and rules applicable to online lending. The Interim Measures requires online lending informationintermediaries to engage accounting firms to conduct periodic audits of the status of fund custody, information disclosure, security of informationtechnology system and operation compliance, to engage qualified institutions to perform regular evaluation concerning information security, and to discloseto investors and borrowers of the results of such audit and evaluation. Under the Interim Measures, online lending information intermediaries must alsostrength their risk management, enhance screening and verification of borrowers and investors’ information, and set up custody accounts with qualified banksto hold customer funds, among other things. In accordance with the Guidelines and the Interim Measures, the CBRC also issued two other implementation rules and regulations in addition tothe Record-Filing Guidelines, namely, (i) the Guidelines for the Depository Business of Online Lending Funds in February 2017, or the CustodianGuidelines; and (ii) the Guidelines for the Disclosure of Information on Business Activities of Online Lending Information Intermediaries in August 2017, orthe Disclosure Guidelines. The Custodian Guidelines require each online lending information intermediary to set up a custody account with a singlecommercial bank for the funds of investors on its platform, take responsibility for the continued development and secure operation of its technical system,make appropriate information disclosure to the custody bank, perform daily account reconciliation with the custody bank, safely maintain its accounts andrecords, arrange for the independent audits of the custody account and publicly disclose the audit results, and cooperate with the custody bank in meetinganti-money laundering obligations. The Disclosure Guidelines sets forth the information disclosure requirement for online lending informationintermediaries, including with respect to their filings and licenses, fund custody, organization, operation, risk management, data regarding loans facilitated,financial audit and compliance review, and channels for customer complaints. In addition, the Disclosure Guidelines require online lending informationintermediaries to disclose to investors information concerning borrowers, projects, project risk assessment and possible risk outcome. Under the DisclosureGuidelines, an online lending information intermediary must provide consistent information disclosure across all online channels such as its website, mobilephone application, WeChat public accounts and Weibo accounts, and set up on its website and other online channels a conspicuous section for informationdisclosure. Furthermore, in May 2017, the CBRC, the Ministry of Education and the Ministry of Human Resources and Social Security jointly released theNotice to Further Enhance the Management of Campus Loans, which prohibits online lending information intermediaries from facilitating loans to collegestudents. 6Table of Contents In December 2017, the Leading Group Office of the Internet Financial Risk Rectification Campaign and the National Rectification Office jointlyissued the Notice on Rectification of Cash Loan Businesses, or Circular 141, which sets out certain principles in connection with cash loan businesses andonline lending information intermediaries. According to Circular 141, online lending information intermediaries are prohibited from: (i) deducting interests,commissions, management fees and deposits from the loans before they are released to the borrowers; (ii) outsourcing core functions such as data collection,customer identification, credit assessment or account openings; (iii) enabling banking financial institutions to engage in P2P online lending; (iv) providingloan facilitation services to individuals who do not possess sufficient debt repayment capabilities or to students; (vi) conducting real-estate financing such asdown payment loans for real estate purchasing. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating toOnline Lending Information Intermediary.” To comply with the laws, rules and regulations relating to the online lending information intermediary service industry, we have implementedvarious policies and procedures, which we believe set the best practice in the industry, including, without limitation, the following: (i) we do not use our owncapital to invest in loans facilitated through our online marketplace; (ii) we do not commit to provide guarantees to investors under any agreement for the fullreturn of loan principal and interest; (iii) we do not hold investors’ funds and funds loaned through our platform are deposited into and settled by a third-party custody account managed by a qualified bank, China Guangfa Bank; (iv) Heng Cheng, our variable interest entity operating our online consumerlending platform has obtained the internet information services licenses, or the ICP license, as an internet information provider, from the relevant localcounterpart of the Ministry of Industry and Information Technology in accordance with applicable laws; (v) we disclose on our website relevant informationto investors and borrowers, such as disclosure to borrowers regarding interest rates, payment schedule, transaction fees, and other charges and penalties;(vi) we have been making strong effort to maintain the security of our platform and the confidentiality of the information provided and utilized across ourplatform; (vii) we do not facilitate any loans to college students; and (viii) we do not have loans on our platform that have outstanding balance overRMB200,000 (US$30,739) limit as of this annual report. However, the laws, rules and regulations continue to evolve in this emerging industry, and the interpretation of these laws, rules and regulations bythe local authorities may be different from our understanding. We cannot be certain that our practices would not be deemed to violate any existing or futurelaws, rules and regulations. For instance, · our automated investing tool automatically allocates committed funds from multiple investors among multiple approved borrowers, which goesbeyond the simple one-to-one matching between investors and borrowers and could be viewed as making decision on behalf of investorswithout authorization. While investors using our automated investing tools give us prior authorization to allocate their funds among borrowerson their behalf, and we believe such prior authorization is sufficient to meet the requirement of the Interim Measures, we cannot assure you thatthe PRC regulatory authorities would take the same view as ours; · our automated investing tool may also be viewed as splitting the terms of projects seeking financing and /or offering wealth managementproducts; · if our automated investing tool fails to match committed investors with approved borrowers in a timely manner, we might be deemed to holdinvestors’ funds and form a capital pool incidentally; · for investor protection purpose, we set up the quality assurance program with the purposes of limiting investors’ potential losses due toborrower defaults historically. See “Item 4. Information on the Company—B. Business Overview—Risk Management—Investor Protection.” The Interim Measures prohibit online lending information intermediaries from providing security or guarantee to investors as to the principalsand interest of the investments. Circular 57 further prohibits online lending information intermediaries from setting up new risk reserve funds orincreasing existing risk reserve funds, and requires them to gradually reduce the existing risk reserve funds. We are now changing our practicesand begin to cooperate with guarantee companies and insurance companies. The guarantee fees are paid to the guarantee companies and theinsurance premium are paid to the insurance companies, respectively, by the borrowers. However, it is uncertain how the Interim Measures orCircular 57 will be interpreted due to the lack of detailed implementation rules. As a result, we cannot assure that our existing practice might notbe viewed by the PRC regulatory authorities as that we are providing securities or risk reserve fund to the investors or otherwise violating theInterim Measures or Circular 57; 7Table of Contents · the Interim Measures require that the balance of money borrowed by any individual must not exceed RMB200,000 (US$30,739) on an onlinelending information intermediary platform and not exceed RMB1 million (US$153,697) on all online lending information intermediaryplatforms in the PRC. We already adjusted our relevant policy and completely terminated facilitating loans with principal over RMB200,000(US$30,739) starting from May 1, 2017 and we began to spin off the loans we facilitated in the past having outstanding balance over such limitsince the beginning of 2018. By now, we do not have loans on our platform that have outstanding balance over RMB200,000 (US$30,739)limit, but we cannot assure you that the forgoing loan spin-off program would be recognized by the PRC regulatory authorities. In addition, dueto lack of industry-wide information sharing arrangement, we cannot assure you that the aggregate amount of loans taken out by a borrower onour platform and other online lending information intermediary platforms at any point in time does not exceed the limit set in the InterimMeasures; · as we are transitioning into a comprehensive online financial services platform, certain independent third parties start to promote and sellwealth management products on our wealth management platform operated by Yi Ren Wealth Management. Selling wealth managementproducts online may be subject to a variety of PRC laws and regulations governing financial services, such as the Internet Insurance Measures,as well as the relevant requirements of telecommunication authorities, pursuant to which Yi Ren Wealth Management may need to obtain anICP license. On March 28, 2018, the Leading Group Office of the Internet Financial Risk Rectification Campaign issued the Notice onExpanding the Vigour of the Rectification of Asset Management Operations Conducted Via the Internet and Inspection and Acceptance Work,or Circular 29, which provided that without the approval of the PRC financial regulatory authorities, no entity may issue or sell assetmanagement products through the internet. The application and interpretation of these laws and regulations are ambiguous and may beinterpreted and applied inconsistently between different government authorities. Although we believe our role is only that of an intermediarybetween the sellers and the purchasers of the wealth management products, which is not forbidden by Circular 29, the PRC regulatoryauthorities may nevertheless view our activities as the sale by us or on an agency basis of wealth management products without complying withthe Interim Measures, Circular 29 and relevant PRC laws and regulations regarding online sale of funds and insurance products; · we have not yet disclose on our website (i) risk assessment and possible risk outcome of the projects listed on our platform as seeking financing,(ii) use of proceeds of loans facilitated by us and not yet due, (iii) periodic audit result by an accounting firm of our status in fund custody,information disclosure, security of information technology system and operation compliance, or (iv) periodic evaluation result by a qualifiedinstitution concerning our information security, all as required by the Interim Measures; · we do not yet arrange for the independent audit of the custody account for investor funds and publicly disclose the result of such audit, asrequired by the Custodian Guidelines; and · Circular 141 prohibits online lending information intermediaries from facilitating loans without specified purposes. Although we requireborrowers to specify and undertake the usage of the loans when they apply for the loans, we cannot ensure that all those borrowers will complywith their undertaking, nor can we ensure that such requirement is sufficient for those loans to be deemed by the governmental authorities as notfalling within the aforementioned prohibited business. 8Table of Contents · Total fees paid by borrowers comprise fixed interest that are paid to investors and transaction fees we charge borrowers for our services. Thetransaction fees are paid by the borrowers from the loans after the loans are released to the borrowers’ sub-account under the master custodyaccounts. Although our transaction fees are different from interests, commissions, management fees or deposits, our current fee collectionmethods might be deemed by the PRC regulatory authorities as up-front deductions from loans released to the borrowers prohibited by Circular141. · Circular 57 permits low frequencies transfers of lenders’ rights to loans between lenders for liquidity purpose, but expressly prohibits certaintransfers, including transfers of lenders’ rights in form of assets-backed securities, trust assets, fund properties and certain other form of securities,and transfers as a result of online lending information intermediaries providing current or fixed-term financial products to lenders, the terms ofwhich are not consistent with the terms that the corresponding borrowers intend to borrow the loans for. We allow and facilitate lenders totransfer their rights to loans on our platform. Our automated investing tool also allows an investor to invest a specified amount of money toborrowers through our marketplace for a specified period of time, which might be viewed by the PRC regulatory authorities as fixed-termfinancial products. Due to lack of detailed implementation rules to Circular 57, we cannot assure you that all our practices would be deemed tocomply with Circular 57. We have been in frequent communications with governmental authorities to clarify these and other regulatory requirements and ensure thecompliance of our business. As of the date of this annual report, we have not been subject to any material fines or other penalties under any PRC laws, rules orregulations including those governing the online lending information intermediary service industry in China. Due to the continuing development and evolution in the online lending information intermediary service industry as well as the broader internetfinance industry, the PRC regulatory authorities are constantly of evaluating the practices of market participants and requesting rectification of those thathave been identified as not in compliance with applicable laws, rules and regulations. We cannot assure you that our practices will not be required to berectified or our rectification measures and results will be satisfactory to the relevant authorities. If our practice is deemed to violate any laws, rules orregulations, we may face, among others, regulatory warning, correction order, condemnation, fines and criminal liability. If such situations occur, ourbusiness, financial condition and prospects would be materially and adversely affected. The PRC government has adopted several regulations governing personal credit reporting businesses. According to these regulations and measures,no entity may engage in personal credit reporting business without approval by the credit reporting industry regulatory department under the State Council.If any entity directly engages in personal credit reporting business without such approval, the entity is subject to penalties including suspension of business,confiscation of revenues related to personal credit reporting business, fines and criminal liabilities. We organize, store and analyze information provided byusers and third parties. This information and data contains certain personal information of users, a portion of which, upon their consent, we may provide toour marketplace investors and/or make available on the YEP as part of the big data backed risk management, anti-fraud and precise customer acquisitionsolutions provided to industry partners. Due to the lack of further interpretations of the current regulations governing personal credit reporting businesses,and the fact that the credit reporting industry regulatory department under the State Council has not officially granted any approval for personal creditreporting businesses under such regulations to any entity as of the date of this annual report, it is uncertain whether we would be deemed to engage inpersonal credit reporting business. We cannot assure you that we will not be required in the future to obtain approval or license for personal credit reportingbusiness and comply with the relevant regulations, which may be costly, or become subject to penalties associated with regulations governing personal creditreporting business. 9Table of Contents According to the Regulations on the Administration of Financing Guarantee Companies, or the Financing Guarantee Rules, promulgated by StateCouncil on August 2, 2017 which became effective on October 1, 2017, without the approval by the competent government department, no entity mayoperate financing guarantee business in which such entity acts as a guarantor providing guarantee to the guaranteed parties as to their loans, bonds or othertypes of debt financing. If any entity engages in financing guarantee business without such approval, the entity may be subject to penalties including ban orsuspension of business, confiscation of revenues related to financing guarantee business, fines and criminal liabilities. Circular 141 further sets out that abanking financial institution shall not accept any credit enhancement service, ultimate commitment or any other disguised credit enhancement serviceprovided by any third-party institution without guarantee qualifications. We cooperated with Zhejiang Chouzhou Commercial Bank to furnish the borrowerreferral and facilitation services to the bank from August 2017 to December 2017. We provided guarantee deposits to the bank to protect it from potentiallosses due to loan delinquency and undertook to timely replenish such deposit from time to time. We also undertake to repay the bank on behalf ofdefaulting borrowers if any repayment is 80 days overdue and upon such full repayment to the bank, we will obtain the creditor’s rights in respect of therelevant default amount. Since the promulgation of Circular 141, we have suspended the cooperation with Zhejiang Chouzhou Commercial Bank. Due to thelack of further interpretations and the evolving regulatory environments, it is uncertain whether we would be deemed by the PRC regulatory authorities asoperating financing guarantee business, which is prohibited by the Interim Measures. We cannot assure you that we will not be subject to sanctions imposedby relative PRC regulatory agencies, or be required in the future to obtain approval or license for financing guarantee business to continue our cooperationwith banks. If our business arrangements with certain institutional investors were deemed to violate PRC laws and regulations, our business and results of operationscould be materially and adversely affected. As part of our strategy to expand our investor base from individual investors to institutional investors, we may from time to time explore alternativefunding initiatives, including through standardized capital instruments such as the issuance of asset-backed securities. In October 2015 we established abusiness relationship with a trust, Huijin No. 28 Single Capital Trust E1, or Trust No. 1, in a pilot program, under which Trust No. 1 invested in loans throughour platform using funds received from its investor, which is also its sole beneficiary. Trust No. 1 is administered by an independent third-party state-ownedtrust company, which acts as the trustee, for the purposes of providing returns to its sole beneficiary through extending loans up to an aggregate principalamount of RMB250.0 million to borrowers recommended by our platform. Trust No. 1’s settlor and sole beneficiary is Fengsheng Private Investment FundNo. 1, or Fund No. 1, a fund managed by Zhe Hao Shanghai Asset Management Company, or Zhe Hao, an affiliate of CreditEase. Fund No. 1’s investors arePRC individuals who are not affiliated with our company. In April 2016, Zhe Hao, on behalf of Fund No. 1, transferred Fund No. 1’s entire beneficiary rightsin Trust No. 1 to China International Capital Corporation Limited, a special purpose vehicle, which subsequently issued and listed RMB250.0 million asset-backed securities on the Shenzhen Stock Exchange in China, with the loans invested by Trust No. 1 through our platform as the underlying assets. Heng Ye,one of our PRC subsidiaries, purchased RMB47.5 million asset-backed securities through the Shenzhen Stock Exchange. In July 2016, we established a business relationship with another trust, Huijin No. 28 Single Capital Trust E2, or Trust No. 2, which is of the similarstructure to Trust No. 1 described above—Trust No. 2 is administered by an independent third-party state-owned trust company and has a fund, CreditEaseWealth Consumer Credit Investment Fund managed by Zhe Hao, or Fund No. 2, as its settlor and sole beneficiary. Trust No. 2 invested an aggregate ofRMB300.0 million in loans to borrowers recommended by our platform using the funds raised by its sole beneficiary from ultimate investors, includingRMB30.0 million invested by Heng Cheng, one of our variable interest entities in the PRC. In April 2017, Zhe Hao, on behalf of Fund No. 2, transferred FundNo. 2’s beneficiary rights in Trust No. 2 to Bohai International Trust Co., Ltd., an independent third party, which created Bohai Trust • Zhong Yi PropertyTrust No.1, or Zhong Yi Trust, to host the beneficial rights. Zhong Yi Trust has subsequently completed an issuance of RMB300.0 million (US$46.1 million)asset-backed securities through private placements. On the date of transfer, Heng Ye purchased all subordinated beneficiary rights amounted to RMB102.3million (US$15.7 million) representing 34% of the asset-backed securities upon their issuance. In June 2017 and October 2017, we established similar business relationship with other trusts, Huijin No. 28 Single Capital Trust E3, or Trust No.3and Bohai Trust Yirendai personal loan Single Capital Trust, or Bohai Trust No. 1, respectively. Trust No.3 and Bohai Trust No. 1 are administered by theindependent third-party trust company to invest in loans to borrowers recommended by our platform, with Heng Ye as their sole settlor and sole beneficiary.Heng Ye invested in an aggregate of RMB500.0 million (US$76.8 million) and RMB200.0 million (US$30.7 million) in the Trust No.3 and Bohai TrustNo. 1, respectively. 10Table of Contents Although Heng Cheng, our consolidated variable interest entity operating our online marketplace, are not part of the fund-raising process by thetrusts or the funds, we cannot assure you that our provision of services to the trusts and investments through the trusts by Heng Ye will not be viewed by PRCregulators as violating any laws or regulations regarding capital pools. Also, we transferred cash to Trust No.1 in an amount equal to certain percentage of theentire assets put into the trust, as a security fund to protect the trust from potential losses from defaults of loans in which the trust has invested. Under limitedcircumstances, the remainder of such fund may be returned to us, and we cannot assure you that we will not be viewed by PRC regulators as bearing somecredit risk or providing credit enhancement services under such arrangement. In addition, we cannot assure you that (a) Heng Ye’s purchase of the asset-backed securities regarding Trust No. 1 through the Shenzhen Stock Exchange, (b) Heng Ye’s purchase of the asset-backed securities regarding Trust No. 2 inprivate placement, and (c) Heng Ye’s subscription to Trust No. 3 and Bohai Trust No. 1, would not be deemed as investment in loans facilitated through theonline marketplace we operate by using our own capital. Furthermore, the PRC regulatory authorities may regard these arrangements relating to Trust No. 1,Trust No. 2, Trust No. 3 and Bohai Trust No. 1 as constituting selling trust products or conducting loan transfers through packaging, securitization, trust orfund units prohibited by the Interim Measures. If any of such business arrangements were deemed to violate PRC laws and regulations, our business andresults of operations could be materially and adversely affected. In addition, as the laws, rules and regulations applicable to asset-backed securities are stilldeveloping, it remains uncertain as to the application and interpretation of such laws, rules and regulations, particularly as they relate to the online lendinginformation intermediary industry. If the combination of the interest and transaction fees charged to the borrower on a loan is deemed to exceed the cap on judicially-protected interest rate,such excess interest or transaction fee may be ruled as unenforceable or even invalidated by the courts. Total fees paid by borrowers comprise fixed interest that are paid to investors and transaction fees we charge borrowers for our services. See “Item 4.Information on the Company—Business Overview—Our Products and Services—Loan Pricing Mechanism.” In determining the transaction fee rate wecharge, we take into account, among others, the creditworthiness of borrowers, costs incurred by us in providing loan origination services and our reasonablyestimated profits. The transaction fees we charge are recognized as our revenue and investors will not receive any part of the transaction fees we chargeborrowers. As a result, we do not believe that our business operation violates the Provisions on Several Issues Concerning Laws Applicable to Trials ofPrivate Lending Cases issued by the Supreme People’s Court on September 1, 2015, or the Private Lending Judicial Interpretation and Certain OpinionsConcerning Further Strengthening Finance Judgment Work issued by the Supreme People’s Court on August 4, 2017, or the Opinions on Finance Judgmenteven though in some cases the combination of the fixed interest rate that borrowers pay investors and the transaction fee rate we charge borrowers exceeds thecap on judicially-protected interest rate. However, the PRC courts may not hold similar view as we do, and parts or all of the transaction fees we collectedmay be ruled as unenforceable or even invalid by the PRC courts, which would materially and adversely affect our results of operations and financialcondition. To the extent the combination of fixed interest and transaction fees that the borrowers are required to pay is considered to exceed the cap onjudicially-protected interest rate, we may not be able to collect such excess amount, and if collected, may even be required to return some of such amount inaccordance with the Private Lending Judicial Interpretations and the Opinions on Finance Judgment, which may have a material and adverse effect on ourbusiness, financial condition and results of operations. Circular 141, which took effect on December 1,2017, requires that the interests and all the comprehensive capital costs charged and collected from aborrower should be uniformly converted into an annualized capital cost which shall not exceed the ceiling amount provided by the Private Lending JudicialInterpretations. In an effort to comply with Circular 141 and applicable regulations, we adjusted the pricing of all our products since February 1, 2018 toensure that the annualized capital cost rates charged on all our loan products are no more than the cap on judicially-protected interest rate. 11Table of Contents 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 adverselyaffected. Investments in loans on our marketplace involve inherent risks as the return of the principal on a loan investment made through our platform is notguaranteed, although we aim to limit investor losses due to borrower defaults to within an industry acceptable range through various preventive measures wehave taken or will take. Our ability to attract borrowers and investors to, and build trust in, our marketplace is significantly dependent on our ability toeffectively evaluate a borrower’s credit profile and maintain low default rates. To conduct this evaluation, we have employed a series of procedures anddeveloped a proprietary credit assessment and decisioning model. Our credit scoring model aggregates and analyzes the data submitted by a borrower as wellas the data we collect from a number of internal and external sources, and then generates a Yirendai score for the prospective borrower. The score will befurther used to approve and classify the borrower into one of the four segments in our current pricing grid. If our credit scoring model contains programmingor other errors, is ineffective or the data provided by borrowers or third parties is incorrect or stale, our loan pricing and approval process could be negativelyaffected, resulting in misclassified or mispriced loans or incorrect approvals or denials of loans. If we are unable to effectively and accurately assess the creditprofiles of borrowers, segment borrowers into appropriate grade in the pricing grid, or price loans on our platform appropriately, we may either be unable tooffer attractive fee rates to borrowers and returns to investors, or unable to maintain low default rates of loans facilitated by our platform. Historically, loansgenerated from our online channels generally have experienced higher delinquency rates and higher charge-off rates as compared with loans generated fromour offline channels. If the proportion of loans generated from our online channels increases as opposed to loans generated from our offline channels, theoverall delinquency rates and charge-off rates of loans facilitated by our platform may increase. In addition, once a loan application is approved, we do notfurther monitor certain aspects of the borrower’s credit profile, such as changes in the borrower’s credit report and the borrower’s purchasing pattern withonline 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 andthereby maintain low default rates for loans facilitated by our platform. The borrowers that we currently serve, including those falling under Grade I, II, III, IVand V of our current pricing grid, are primarily prime borrowers. If we expand to serve new borrower groups beyond prime borrowers in the future, we mayfind it difficult or unable to maintain low default rates of loans facilitated through our marketplace. Although we offer investor protection services in the formof a quality assurance program, if widespread defaults were to occur, investors may still incur losses and lose confidence in our marketplace and our businessand results of operations may be materially and adversely affected. If default rates were to increase, we may set aside additional cash in our quality assurance program and recognize additional expenses and liabilitieson our financial statements, which could have a material adverse effect on our working capital, financial condition, results of operations and businessoperations. We also may not have or generate sufficient cash to replenish our quality assurance program when necessary. In addition, because we offerinvestor protection in the form of a quality assurance program, high default rates would adversely affect the profitability of our loan products. For thehistorical lifetime cumulative M3+ Net Charge-off Rates for all loan products facilitated through our platform, see “Item 5. Operating and Financial Reviewand Prospects—A. Operating Results—Major Factors Affecting Our Results of Operations—Effectiveness of Risk Management.” We have limited experience operating our quality assurance program. If it is under- or over-funded, or if we fail to accurately forecast the expected qualityassurance program net payouts or otherwise implement the quality assurance program successfully, our financial results and competitive position may beharmed. We have limited experience operating our new quality assurance program, which was launched in January 2015. We set aside a certain amount ofcash in an interest-bearing custody account. In the event that a loan defaults, we withdraw funds from the custody account to repay investors the principaland accrued interest for the defaulted loan. Since we commenced our online consumer finance business only in March 2012, we have limited information regarding the default rates on loansfacilitated through our platform. In addition, given our limited operating history and introduction of new products, we have limited information on historicalcharge-off rates, and we may not be able to accurately forecast charge-offs for our target borrower group. Given these challenges, it is possible that we willunder- or over-fund our quality assurance program. Moreover, under our recent change in the funding policy for our quality assurance program, instead ofsetting aside the full amount to be contributed to the program in a lump sum, we will contribute to the program in installments with each instalment equal to30% of the transaction fee we receive from the borrower each time until the full amount is contributed. Such change to the quality assurance program fundingschedule could lead to under-funding of such program. If we under-fund our quality assurance program, and we do not or are unable to replenish the qualityassurance program to a sufficient level in time, investors may not be fully protected from loss. This may result in negative sentiment among investors, whichcould materially hinder our ability to retain existing investors as well as to attract new investors, and investors may bring claims against us, whether or notthey have legal rights to seek damages from us, which could lead to additional expenses and distract management’s attention from our business operation.Conversely, if we over-fund our quality assurance program, this will reduce the amount of our working capital, as we cannot use the funds set aside in thequality assurance program for our operations, and cause us to lose business opportunities. Should any of the foregoing occur, our competitive position as wellas our results of operations could be materially and adversely affected. 12Table of Contents For the first three quarters of 2015, the amount of cash we set aside for the quality assurance program is not sufficient to cover all expected netpayouts for loans facilitated during this period. In the fourth quarter of 2015, we revised our quality assurance program funding policy. Since then, we setaside sufficient cash in the quality assurance program to cover the expected net payouts. Moreover, in July 2017, we changed our funding policy for ourquality assurance program. Instead of setting aside the full amount to be contributed to the program in a lump sum, we contribute to the program ininstallments with each instalment equal to 30% of transaction fee we receive from the borrower each time until the full amount is contributed. As ofDecember 31, 2017, the balance of cash set aside for the quality assurance program was RMB1,701.5 million (US$261.5 million). The funding and operation of quality assurance program may have a material impact on our financial condition. A significant increase in ourexpected quality assurance program net payouts will have a negative impact on our net revenues and net income. See “Item 5. Operating and FinancialReview and Prospects—A. Operating Results—Selected Statements of Operations Items—Quality Assurance Program and Guarantee.” In addition, subject to the terms and limits in our agreements with investors, we currently allow investors to fully recover their outstanding principaland accrued interest in the event of loan default. As the industry continues to evolve and becomes more sophisticated, we may revisit our policy or the termson which we offer the quality assurance program so that investors may recover less than 100% of the outstanding principal and accrued interest. However, ifour estimate of the industry trend or market acceptance is not correct, any such reduction in quality assurance payout ratio may also cause negative sentimentamong investors, potentially hindering our ability to retain existing investors as well as to attract new investors, and causing a material adverse impact on ourcompetitive position and results of operations. If our loan products do not achieve sufficient market acceptance, our financial results and competitive position will be harmed. We incur expenses and consume resources upfront to develop, acquire and market new loan products. For example, we have developed four differentsegments in our pricing grid, which we refer to as Grade A, Grade B, Grade C and Grade D loans. We have facilitated loans falling under Grade A since ourinception. As part of our efforts to introduce risk-based pricing, we raised the minimum borrower qualification standards for Grade A loans, and started tofacilitate Grade B and Grade D loans in the fourth quarter of 2014 and Grade C loans in the first quarter of 2015. In the second quarter of 2017, we launchedour new credit scoring system, the Yiren score, which can be used to more accurately characterize borrower’s credit profile. Under this new credit scoringsystem, we have an upgraded risk grid with five segments, which we refer to as Grade I, Grade II, Grade III, Grade IV and Grade V. The expected M3+ NetCharge-off Rate and actual observed results for each of these customer groups divide potential borrowers into distinctively different credit segments. In thetransition period from May 1, 2017 to September 30, 2017, we used both the upgraded risk grid and the previous pricing grid for loans facilitated on ourplatform. For a more detailed description of the pricing 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 inorder for us to recoup our investment in developing, acquiring and bringing them to market. Our existing or new loan products and changes to our platform could fail to attain sufficient market acceptance for many reasons, including but notlimited to: · our failure to predict market demand accurately and supply loan products that meet this demand in a timely fashion; · borrowers and investors 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; 13Table of Contents · 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. Another example is the automated investing tool that we offer to investors. With our automated investing tool, an investor may lend to borrowers onour marketplace for a specified period of time, and the investor’s funds are automatically allocated among approved borrowers. However, we cannot rule outthe possibility that there may be a mismatch between the investor’s expected timing of exit and the maturity date of the loans to which the automatedinvesting tool allocates the investor’s funds. Investors using our automated investing tool typically invest for a shorter period than the terms of theunderlying loans. If we are unable to find another investor to take over the remainder of the loans from the original investor that uses our automated investingtool at the time of his expected exit, then the original investor will have to remain invested in the loans and his expectation of liquidity would not besatisfied. If such mismatches occur in a widespread manner, investor acceptance of or satisfaction with our automatic investing tool would be adverselyimpacted. If our new loan products do not achieve adequate acceptance in the market, our competitive position, results of operations and financial conditioncould be harmed. Our business depends on our ability to collect payment on and service the transactions we facilitate. We utilize an automated process for collecting scheduled loan payments from our borrowers. Upon loan origination, we establish a paymentschedule with payment occurring on a set business day each month. Borrowers then make scheduled loan repayments via a third-party payment platform to acustody account, and authorize us to debit the custody account for the transfer of scheduled loan repayments to the lending investors. As a day-to-day serviceto borrowers, we provide payment reminder services such as sending reminder text messages on the day a repayment is due. Once a repayment is past due, wealso send additional reminder text messages. We outsource all stages of the collections process to CreditEase. To facilitate repayment and as a service toinvestors, the collections process is divided into distinct stages based on the severity of delinquency, which dictates the level of collection steps taken.However, despite such collection efforts, we cannot assure you that we will be able to collect the relevant payments as expected. Failure to collect paymentsand maintain low default rates for loans facilitated by our platform will have a material adverse effect on our business operations, financial positions andresults of operations. As the amount of loans facilitated on our platform continues to increase, additional resources as to collection may be required,including additional resources from CreditEase or other third-party service providers. Costs associated with these additional efforts may similarly increasewhich may also have a material adverse effect on our results of operations. Furthermore, any misconduct in our collection practice (including that ofCreditEase carried out on our behalf) is considered not to be in compliance with the relevant laws, rules and regulations may harm our reputation andbusiness, which could further reduce our ability to collect payments from borrowers, lead to a decrease in the willingness of prospective borrowers to applyfor 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 resultsof operations. In addition, if any laws, rules or regulations are adopted by the regulatory authorities in the future imposing additional restrictions on debtcollection practice, we may need to modify our collection efforts accordingly. If we do not compete effectively, our results of operations could be harmed. The online consumer finance marketplace industry in China is intensely competitive and evolving. We compete with a large number consumerfinance marketplaces. We also compete with financial products and companies that attract borrowers, investors or both. With respect to borrowers, weprimarily compete with traditional financial institutions, such as consumer finance business units in commercial banks, credit card issuers and other consumerfinance companies. With respect to investors, we primarily compete with other investment products and asset classes, such as equities, bonds, investment trustproducts, bank savings accounts, real estate and alternative asset classes. 14Table of Contents Our competitors operate with different business models, have different cost structures or participate selectively in different market segments. Theymay ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and potentialcompetitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to thedevelopment, promotion, sale and support of their platforms. Our competitors may also have longer operating histories, more extensive borrower or investorbases, greater brand recognition and brand loyalty and broader partner relationships than us. Additionally, a current or potential competitor may acquire oneor more of our existing competitors or form a strategic alliance with one or more of our competitors. Our competitors may be better at developing newproducts, offering more attractive investment returns or lower fees, responding faster to new technologies and undertaking more extensive and effectivemarketing campaigns. In response to competition and in order to grow or maintain the volume of loan transactions facilitated through our marketplace, wemay have to offer higher investment return to investors or charge lower transaction fees, which could materially and adversely affect our business and resultsof operations. If we are unable to compete with such companies and meet the need for innovation in our industry, the demand for our marketplace couldstagnate or substantially decline, we could experience reduced revenues or our marketplace could fail to achieve or maintain more widespread marketacceptance, 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 and retaining existing borrowers andinvestors to our marketplace. Successful promotion of our brand and our ability to attract qualified borrowers and sufficient investors depend largely on theeffectiveness 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 toincur significant expenses, and it is likely that our future marketing efforts will require us to incur significant additional expenses. These efforts may notresult 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 tosuccessfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial condition would be adverselyaffected, 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 theborrower’s creditworthiness, which may compromise the accuracy of our credit assessment. For the purpose of credit assessment, we obtain borrower credit information from third parties, such as financial institutions and e-commerceproviders, and assess applicants’ credit and assign credit scores to borrowers based on such credit information. A credit score assigned to a borrower may notreflect that particular borrower’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate consumer reportingdata. Although we do not permit borrowers to hold more than one loan that has been facilitated through our platform at a time, we currently do not have acomprehensive way to determine whether borrowers have obtained loans through other consumer finance marketplaces, creating the risk whereby a borrowermay borrow money through our platform in order to pay off loans to investors on other platforms. Additionally, there is a risk that, following our obtaining aborrower’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 couldcompromise the accuracy of our credit assessment, require adjustments to our credit assessment model and adversely affect the effectiveness of our controlover our default rates, which could in turn harm our reputation and materially and adversely affect our business, financial condition and results of operations. 15Table of Contents In addition, our business of connecting investors and individual borrowers may constitute an intermediary service, and our contracts with theseinvestors and borrowers may be deemed as intermediation contracts, under the PRC Contract Law. Under the PRC Contract Law, an intermediary may notclaim for service fee and is liable for damages if it conceals any material fact intentionally or provides false information in connection with the conclusion ofan intermediation contract, which results in harm to the client’s interests. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Online Lending Information Intermediary—Regulations on Loans between Individuals.” Therefore, if we fail to provide materialinformation to investors, or if we fail to identify false information received from borrowers or others and in turn provide such information to investors, and ineither case if we are also found to be at fault, due to failure or deemed failure to exercise proper care, such as to conduct adequate information verification oremployee supervision, we could be held liable for damages caused to investors as an intermediary pursuant to the PRC Contract Law. In addition, if we fail tocomplete our obligations under the agreements entered into with investors and borrowers, we could also be held liable for damages caused to borrowers orinvestors pursuant to the PRC Contract Law. On the other hand, we do not assume any liability solely on the basis of failure to correctly assign a loan gradeto a particular borrower in the process of facilitating a loan transaction, as long as we do not conceal any material fact intentionally or provide falseinformation, and are not found to be at fault otherwise. However, due to the lack of detailed regulations and guidance in the area of online lendinginformation intermediary services and the possibility that the PRC government authority may promulgate new laws and regulations regulating onlinelending information intermediary services in the future, there are substantial uncertainties regarding the interpretation and application of current or futurePRC laws and regulations for the online lending information intermediary service industry, and there can be no assurance that the PRC government authoritywill ultimately take a view that is consistent with us. Any harm to our brand or reputation or any damage to the reputation of the online consumer finance marketplace industry may materially and adverselyaffect 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 includebut are not limited to our ability to: · maintain the quality and reliability of our platform; · provide borrowers and investors with a superior experience in our marketplace; · enhance and improve our credit assessment and decision-making models; · effectively manage and resolve borrower and investor complaints; and · effectively protect personal information and privacy of borrowers and investors. Our brand and reputation may also be negatively affected if the guarantee company providing guarantees, or the insurance company providingsurety insurances, to the loans we facilitated fails to repay, or reimburse the investors, the principal and accrued interest on defaulted loans pursuant to theterms of the guarantee arrangement and business agreement. Any malicious or innocent negative allegation made by the media or other parties about theforegoing or other aspects of our company, including but not limited to our management, business, compliance with law, financial condition or prospects,whether with merit or not, could severely hurt our reputation and harm our business and operating results. As the market for China’s online consumer financemarketplaces is new and the regulatory framework for this market is also evolving, negative publicity about this industry may arise from time to time.Negative publicity about China’s online consumer finance marketplace industry in general may also have a negative impact on our reputation, regardless ofwhether we have engaged in any inappropriate activities. In addition, certain factors that may adversely affect our reputation are beyond our control. Negative publicity about our partners, outsourced serviceproviders or other counterparties, such as negative publicity about their debt collection practices and any failure by them to adequately protect theinformation of borrowers and investors, to comply with applicable laws and regulations or to otherwise meet required quality and service standards couldharm our reputation. Furthermore, any negative development in the online consumer finance marketplace industry, such as bankruptcies or failures of otherconsumer finance marketplaces, and especially a large number of such bankruptcies or failures, or negative perception of the industry as a whole, such as thatarises from any failure of other consumer finance marketplaces to detect or prevent money laundering or other illegal activities, even if factually incorrect orbased on isolated incidents, could compromise our image, undermine the trust and credibility we have established and impose a negative impact on ourability to attract new borrowers and investors. Negative developments in the online consumer finance marketplace industry, such as widespread borrowerdefaults, fraudulent behavior and/or the closure of other online consumer finance marketplaces, may also lead to tightened regulatory scrutiny of the sectorand limit the scope of permissible business activities that may be conducted by online consumer finance marketplaces like us. For example, incidents ofinappropriate conduct by a number of online lending information intermediaries in connection with loans made to college students led to the outrightregulatory prohibition in May 2017 of all new loans to college students made through platforms operated by online lending information intermediaries. Ifany of the foregoing takes place, our business and results of operations could be materially and adversely affected. 16Table of Contents We have incurred net losses in the past and may incur net losses in the future. Although we had net income of RMB275.3 million, RMB1,116.4 million and RMB1,371.8 million (US$210.8 million) in 2015, 2016 and 2017,respectively, and retained earnings of RMB184.9 million, RMB1,177.1 million and RMB1,835.1 million (US$282.0 million) as of December 31, 2015, 2016and 2017, respectively, we cannot assure you that we will be able to continue to generate net income or will have retained earnings in the future. Weanticipate that our operating expenses will increase in the foreseeable future as we seek to continue to grow our business, attract borrowers, investors andpartners and further enhance and develop our loan products and platform. These efforts may prove more expensive than we currently anticipate, and we maynot 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 revenuesand additional expenses in connection with the higher than expected net payouts from the quality assurance program. Furthermore, we have adopted shareincentive plans in September 2015 and July 2017, and we may grant equity-based awards to eligible participants from time to time under the plan, which willresult 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 marginsmay 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. In addition, ournet revenue growth rate will likely decline as our net revenue grows to higher levels. 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 revenues, expenses, net (loss)/income and other key metrics, may varysignificantly 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 maynot be meaningful, especially given our limited operating history. Accordingly, the results for any one quarter are not necessarily an indication of futureperformance. Fluctuations in quarterly results may adversely affect the price of our ADSs. Factors that may cause fluctuations in our quarterly financial resultsinclude: · our ability to attract new borrowers and investors and maintain relationships with existing borrowers and investors; · loan volumes and the channels through which borrowers and investors are sourced, including the relative mix of online and offline channels; · increases in quality assurance program liability related to additional provisional expenses for increases in expected net payout; · changes in our product mix and introduction of new loan products; · our actual and expected quality assurance program net payouts for loans facilitated through our platform and the amount we set aside in the qualityassurance program; · the amount and timing of operating expenses related to acquiring borrowers and investors such as the amount of referral fee CreditEase charges usfor borrower acquisition, and the maintenance and expansion of our business, operations and infrastructure; 17Table of Contents · promulgation of new rules and regulations applicable to, or heightened regulatory scrutiny of, the online lending information intermediary 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 investor experience instead of near-term growth; and · the timing of expenses related to the development or acquisition of technologies or businesses. In addition, we experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal consumptionpatterns, as our individual borrowers typically use their borrowing proceeds to finance their personal consumption needs. For example, we generallyexperience lower transaction value on our online consumer finance marketplace during national holidays in China, particularly during the Chinese New Yearholiday season in the first quarter of each year. While our rapid growth has somewhat masked this seasonality, our results of operations could be affected bysuch seasonality in the future. Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations. We generated positive cash flows from operating activities of RMB861.3 million in 2015, RMB2,113.4 million in 2016 and RMB2,716.5 million(US$417.5 million) in 2017. Our cash generated from operating activities primarily includes the transaction fees from borrowers. Historically, borrowers paidthe transaction fees primarily on a monthly basis over the term of the loan, which has contributed to our generating negative cash flows from operatingactivities. In the fourth quarter of 2014, we adopted a new fee collection schedule whereby we either collect the entire amount of the transaction fee upfrontupon completion of our loan facilitation services, or collect a portion of the transaction fee upfront and the rest on a monthly basis over the term of the loan.However, we cannot assure you the new fee collection schedule will improve our cash position. Inability to collect payments from customers, borrowers inparticular, in a timely and sufficient manner may adversely affect our liquidity, financial condition and results of operations. Furthermore, in the first threequarters of 2015, the amount of cash we set aside for the quality assurance program is not sufficient to cover all expected net payouts for loans facilitatedduring this period. In the fourth quarter of 2015, we revised our quality assurance program funding policy. Since then, we set aside sufficient cash in thequality assurance program to cover the expected net payouts. Moreover, in July 2017, we changed our funding policy for our quality assurance program.Instead of setting aside the full amount to be contributed to the program in a lump sum, we contribute to the program in installments with each instalmentequal to 30% of transaction fee we receive from the borrower each time until the full amount is contributed. Such change to the quality assurance program funding schedule could lead to under-funding of such program. In the event the actual or expected quality assurance program net payouts are higher thanthe quality assurance program balance, we will or may need to, as the case may be, increase the amount of cash that is available in our quality assuranceprogram, which may have a material adverse effect on our working capital. Our reputation may be harmed if information supplied by borrowers is inaccurate, misleading or incomplete, including if the borrowers use the loanproceeds for purposes other than as originally provided. Borrowers supply a variety of information that is included in the loan listings on our marketplace. We do not verify all the information we receivefrom borrowers, and such information may be inaccurate or incomplete. For example, we often do not verify a borrower’s home ownership status or intendeduse of loan proceeds, and the borrower may use loan proceeds for other purposes with increased risk than as originally provided. In addition, as onlinelending information intermediaries are prohibited from facilitating loans to be used for high-risk activities such as investment in stocks, over-the-counterfinancing, future contracts, structures products and other derivative products or as the down payment for the purchase of residential real estate, we could befound to have violated applicable laws, rules or regulations if any of the borrowers use the loan proceeds for any such prohibited purpose, albeit inconsistentto what such borrower has previously disclosed to us. Moreover, investors do not, and will not, have access to detailed financial information about borrowers.If investors invest in loans through our platform based on information supplied by borrowers that is inaccurate, misleading or incomplete, those investorsmay not receive their expected returns and our reputation may be harmed. Moreover, inaccurate, misleading or incomplete borrower information could alsopotentially subject us to liability as an intermediary under the PRC Contract Law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Online Lending Information Intermediary—Regulations on Loans between Individuals” below. 18Table of Contents Fraudulent activity on our marketplace could negatively impact our operating results, brand and reputation and cause the use of our loan products andservices to decrease. We are subject to the risk of fraudulent activity both on our marketplace and associated with borrowers, investors and third parties handlingborrower and investor information. For example, we detected an organized fraud incident concerning our FastTrack loan products in July 2016. Afteruncovering the fraud incident, we had suspended the offering of the FastTrack loan products until late July 2016 when we implemented more stringentrequirements aiming to prevent similar type of fraud incidents. Our resources, technologies and fraud detection tools may be insufficient to accurately detectand prevent fraud. In addition, our anti-fraud and verification processes for borrowers from offline channels and online channels may differ, and suchprocesses with respect to borrower from online channels may not be as extensive as those from offline channels. If we increase the proportion of loansgenerated from our online channels as opposed to our offline channels, we may experience an increase in fraudulent activity on our platform. Significantincreases in fraudulent activity could negatively impact our brand and reputation, reduce the volume of loan transactions facilitated through our platformand lead us to take additional steps to reduce fraud risk, which would increase our costs. High profile fraudulent activity could even lead to regulatoryintervention, and may divert our management’s attention and cause us to incur additional expenses and costs. If any of the foregoing were to occur, ourresults of operations and financial condition would be materially and adversely affected. Failure to maintain a successful strategic relationships with partners may have adverse impact on our future success. We anticipate that we will continue to leverage our strategic relationships with existing partners in China’s online consumer finance marketplaceindustry to grow our business while we will also pursue new relationships with additional partners such as traditional financial institutions and merchants inmore sectors. For example, in the future, we may partner with traditional financial institutions to combine the efficiency advantages of online consumerfinance marketplaces with the low funding costs of traditional financial institutions. Identifying, negotiating and documenting relationships with partnersrequires significant time and resources as does integrating third-party data and services into our system. Our current agreements with partners often do notprohibit them from working with our competitors or from offering competing services. Our competitors may be effective in providing incentives to ourpartners to favor their products or services, which may in turn reduce the volume of loans facilitated through our marketplace. Certain types of partners maydevote 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 we cannot successfully enter intoand 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. We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party service providers.Our business depends on our employees and third-party service providers to interact with potential borrowers and investors, process large numbers oftransactions and support the loan collection process, all of which involve the use and disclosure of personal information. We could be materially adverselyaffected if transactions were redirected, misappropriated or otherwise improperly executed, if personal information was disclosed to unintended recipients orif an operational breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulentmanipulation of our operations or systems. In addition, the manner in which we store and use certain personal information and interact with borrowers andinvestors through our marketplace is governed by various PRC laws. It is not always possible to identify and deter misconduct or errors by employees orthird-party service providers, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risksor losses. If any of our employees or third-party service providers take, convert or misuse funds, documents or data or fail to follow protocol when interactingwith borrowers and investors, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitatedor participated in the illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminalliability. In addition, we currently rely on CreditEase and in the future may continue to rely on CreditEase or other third-party service providers for loancollection services. Aggressive practices or misconduct by any of our third-party service providers, including CreditEase, in the course of collecting loanscould damage our reputation. 19Table of Contents Furthermore, as we 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 we would be able to find an alternative ina timely and cost-efficient manner or at all. Any of these occurrences could result in our diminished ability to operate our business, potential liability toborrowers and investors, inability to attract borrowers and investors, reputational damage, regulatory intervention and financial harm, which could negativelyimpact our business, financial condition and results of operations. Fluctuations in interest rates could negatively affect transaction volume. All loans facilitated through our marketplace are issued with fixed interest rates. If interest rates rise, investors who have already committed capitalmay lose the opportunity to take advantage of the higher rates. If interest rates decrease after a loan is made, borrowers through our platform may prepay theirloans to take advantage of the lower rates. Investors through our platform would lose the opportunity to collect the above-market interest rates payable on theprepaid loans and might delay or reduce future loan investments. As a result, fluctuations in the interest rate environment may discourage investors andborrowers from participating in our marketplace, which may adversely affect our business. A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition. Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financialcondition. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemploymentrates, may affect borrower willingness to seek loans and investor ability and desire to invest in loans. Economic conditions in China are sensitive to globaleconomic conditions. The global financial markets have experienced significant disruptions since 2008 and the United States, Europe and other economieshave experienced periods of recession. The recovery from the lows of 2008 and 2009 has been uneven and there are new challenges, including the escalationof the European sovereign debt crisis from 2011, the end of quantitative easing by the U.S. Federal Reserve, the economic slowdown in the Eurozone in 2014and the expected exit of the United Kingdom from the European Union. The Chinese economy has slowed down since 2012 and such slowdown maycontinue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks andfinancial authorities of some of the world’s leading economies, including the United States and China. There have also been concerns over events in NorthKorea, the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns about the economic effectof the tensions in the relationship between China and other countries, including the surrounding Asian countries. If the Chinese and global economicuncertainties persist, many of our investors may delay or reduce their investment in the loans facilitated through our platform. Adverse economic conditionscould also reduce the number of qualified borrowers seeking loans on our platform, as well as their ability to make payments. Should any of these situationsoccur, the amount of loans facilitated through our platform and our net revenues will decline, and our business and financial condition will be negativelyimpacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidityneeds. We may need additional capital, and financing may not be available on terms acceptable to us, or at all. In 2014, our principal sources of liquidity were advances from our parent company, CreditEase, representing operating costs and expenses paid orborne by the various entities affiliated with CreditEase on our behalf, as our online consumer finance marketplace business was carried out by varioussubsidiaries and variable interest entities of CreditEase as a business unit under CreditEase at the time. We completed our carve-out from CreditEase in thefirst quarter of 2015, and we will not have such advances from CreditEase going forward. As of December 31, 2015, 2016 and 2017, we had cash and cashequivalents of RMB846.1 million, RMB968.2 million, and RMB1,857.2 million (US$285.4 million), respectively. Although we believe that our anticipatedcash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course ofbusiness 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 inbusiness conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities forinvestment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents wehave 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 infurther dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants thatwould restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. 20Table of Contents Our ability to protect the confidential information of our borrowers and investors may be adversely affected by cyber-attacks, computer viruses, physical orelectronic break-ins or similar disruptions. Our platform collects, stores and processes certain personal and other sensitive data from our borrowers and investors, which makes it an attractivetarget and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. Under the PRC Cyber SecurityLaw, which took effect on June 1, 2017, we are required to formulate security management system and operational procedures, take measures to prevent actsthat jeopardize cyber security such as computer virus, network attacks and network intrusion, and safeguard personal information, user information andbusiness secrets. If we are deemed a critical information infrastructure under the Cyber Security Law, we will be subject to additional requirement regardingthe construction, security protection, purchase of products and services, secrecy, localization of data, and annual evaluation of the infrastructure. While wehave taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques used tosabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may beunable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorizedaccess to our platform could cause confidential borrower and investor information to be stolen and used for criminal purposes. Security breaches orunauthorized 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, malfeasanceor otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with borrowers and investors could be severelydamaged, we could incur significant liability and our business and 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 preventfraud. We are subject to reporting obligations under the U.S. securities laws. Section 404 of the Sarbanes-Oxley Act of 2002 and related rules require thatwe include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning withour annual report for the fiscal year ending December 31, 2017. Our management has concluded that our internal control over financial reporting waseffective as of December 31, 2017. See “Item 15. Controls and Procedures.” In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered publicaccounting firm must attest to and report on the effectiveness of our internal control over financial reporting. In the future, our management may concludethat our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financialreporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse opinion auditreport 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 therelevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financialresources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation. 21Table of Contents During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identifyweaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control overfinancial 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 wehave effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal controlenvironment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely causeinvestors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, andlead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraudor misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminalsanctions. We may also be required to restate our financial statements from prior periods. 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 andregulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. We primarily rely on a limited number of telecommunicationservice providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. Wehave limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s internet infrastructure or the fixedtelecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required to upgrade ourtechnology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet infrastructure and the fixedtelecommunications 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 fortelecommunications and internet services rise significantly, our results of operations may be adversely affected. Furthermore, if internet access fees or othercharges 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 orposting loans on our marketplace, reduce the attractiveness of our marketplace and result in a loss of borrowers or investors. In the event of a platform outage and physical data loss, our ability to perform our servicing obligations, process applications or make loansavailable on our marketplace would be materially and adversely affected. The satisfactory performance, reliability and availability of our platform and ourunderlying network infrastructure are critical to our operations, customer service, reputation and our ability to retain existing and attract new borrowers andinvestors. Much of our system hardware is hosted in a leased facility located in Beijing that is operated by our IT Staff. We also maintain a real-time backupsystem at a separate facility also located in Beijing. Our operations depend on our ability to protect our systems against damage or interruption from naturaldisasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal actsand similar events. If there is a lapse in service or damage to our leased Beijing facilities, we could experience interruptions in our service as well as delaysand additional expense in arranging new facilities. Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidentalor willful, could harm our relationships with our borrowers and investors and our reputation. Additionally, in the event of damage or interruption, ourinsurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disasterconditions, 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 processingor posting payments on loans, damage our brand and reputation, divert our employees’ attention, subject us to liability and cause borrowers and investors toabandon our marketplace, any of which could adversely affect our business, financial condition and results of operations. 22Table of Contents 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 onthe ability of such software to store, retrieve, process and manage immense amounts of data. The software on which we rely has contained, and may now or inthe 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 otherdesign defects within the software on which we rely may result in a negative experience for borrowers and investors using our platform, delay introductions ofnew features or enhancements, result in errors or compromise our ability to protect borrower or investor data or our intellectual property. Any errors, bugs ordefects discovered in the software on which we rely could result in harm to our reputation, loss of borrowers or investors or liability for damages, any of whichcould adversely affect our business, results of operations and financial condition. 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 relyon a combination of intellectual property laws and contractual arrangements, including confidentiality, invention assignment and non-compete agreementswith our employees and others to protect our proprietary rights. We are applying for 273 trademarks, all of which are pending with the Trademark Officeunder the State Administration for Industry and Commerce. As of the date of this annual report, a total of 44 trademarks have been transferred to us byCreditEase. In addition, we have also obtained a worldwide and royalty-free license from CreditEase to use certain of its trademarks. However, the trademarklicenses granted by CreditEase to us have not been filed with the Trademark Office under the State Administration for Industry and Commerce. See “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 our intellectual property rights would not be challenged,invalidated, circumvented or misappropriated, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, becauseof 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 notbe 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 judicialinterpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, inventionassignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach.Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing anyunauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of ourintellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and adiversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may beleaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants useintellectual 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 orenforcing our intellectual property rights 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 and operations. We 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 be from time to time in the future subject to legal proceedings andclaims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or otherintellectual property rights that are infringed by our products, services or other aspects of our business without our awareness. Holders of such intellectualproperty rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-partyinfringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defendagainst these claims, regardless of their merits. 23Table of Contents 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 orregulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject toliability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to developalternatives of our own. As a result, our business and results of operations may be materially and adversely affected. From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant managementattention, 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 andbetter serve borrowers and investors. These transactions could be material to our financial condition and results of operations if consummated. If we are ableto identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such atransaction, 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; · 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-closingapprovals, 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 orincrease 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; 24Table of Contents · 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 businessstrategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, wecannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhancedloan products and services or that any new or enhanced loan products and services, if developed, will achieve market acceptance or prove to be profitable. 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 theirpresent 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 keyexecutives 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 beconstrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and wemay incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competitionagreements 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 inChina or we may be unable to enforce them at all. 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 our success depends on the efforts and talent of our employees, including risk management, software engineering, financial andmarketing 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 thesepersonnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete forexperienced 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 recruitthem. 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 ourability to serve borrowers and investors could diminish, resulting in a material adverse effect to 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 inflation and labor costs in recent years. As a result, average wages in the PRC are expected tocontinue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund,medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of ouremployees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and thoseemployers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that our labor costs, includingwages 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 byincreasing the fees of our services, our financial condition and results of operations may be adversely affected. 25Table of Contents 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 andcultivates creativity. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspectsof 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 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 developedeconomies. Currently, we do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring forthese 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 ourresults of operations and financial condition. 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 andservices on our platform. Our business could also be adversely affected by the effects of Zika virus, Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe AcuteRespiratory Syndrome, or SARS, or other epidemics. Our business operations could be disrupted if any of our employees is suspected of having Zika virus,Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or other epidemic, since it could require our employees to be quarantined and/or our offices to bedisinfected. In addition, our results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general. 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 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 management products and services inChina. Inclusive finance focuses on providing access to affordable and responsible financing solutions to those in China who are often unable to gain suchaccess. We completed our carve-out from CreditEase in the first quarter of 2015. Historically, CreditEase has 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 executivesand employees. Although we have become a stand-alone company, we expect CreditEase to continue to provide us with certain support services during atransitional period. We have also relied on CreditEase for the successful operation of our online consumer finance marketplace. In the future, we expect tocontinue to rely on CreditEase for various aspects of our operations, such as risk management, offline acquisition of new borrowers and investors andoutstanding loan collection services. Although we have entered into a series of agreements with CreditEase relating to our ongoing business cooperation andservice arrangements with CreditEase, we cannot assure you that we will continue to receive the same level of support from CreditEase after we become astand-alone company. The cost of services which CreditEase provides to us may from time to time increase based on commercial negotiations betweenCreditEase and us. For example, pursuant to our contractual agreement with CreditEase, the fee rate for the offline borrower acquisition services whichCreditEase provides to us has recently increased from 5% to 6% of the loans facilitated to borrowers referred by CreditEase for the three years starting 2016.After that, the fee rate may be adjusted on a yearly basis based on commercial negotiation, and after taking into consideration the costs to CreditEase forproviding such services and with reference to market rates. Furthermore, borrowers, investors and business partners may react negatively to our carve-out fromCreditEase. As such, our carve-out from CreditEase may materially and adversely affect our business. In addition, as a result of our carve-out from CreditEase,our historical growth and financial performance may not be indicative of our future performances as a stand-alone public company. 26Table of Contents Our financial information included in this annual report may not be representative of our financial condition and results of operations if we had beenoperating as a stand-alone company. Prior to the establishment of Yirendai Ltd., our online consumer finance marketplace business was carried out by various subsidiaries and variableinterest entities of CreditEase. We completed our carve-out from CreditEase in the first quarter of 2015, and all of our online consumer finance marketplacebusiness is now carried out by our own subsidiaries and consolidated variable interest entities. Since we and the subsidiaries and variable interest entities ofCreditEase 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 balancesheets include those assets and liabilities that are specifically identifiable to our business; and our consolidated statements of operations include all costs andexpenses related to us, including costs and expenses allocated from CreditEase to us. Allocations from CreditEase, including amounts allocated toorigination and servicing expenses, sales and marketing expenses and general and administrative expenses, were made using a proportional cost allocationmethod and based on headcount or transaction volume for the provision of services attributable to us. We made numerous estimates, assumptions andallocations in our historical financial statements because we did not operate as a stand-alone company prior to our carve-out from CreditEase in the firstquarter of 2015. Although our management believes that the assumptions underlying our historical financial statements and the above allocations arereasonable, our historical financial statements may not necessarily reflect our results of operations, financial position and cash flows as if we had operated as astand-alone company during those periods. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for ourarrangements with CreditEase and “Item 5. Operating and Financial Review and Prospects” and the notes to our consolidated financial statements includedelsewhere 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 cost allocation withCreditEase for the same services. Therefore, you should not view our historical results as indicators of our future performance. Any negative development in CreditEase’s market position, brand recognition or financial condition may materially and adversely affect our marketingefforts 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 as ourcontrolling shareholder. We have benefited significantly and expect to continue to benefit significantly from our association with CreditEase in marketingour brand and our marketplace. Referrals from CreditEase’s nationwide service network currently accounts for a majority of our borrowers and loan volume.In 2015, 2016 and 2017, 49.5%, 42.5% and 27.1% of our borrowers were acquired through referrals from CreditEase, respectively, contributing 67.0%, 62.0%and 45.6% of the total amount of loans facilitated through our marketplace, respectively. If user referrals through CreditEase decrease or become lesseffective, the quality of the borrowers referred by CreditEase does not meet our borrower qualification standards, or if we are unable to continue to useCreditEase as a user acquisition channel for any reason, our business and results of operations may be adversely and materially affected. There can be noassurance that we would be able to find other user acquisition channels to replace referrals from CreditEase on commercially reasonable terms, or at all. Wealso benefit from CreditEase’s strong brand recognition in China, which provides us credibility and a broad marketing reach. If CreditEase loses its marketposition, the effectiveness of our marketing efforts through our association with CreditEase may be materially and adversely affected. In addition, anynegative publicity associated with CreditEase or any negative development in respect of CreditEase’s market position, financial condition, or in terms ofcompliance with legal or regulatory requirements in China, will likely have an adverse impact on the effectiveness of our marketing as well as our reputationand brand. 27Table of Contents Our agreements with CreditEase may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our 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 ifthey were negotiated with unaffiliated third parties. In particular, under our non-competition agreement with CreditEase, we agree during the non-competition period, which will end on the earlier of (i) one year after the control ending date or (ii) the fifteenth anniversary of the completion of our initialpublic offering, not to compete with CreditEase in the business currently conducted by CreditEase, other than the online consumer finance marketplacebusiness currently conducted or contemplated to be conducted by us as of the date of the agreement and any other businesses that we and CreditEase maymutually agree from time to time. The control ending date refers to the earlier of (i) the first date when CreditEase no longer owns at least 20% of the votingpower of our then outstanding securities or (ii) the first date when CreditEase ceases to be the largest beneficial owner of our then outstanding votingsecurities. Such contractual limitations may significantly affect our ability to diversify our revenue sources and may materially and adversely impact ourbusiness and prospects should the growth of online consumer finance marketplace industry in China slow down. In addition, pursuant to our mastertransaction agreement with CreditEase, we agree to indemnify CreditEase for liabilities arising from litigation and other contingencies related to our businessand assumed these liabilities as part of our carve-out from CreditEase. The allocation of assets and liabilities between CreditEase and our company may notreflect the allocation that would have been reached by two unaffiliated parties. Moreover, so long as CreditEase continues to control us, we may not be ableto bring a legal claim against CreditEase in the event of contractual breach, notwithstanding our contractual rights under the agreements described above andother inter-company agreements entered into from time to time. CreditEase will control the outcome of shareholder actions in our company. As of March 31, 2018, CreditEase held 82.4% of our outstanding ordinary shares and total voting power. CreditEase’s voting power gives it thepower to control certain actions that require shareholder approval under Cayman Islands law, our current memorandum and articles of association and NYSErequirements, including approval of mergers and other business combinations, changes to our memorandum and articles of association, the number of sharesavailable for issuance under any share incentive plans, and the issuance of significant amounts of our ordinary shares in private placements. CreditEase’s voting control may cause transactions that might not be beneficial to the holders of our ADSs to occur and may prevent transactionsthat 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 marketprice. 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 ofour ADSs and without providing for a purchase of the ADSs. If CreditEase is acquired or otherwise undergoes a change of control, any acquirer or successorwill 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 ofCreditEase. In addition, the significant concentration of share ownership may adversely affect the trading price of the ADSs due to investors’ perception thatconflicts of interest may exist or arise. See “—We may have conflicts of interest with CreditEase and, because of CreditEase’s controlling ownership interestin our company, we may not be able to resolve such conflicts on favorable terms for us.” We may have conflicts of interest with CreditEase and, because of CreditEase’s controlling ownership interest in our company, we may not be able toresolve 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 interestthat we have identified include the following: · Non-competition arrangements with CreditEase. We and CreditEase have entered into a non-competition agreement under which we agree not tocompete with each other’s core business. CreditEase agrees not to compete with us in a business that is of the same nature as (i) the online consumerfinance marketplace business currently conducted or contemplated to be conducted by us as of the date of the agreement and (ii) other businessesthat we and CreditEase may mutually agree from time to time. We agree not to compete with CreditEase in the business conducted by CreditEase,other than (i) the online consumer finance marketplace business operated by us as of the date of the agreement and (ii) other businesses that we andCreditEase may mutually agree from time to time. 28Table of Contents · Employee recruiting and retention. Because both CreditEase and we are engaged in consumer finance related businesses in China, we may competewith CreditEase in the hiring of new employees, in particular with respect to risk management related matters. We have a non-solicitationarrangement 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, Ning Tang, and two directors, Quan Zhou and TinaJu, are members of the board of directors of CreditEase. In addition, we have granted and may in the future continue to grant incentive sharecompensation to CreditEase’s employees and consultants. These relationships could create, or appear to create, conflicts of interest when thesepersons 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 ourcompetitors, thereby giving that third party substantial influence over our business and our affairs. Such a sale could be contrary to the interests ofour employees or our other shareholders. · Allocation of business opportunities. Under our non-compete agreement with CreditEase, we agree not to compete with CreditEase in the businessesconducted by CreditEase. There may arise other business opportunities that both we and CreditEase find attractive and which would complementour respective businesses. CreditEase may decide to take such opportunities itself, which would prevent us from taking advantage of thoseopportunities. · Developing business relationships with CreditEase’s competitors. So long as CreditEase remains as our controlling shareholder, we may be limitedin 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 othershareholders. Although our company has become a stand-alone public company, we expect to operate, for as long as CreditEase is our controlling shareholder, asan 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 payCreditEase for services that we currently enjoy free of charge from CreditEase, such as the information and data sharing. See “Item 7. Major Shareholders andRelated Party Transactions—B. Related Party Transactions—Carve-out Agreements with CreditEase—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, whichmay not coincide with the interests of our other shareholders. We have an audit committee, consisting of three independent directors, to review and approveall proposed related party transactions, including any transactions between us and CreditEase. However, we may not be able to resolve any potentialconflicts, 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 seekto 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 non-competition agreement with us in order to compete with us in the online consumerfinance marketplace or otherwise, such conflicts may not be resolved in our favor in light of CreditEase’s controlling interest in us. If CreditEase were tocompete with us, our business, financial condition, results of operations and prospects could be materially and adversely affected. Our executive chairman, Mr. Ning Tang, has considerable influence over us and our corporate matters. Our executive chairman, Mr. Ning Tang, has considerable influence over us and our corporate matters. Mr. Tang beneficially owns 43.4% of the totaloutstanding shares of CreditEase, which is our controlling shareholder as of March 31, 2018. Moreover, as Mr. Tang, as a director of CreditEase, currentlyholds three out of the five votes of CreditEase’s board of directors, he therefore controls the decision making of CreditEase and indirectly has considerableinfluence over us, our corporate matters and matters requiring shareholder approval, such as electing directors and approving material mergers, acquisitions orother business combination transactions. This concentrated control will limit the ability of the holders of our ordinary shares and our ADSs to influencecorporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could havethe 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. 29Table of Contents We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, will rely on exemptions from certain corporategovernance 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 ouroutstanding 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 certainexemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors. Asa 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 arrangements in relation to Heng Cheng and Yi Ren Wealth Management, our consolidated variableinterest entities, do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or theinterpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in thoseoperations. Foreign ownership of internet-based businesses, such as distribution of online information, is subject to restrictions under current PRC laws andregulations. For example, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication serviceprovider (except e-commerce) and any such foreign investor must have experience in providing value-added telecommunications services overseas andmaintain a good track record in accordance with the Guidance Catalog of Industries for Foreign Investment promulgated in 2007, as amended, and otherapplicable laws and regulations. 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 Yi Ren Heng Ye Technology Development (Beijing)Co., Ltd., or Heng Ye, Heng Cheng Technology Development (Beijing) Co., Ltd., or Heng Cheng, and the shareholders of Heng Cheng, and a series ofcontractual arrangements entered into among Chongqing Heng Yu Da Technology Co., Ltd., or Heng Yu Da, Yiren Financial Information Service (Beijing)Co., Ltd., or Yi Ren Wealth Management, and the shareholders of Yi Ren Wealth Management. As a result of these contractual arrangements, we exert controlover Heng Cheng and Yi Ren Wealth Management and consolidate their operating results in our financial statements under U.S. GAAP. For a detaileddescription 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, our current ownership structure, the ownership structure of Heng Ye and Heng Yu Da, ourPRC subsidiaries, and Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities, the contractual arrangements among HengYe, Heng Cheng and the shareholders of Heng Cheng and the contractual arrangements among Heng Yu Da, Yi Ren Wealth Management and theshareholders of Yi Ren Wealth Management are not in violation of existing PRC laws, rules and regulations; and these contractual arrangements are valid,binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect. However, Han Kun Law Offices has alsoadvised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can beno 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, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what theywould provide. In particular, in January 2015, the Ministry of Commerce, or MOC, published a discussion draft of the proposed Foreign Investment Law forpublic review and comments. 30Table of Contents Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” indetermining whether a company is considered a foreign-invested enterprise, or an FIE. Under the draft Foreign Investment Law, variable interest entitieswould also be deemed as FIEs, if they are ultimately “controlled” by foreign investors, and be subject to restrictions on foreign investments. However, thedraft law has not taken a position on what actions will be taken with respect to the existing companies with the “variable interest entity” structure, whether ornot these companies are controlled by Chinese parties. It is uncertain when the draft would be signed into law and whether the final version would have anysubstantial changes from the draft. See “—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draftPRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations” below. Ifthe ownership structure, contractual arrangements and business of our company, Heng Ye, Heng Yu Da, Heng Cheng or Yi Ren Wealth Management arefound to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, therelevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income or theincome of Heng Ye, Heng Yu Da, Heng Cheng or Yi Ren Wealth Management, revoking the business licenses or operating licenses of Heng Ye, Heng Yu Da,Heng Cheng or Yi Ren Wealth Management, shutting down our servers or blocking our online platform, discontinuing or placing restrictions or onerousconditions on our operations, requiring us to undergo a costly and disruptive restructuring, restricting or prohibiting our use of proceeds from our initialpublic offering to finance our business and operations in China, and taking other regulatory or enforcement actions that could be harmful to our business.Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially andadversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the activities of HengCheng or Yi Ren Wealth Management, and/or our failure to receive economic benefits from Heng Cheng and Yi Ren Wealth Management, we may not beable to consolidate their results into our consolidated financial statements in accordance with U.S. GAAP. We rely on contractual arrangements with Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities, and their respectiveshareholders for a portion of our business operations, which may not be as effective as direct ownership in providing operational control. We have relied and expect to continue to rely on contractual arrangements with Heng Cheng and its shareholders to operate our www.yirendai.comwebsite. We have also relied and expect to continue to rely on contractual arrangements with Yi Ren Wealth Management and its shareholders to operate ourwealth management website and mobile application, which serve as an online portal for investment products, including the loan products offered on ourplatform as well as other investment products offered by third parties. For a description of these contractual arrangements, see “Item 4. Information on theCompany—C. Organization Structure.” These contractual arrangements may not be as effective as direct ownership in providing us with control over ourconsolidated variable interest entities. For example, Heng Cheng, Yi Ren Wealth Management and their respective shareholders could breach theircontractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and using the domain namesand trademarks, in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of Heng Cheng and Yi Ren Wealth Management, we would be able to exercise our rights as a shareholder to effectchanges in the board of directors of Heng Cheng and Yi Ren Wealth Management, which in turn could implement changes, subject to any applicablefiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by HengCheng, Yi Ren Wealth Management and their respective shareholders of their obligations under the contracts to exercise control over Heng Cheng and YiRen Wealth Management. The shareholders of Heng Cheng and Yi Ren Wealth Management may not act in the best interests of our company or may notperform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate our business through the contractualarrangements with Heng Cheng and Yi Ren Wealth Management. Although we have the right to replace any shareholder of Heng Cheng or Yi Ren WealthManagement under their respective contractual arrangements, if any shareholder of Heng Cheng or Yi Ren Wealth Management is uncooperative or anydispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC laws andarbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. See “—Any failure by Heng Chengor Yi Ren Wealth Management, our consolidated variable interest entities, or their respective shareholders to perform their obligations under our contractualarrangements with them would have a material adverse effect on our business” below. Therefore, our contractual arrangements with Heng Cheng and Yi RenWealth Management, our consolidated variable interest entities, may not be as effective in ensuring our control over the relevant portion of our businessoperations as direct ownership would be. 31Table of Contents Any failure by Heng Cheng or Yi Ren Wealth Management, our consolidated variable interest entities, or their respective shareholders to perform theirobligations under our contractual arrangements with them would have a material adverse effect on our business. If Heng Cheng or Yi Ren Wealth Management, our consolidated variable interest entities, or their respective shareholders fail to perform theirrespective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce sucharrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claimingdamages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of Heng Cheng or the shareholders of Yi Ren WealthManagement were to refuse to transfer their equity interest in Heng Cheng, or Yi Ren Wealth Management, as the case may be, to us or our designee if weexercise 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 takelegal 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 inChina. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legalprocedures. 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 PRClegal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to howcontractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC laws. There remain significantuncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators arefinal and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losingparties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courtsthrough arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce thesecontractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able toexert effective control over our consolidated variable interest entities, and our ability to conduct our business may be negatively affected. See “—RisksRelated to Doing Business in China—Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protectionsavailable to you and us.” The shareholders of Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities, may have potential conflicts of interest withus, which may materially and adversely affect our business and financial condition. The equity interests of Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities, are held by Mr. Ning Tang, ourfounder and executive chairman, and two other individuals, Mr. Fanshun Kong and Ms. Yan Tian. Their interests in Heng Cheng and Yi Ren WealthManagement may differ from the interests of our company as a whole. These shareholders may breach, or cause Heng Cheng or Yi Ren Wealth Managementto breach, the existing contractual arrangements we have with them and Heng Cheng, or Yi Ren Wealth Management, as the case may be, which would have amaterial adverse effect on our ability to effectively control Heng Cheng or Yi Ren Wealth Management and receive economic benefits from Heng Cheng orYi Ren Wealth Management. For example, the shareholders may be able to cause our agreements with Heng Cheng or Yi Ren Wealth Management to beperformed 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. Wecannot 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 beresolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that wecould exercise our purchase option under the exclusive option agreement with these shareholders to request them to transfer all of their equity interests inHeng Cheng and Yi Ren Wealth Management to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve anyconflict of interest or dispute between us and the shareholders of Heng Cheng and Yi Ren Wealth Management, 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. 32Table of Contents Contractual arrangements in relation to Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities, may be subject toscrutiny by the PRC tax authorities and they may determine that we owe additional taxes, which could negatively affect our financial condition and thevalue of your investment. Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRCtax authorities within ten years after the taxable year when the transactions are conducted. The PRC Enterprise Income Tax Law requires every enterprise inChina to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The taxauthorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s lengthprinciples. We may face material and adverse tax consequences if the PRC tax authorities determine that (i) the contractual arrangements between Heng Ye,our wholly-owned subsidiary in China, Heng Cheng, our consolidated variable interest entity in China, and the shareholders of Heng Cheng, and (ii) thecontractual arrangements between Heng Yu Da, our wholly-owned subsidiary in China, Yi Ren Wealth Management, our consolidated variable interest entityin China, and the shareholders of Yi Ren Wealth Management were not entered into on an arm’s length basis in such a way as to result in an impermissiblereduction in taxes under applicable PRC laws, rules and regulations, and adjust Heng Ye’s and Heng Yu Da’s income in the form of a transfer pricingadjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Heng Cheng and Yi Ren WealthManagement for PRC tax purposes, which could in turn increase its tax liabilities without reducing Heng Ye’s and Heng Yu Da’s tax expenses. In addition, ifHeng Ye or Heng Yu Da requests the shareholders of Heng Cheng or the shareholders of Yi Ren Wealth Management, as the case may be, to transfer theirequity interests in Heng Cheng or Yi Ren Wealth Management, as the case may be, at nominal or no value pursuant to these contractual arrangements, suchtransfer could be viewed as a gift and subject Heng Ye or Heng Yu Da to PRC income tax. Furthermore, the PRC tax authorities may impose late payment feesand other penalties on Heng Cheng and Yi Ren Wealth Management for the adjusted but unpaid taxes according to the applicable regulations. Our financialposition could be materially and adversely affected if our consolidated variable interest entities’ tax liabilities increase or if they are required to pay latepayment fees and other penalties. We may lose the ability to use and benefit from assets held by Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities,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. Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities, hold certain assets that are material to the operation of ourbusiness. Under the contractual arrangements, our consolidated variable interest entities may not and their respective shareholders may not cause them to, inany manner, sell, transfer, mortgage or dispose of their assets or their legal or beneficial interests in the business without our prior consent. However, in theevent Heng Cheng’s shareholders or Yi Ren Wealth Management’s shareholders breach the these contractual arrangements and voluntarily liquidate HengCheng or Yi Ren Wealth Management, or Heng Cheng or Yi Ren Wealth Management declares bankruptcy and all or part of their assets become subject toliens 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 Heng Cheng or Yi Ren Wealth Managementundergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, therebyhindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations. 33Table of Contents If the chops of Heng Ye and Heng Yu Da, our PRC subsidiaries, and Heng Cheng and Yi Ren Wealth Management, our consolidated variable interestentities, are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities couldbe severely and adversely compromised. In China, a company chop or seal serves as the legal representation of the company towards 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. Inaddition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of Heng Ye and HengYu Da, our PRC subsidiaries, and Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities are generally held securely bypersonnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or areused by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised andthose 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 therequisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal businessoperations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management fromour operations. Risks Related to Doing Business in China Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results ofoperations. Substantially all of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations may beinfluenced 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 measuresemphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improvedcorporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinesegovernment continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercisessignificant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, settingmonetary 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 amongvarious sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation ofresources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition andresults of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past theChinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may causedecreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy mayreduce the demand for our products and services and materially and adversely affect our business and results of operations. Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us. The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations arerelatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform andenforcement of these laws, regulations and rules involves uncertainties. 34Table of Contents In particular, PRC laws and regulations concerning the online lending information intermediary service industry are developing and evolving.Although we have taken measures to comply with the laws and regulations that are applicable to our business operations, including the Guidelines, theInterim Measures, the Custodian Guidelines, Circular 141 and Circular 57, and avoid conducting any activities that may be deemed as illegal under thecurrent applicable laws and regulations, the PRC government authority may promulgate new laws and regulations regulating the online lending informationintermediary service industry and amend the existing laws and regulations in the future. See “—Risks Related to Our Business—The laws and regulationsgoverning the online lending information intermediary service industry in China are developing and evolving and subject to changes. If we fail to obtain andmaintain requisite approvals, licenses or permits applicable to our business, our business, financial condition and results of operations would be materiallyand adversely affected” and “—Risks Related to Our Business—If our practice is deemed to violate any PRC laws or regulations, our business, financialcondition and results of operations would be materially and adversely affected.” We cannot assure you that our practices would not be deemed to violate anyPRC laws or regulations. Moreover, developments in the online lending information intermediary service industry may lead to changes in PRC laws,regulations and policies or in the interpretation and application of existing laws, regulations and policies that may limit or restrict online consumer financemarketplaces like us, which could materially and adversely affect our business and operations. From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative andcourt authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate theoutcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRClegal 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 haveretroactive 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 andadversely affect our business and impede our ability to continue our operations. Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and howit may impact the viability of our current corporate structure, corporate governance and business operations. The MOC published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio ofexisting laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative JointVenture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The draftForeign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailinginternational practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. Substantial uncertaintiesexist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materiallyimpact the viability of our current corporate structure, corporate governance and business operations in many aspects. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control”in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entitiesestablished in China but “controlled” by foreign investors will be treated as FIEs. Once an entity is considered to be an FIE, it may be subject to the foreigninvestment restrictions or prohibitions set forth in a “negative list” to be separately issued by the State Council later. If an FIE proposes to conduct businessin an industry subject to foreign investment “restrictions” in the “negative list,” the FIE must go through a market entry clearance by the MOC before beingestablished. If an FIE proposes to conduct business in an industry subject to foreign investment “prohibitions” in the “negative list,” it must not engage inthe business. However, an FIE that is subject to foreign investment “restrictions,” upon market entry clearance, may apply in writing for being treated as aPRC domestic investment if it is ultimately “controlled” by PRC government authorities and its affiliates and/or PRC citizens. In this connection, “control”is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% or more of the voting rights of the subject entity;(ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalentdecision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision makingbodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters orother key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions setforth in a “negative list,” to be separately issued by the State Council at a later date, if the FIE is engaged in an industry listed in the negative list. Unless theunderlying business of the FIE falls within the negative list, which calls for market entry clearance by the MOC, prior approval from the governmentauthorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE. 35Table of Contents The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessarylicenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “—Risks Related to Our Corporate Structure”and “Item 4. Information on the Company — C. Organizational Structure.” Under the draft Foreign Investment Law, variable interest entities that arecontrolled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore, for any companieswith a VIE structure in an industry category that is included in the “negative list” as restricted industry, the VIE structure may be deemed legitimate only ifthe ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are offoreign nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the “negative list” withoutmarket entry clearance may be considered as illegal. It is uncertain whether we would be considered as ultimately controlled by Chinese parties. CreditEase is our parent company and controllingshareholder as of the date of this annual report. Although Mr. Ning Tang, our executive chairman and a PRC citizen, owns less than 50% of the voting powerof CreditEase, he has the power to appoint three directors on the five-member board of CreditEase. It is uncertain, however, if these factors would be sufficientto give Mr. Tang control over us under the draft Foreign Investment Law. Moreover, the draft Foreign Investment Law has not taken a position on whatactions will be taken with respect to the companies currently employing a VIE structure, whether or not these companies are controlled by Chinese parties. Inaddition, it is uncertain whether the online consumer finance marketplace industry, in which our variable interest entities operate, will be subject to theforeign investment restrictions or prohibitions set forth in the “negative list” that is to be issued. If the enacted version of the Foreign Investment Law and thefinal “negative list” mandate further actions, such as MOC market entry clearance or certain restructuring of our corporate structure and operations, to becompleted by companies with existing VIE structure like us, there may be substantial uncertainties as to whether we can complete these actions in a timelymanner, or at all, and our business and financial condition may be materially and adversely affected. The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase ourcompliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreigninvestors and the applicable FIEs. We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lackof requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations. The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirementspertaining to, companies in the internet industry. These internet-related laws and regulations are evolving, and their interpretation and enforcement involvesignificant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation ofapplicable laws and regulations. We only have contractual control over our website. We do not directly own the website due to the restriction of foreign investment in businessesproviding 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 evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011,the State Council announced the establishment of a new department, the State Internet Information Office (with the involvement of the State CouncilInformation Office, the MITT, and the Ministry of Public Security). The primary role of this new agency is to facilitate the policy-making and legislativedevelopment in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry. 36Table of Contents Heng Cheng, our consolidated variable interest entity operating our online marketplace and Yi Ren Wealth Management, our consolidated variableinterest entity operating our wealth management website and mobile application, may be deemed to be providing commercial internet information servicesand data processing and transaction processing services, which would require Heng Cheng and Yi Ren Wealth Management to obtain an ICP License and anEDI License. An ICP License is a value-added telecommunications business operating license required for provision of commercial internet information services.See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Value-Added Telecommunication Services.” Heng Chenghas obtained an ICP license, and Yi Ren Wealth Management is in the process of applying an ICP license. Furthermore, as we are providing mobileapplications to mobile device users, it is uncertain if Heng Cheng and Yi Ren Wealth Management will be required to obtain a separate value-addedtelecommunications business operating license with respect to the services provided through mobile devices in addition to the ICP License. Although webelieve that not obtaining such separate license is in line with the current market practice, there can be no assurance that we will not be required to apply foran operating license for our mobile applications in the future. An EDI License is a value-added telecommunications business operating license required for provision of data processing and transactionprocessing services. The Interim Measures jointly issued by four PRC regulatory agencies in August 2016 requires online lending information intermediaries,among other things, to apply for appropriate telecommunication business license in accordance with the relevant requirements of telecommunicationauthorities subsequent to completion of the record-filing with the local financial regulatory department. In accordance with the Guidelines and the InterimMeasures, the relevant authorities are in the process of making detailed implementation rules regarding the application procedures for appropriatetelecommunication business license by online lending information intermediaries. We plan to apply for any requisite telecommunication services licenseonce the detailed implementation rules become available. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued bythe MITT in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operatinglicenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of atelecommunications business in China. According to this circular, either the holder of a value-added telecommunication services operation permit or itsshareholders 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 suchfacilities in the regions covered by its license. Heng Cheng currently owns the relevant domain names and trademarks in connection with our value-addedtelecommunications business and has the necessary personnel to operate our websites. If an ICP License holder fails to comply with the requirements and alsofails to remedy such non-compliance within a specified period of time, the MITT or its local counterparts have the discretion to take administrative measuresagainst such license holder, including revoking its ICP License. The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to theinternet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activitiesof, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting ourbusiness 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 theproper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictionson 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, andrequire us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC governmentmay have a material adverse effect on our business and results of operations. 37Table of Contents 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, we have adopted various policies and procedures, such as internalcontrols and “know-your-customer” procedures, for anti-money laundering purposes. In addition, we rely on our third-party service providers, in particularthe custody banks and payment companies that handle the transfer of funds between borrowers and investors, to have their own appropriate anti-moneylaundering 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 provides fail to comply withapplicable anti-money laundering laws and regulations, our reputation could suffer and we could become subject to regulatory intervention, which couldhave a material adverse effect on our business, financial condition and results of operations. Any negative perception of the industry, such as that arises fromany 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. The Guidelines jointly released by ten PRC regulatory agencies in July 2015 purport, among other things, to require internet finance serviceproviders, including online lending information intermediaries, to comply with certain anti-money laundering requirements, including the establishment of acustomer 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-moneylaundering matters. The Interim Measures jointly issued by four PRC regulatory agencies in August 2016 require the online lending informationintermediaries, among other things, to comply with certain anti-money laundering obligations, including verifying customer identification, reportingsuspicious transactions and preserving customer information and transaction records. The Custodian Guidelines issued by PBOC in February 2017 requirethe online lending platforms to set up custody accounts with commercial banks and comply with the anti-money laundry requirements of the relevantcommercial banks. We cannot assure you that the anti-money laundering policies and procedures we have adopted will be effective in protecting ourmarketplace from being exploited for money laundering purposes or will be deemed to be in compliance with applicable anti-money launderingimplementing rules if and when adopted. 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 anylimitation 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 financingrequirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRCsubsidiaries incurs debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make otherdistributions to us. In addition, the PRC tax authorities may require Heng Ye and Heng Yu Da to adjust their taxable income under the contractualarrangements they currently have in place with our consolidated variable interest entities in a manner that would materially and adversely affect their abilityto pay dividends and other distributions to us. See “—Risks Related to Our Corporate Structure—Contractual arrangements in relation to Heng Cheng and YiRen Wealth Management, our consolidated variable interest entities, may be subject to scrutiny by the PRC tax authorities and they may determine that weowe additional taxes, which could negatively affect our financial condition and the value of your investment.” Under PRC laws and regulations, our PRC subsidiaries, as wholly foreign-owned enterprises in China, may pay dividends only out of theirrespective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-ownedenterprise 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 aggregateamount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profitsbased on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cashdividends. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit ourability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Seealso “—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to usand our non-PRC shareholders or ADS holders.” 38Table of Contents PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion maydelay or prevent us from using the proceeds of our initial public offering and the concurrent private placement to make loans to or make additional capitalcontributions 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 tofund our PRC subsidiaries by making loans to or additional capital contributions to our PRC subsidiaries, subject to applicable government registration andapproval requirements. Any loans to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC laws, are subject to PRC regulations and foreignexchange loan registrations. For example, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registeredwith the local counterpart of the State Administration of Foreign Exchange, or SAFE. According to the Interim Measures on the Management of ForeignDebts promulgated by SAFE, the Ministry of Finance and the National Development and Reform Commission on January 8, 2003, the statutory limit for thetotal amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by the MOC or its localcounterpart and the amount of registered capital of such foreign-invested company. According to the Circular of the People’s Bank of China on Mattersrelating to the Comprehensive Macro-prudential Management of Cross-border Financing issued by the People’s Bank of China in January 2017, or Circular9, the maximum amounts of foreign debt that each company may borrow is determined by reference to its so-called risk-weighted balance of cross-borderfinancing, which may not exceed two times its net assets as indicated in its latest audited financial report. The risk-weighted balance of cross-borderfinancing of a company is calculated based on its outstanding amounts of Renminbi and foreign currency cross-border debt, multiplied by risk conversionfactors corresponding to their respective remaining terms, loan categories and currency. However, for a one-year grace period starting from January 11, 2017,a foreign-invested company such as our PRC subsidiaries may elect to determine the maximum amount of its foreign debt in according with the rules in effectprior to Circular 9, or to comply with Circular 9. On the other hand, PRC domestic companies such as our consolidated variable interest entities must complywith Circular 9. Moreover, according to Notice of the National Development and Reform Commission on Promoting the Administrative Reform of theRecordation and Registration System for Enterprises’ Issuance of Foreign Debts issued by the National Development and Reform Commission inSeptember 2015, any loans we extend to our consolidated variable interest entities or other PRC operating companies that are domestic PRC entities for morethan one year must be filed with the National Development and Reform Commission or its local counterpart and must also be registered with SAFE or itslocal branches. We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be approved by the MOC orits local counterpart. On March 30, 2015, SAFE promulgated Circular of the State Administration of Foreign Exchange on Reforming the ManagementApproach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or Circular 19, which expands a pilot reform of theadministration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced bothprevious Circular 142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated Circular of the State Administration of Foreign Exchange onReforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, to further expand and strengthensuch reform. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange funds under capitalaccounts and RMB funds from exchange settlement for expenditure under current accounts within its business scope or expenditure under capital accountspermitted by laws and regulations, except that such funds shall not be used for (i) expenditure beyond the enterprise’s business scope or expenditureprohibited by laws and regulations; (ii) investments in securities or other investments than principal-secured products issued by banks; (iii) granting loans tonon-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) construction or purchase of real estate for purposes otherthan self-use (except for real estate enterprises). In addition, SAFE strengthened its oversight of the flow and use of the Renminbi capital converted fromforeign currency registered capital of a foreign-invested company. The use of such Renminbi capital may not be altered without SAFE’s approval, and suchRenminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of these circulars couldresult in severe monetary or other penalties. These circulars may significantly limit our ability to use Renminbi converted from the cash provided by ouroffshore financing activities to fund the establishment of new entities in China by our PRC subsidiaries, to invest in or acquire any other PRC companiesthrough our PRC subsidiaries, or to establish new variable interest entities in the PRC. 39Table of Contents 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 timelybasis, 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 suchregistrations or obtain such approvals, our ability to use the proceeds we received from our initial public offering and our private placement and to capitalizeor otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund andexpand 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. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economicconditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of theRenminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the PBOCregularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. During the period betweenJuly 2008 and June 2010, the exchange rate between the Renminbi and the U.S. dollar had been stable and traded within a narrow range. Since June 2010, theRenminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. Since October 1, 2016, Renminbi has joined the InternationalMonetary Fund (IMF)’s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen and theBritish pound. Since the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capitaloutflows of China until August 2017 where the Renminbi started to appreciate against the U.S. dollar. With the development of the foreign exchange marketand progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to theexchange rate system and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future.It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar inthe future. There remains significant international pressure on the PRC government to adopt a flexible currency policy. Our operations are conducted through subsidiaries and VIEs located in China where Renminbi is the functional currency. Our reporting currency isalso Renminbi. Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our liquidity and cash flows. For example,to the extent that we need to convert U.S. dollars we receive from our initial public offering into Renminbi to pay our operating expenses, appreciation of theRenminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide toconvert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or other business purposes,appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount we would receive. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into anyhedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in thefuture, 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, ourcurrency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As aresult, fluctuations in exchange rates may have a material adverse effect on the price of our ADSs. 40Table of Contents Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment. The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currencyout of China. We receive substantially all of our net revenues in Renminbi. Under our current corporate structure, our company in the Cayman Islands relieson dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchangeregulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made inforeign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to paydividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRCcomplies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of ourcompany who are PRC residents. But approval from or registration with appropriate government authorities is required where Renminbi is to be convertedinto foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. In light of the flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreignexchange policies and stepped up scrutiny of major outbound capital movement. More restrictions and substantial vetting process are put in place by SAFEto regulate cross-border transactions falling under the capital account. For example, on January 26, 2017, SAFE promulgated the Circular on FurtherImproving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which sets out certainmeasures tightening genuineness and compliance verification of cross-border transactions and cross-border capital flow, including (i) improving the statisticsof current account foreign currency earnings deposited offshore; (ii) requiring banks to verify board resolutions, tax filing forms, and audited financialstatements before wiring foreign invested enterprises’ foreign exchange distributions above US$50,000, and (iii) strengthening genuineness and complianceverification of foreign direct investments. The PRC government may also at its discretion restrict access in the future to foreign currencies for current accounttransactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we maynot be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs. Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain socialinsurance, 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 weoperate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given thedifferent levels of economic development in different locations. We have accrued the employee benefit according to the local governments’ regulations infinancial statement, but we have not made adequate employee benefits payments. We may be required to make up the contributions for these plans as well asto pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operationsmay be adversely affected. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, whichcould 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 regulatoryagencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional proceduresand requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in someinstances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered.In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investorsthat raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domesticenterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a securityreview, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiringcomplementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactionscould be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit ourability to complete such transactions, which could affect our ability to expand our business or maintain our market share. 41Table of Contents PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital ordistribute 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 throughSpecial Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connectionwith their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents orentities 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 ResidentsEngaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on FurtherSimplifying 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 inconnection 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 fromdistributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contributeadditional capital to our PRC subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC lawsfor evasion of applicable foreign exchange restrictions. All of our shareholders who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRCresidents have completed the foreign exchange registrations required in connection with our recent corporate restructuring. However, 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 wecompel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficialowners 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 exchangeregistrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRCsubsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects. Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC planparticipants 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 Participatingin Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens andnon-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 publiclylisted company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary ofsuch overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters inconnection 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 whoare 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 aresubject to these regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability tocontribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatoryuncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item4. Information on the Company—B. Business Overview—Regulation—Regulations Related to Foreign Exchange—Regulations on Stock Incentive Plans.” 42Table of Contents If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us andour non-PRC shareholders or ADS holders. Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto managementbody” 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%. Theimplementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of thebusiness, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known asCircular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that isincorporated 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 generalposition on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According toCircular 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 ofhaving 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 followingconditions 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 andhuman resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting booksand records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members orsenior executives habitually reside in the PRC. We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. See “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 anduncertainties remain with respect to the interpretation of the term “de facto management body.” As substantially all of our management members are based inChina, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that Yirendai Ltd. or any of our subsidiariesoutside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then Yirendai Ltd. or such subsidiary could be subject to PRC tax at arate of 25% on its worldwide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income taxreporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gainsrealized 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 isunclear 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 thePRC 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. Discontinuation of preferential tax treatment or imposition of any additional taxes could adversely affect our financial condition and results ofoperations. The Enterprise Income Tax Law and its implementing rules have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises inChina. The Enterprise Income Tax Law and its implementing rules also permit companies qualified as “software enterprises” to enjoy a two-year income taxexemption starting from the first profit making year, followed by a reduced tax rate of 12.5% for the subsequent three years. Heng Ye, one of our PRCsubsidiaries, was qualified as a “software enterprise” in July 2016, and accordingly is eligible for an exemption of enterprise income tax for 2015 and 2016and a reduced enterprise income tax at the rate of 12.5% from 2017 through 2019. However, Heng Ye’s qualification as a “software enterprise” is subject toannual evaluation by the relevant authorities in China. If Heng Ye fails to maintain its “software enterprise” qualification, its applicable corporate incometax rate would increase to 25%, which could have adverse effects on our financial condition and results of operations. In addition, Heng Yu Da, one of ourPRC subsidiaries, is eligible for a reduced enterprise income tax rate of 15% for the year 2017 pursuant to the Catalogue of Encouraged Industries in WesternRegions, the Catalogue of Industries for Guiding Foreign Investment, and the related rules granting favorable tax treatment to companies in specifiedindustries in western China under the PRC government’s policy initiative to promote the development of the western region of China. However, Heng YuDa’s favorable tax treatment is subject to an annual filing requirement. Moreover, the relevant rules and policy initiative may change, and favorable taxtreatment under these rules are available only to companies meeting certain qualifications. Therefore there is uncertainty as to whether and for how longHeng Yu Da can continue to enjoy such favorable tax treatment after 2017. If such favorable tax treatment becomes unavailable to Heng Yu Da in the future,its applicable corporate income tax rate would increase to 25%, which may affect our financial condition and results of operations. 43Table of Contents The current PRC income tax laws and regulations are not clear as to whether the provision for quality assurance program and the actual net payoutsfrom quality assurance program are tax deductible relating to online lending platform intermediaries. Currently, we treat this as a temporary difference whichmeans the provision for quality assurance program is non-deductible while the actual quality assurance program net payouts would be deductible for taxpurposes when payments occur. However, due to the unclear PRC income tax laws and regulations as well as uncertainty in practice, there exist risks that theactual net payouts from quality assurance program may not be deductible from taxable income. 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 Kongsubsidiary. We are a holding company incorporated under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity fromour PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currentlyapplies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has atax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong SpecialAdministrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, such withholding taxrate 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 Enterprises to Enjoy Treatments under Tax Treaties, which became effective in August 2015, require non-resident enterprises to determine whetherthey are qualified to enjoy the preferential tax treatment under the tax treaties and file relevant report and materials with the tax authorities. There are alsoother 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.” As of December 31, 2017, we accrued RMB11.3 million (US$1.7 million) of withholding tax liabilities,associated with our cash dividends to be distributed overseas from our PRC subsidiaries for general corporate purposes. Aside from the above distributions,we intend to indefinitely reinvest all remaining undistributed earnings as of December 31, 2017 in our PRC subsidiaries. Should our tax policy change toallow for offshore distribution of our earnings, we would be subject to a significant withholding tax. We cannot assure you that our determination regardingour qualification to enjoy the preferential tax treatment will not be challenged by the relevant tax authority or we will be able to complete the necessaryfilings with the relevant tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect todividends to be paid by our PRC subsidiaries to Yirendai Hong Kong Limited, our Hong Kong subsidiary. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in thefuture. The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equityinterests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing Circular on Issues Concerning Treatment of EnterpriseIncome Tax in Enterprise Restructuring Business promulgated by the State Administration of Taxation, which became effective in January 2008, or Circular59, the Announcement of the State Administration of Taxation on Several Issues concerning the Enterprise Income Tax on the Indirect Transfers of Propertiesby Non-Resident Enterprises promulgated by the State Administration of Taxation in February 2015, or Circular 7, and the Announcement of the StateAdministration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises at Source promulgated by the StateAdministration of Taxation in October 2017 and taking into effect in December 2017, or SAT Circular 37. 44Table of Contents Under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” orother taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may besubject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercialpurposes. In addition, Circular 7 provides clearer criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal grouprestructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor andtransferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” bytransferring 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 “substanceover form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and wasestablished for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterpriseincome 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 declareto the competent tax authority for payment of tax within seven (7) days after the tax payment obligation comes into being if the withholding agent fails towithhold 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 incometax 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 thetax 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 transactionsinvolving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-residententerprises 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 7and 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 weand our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results ofoperations. The PRC tax authorities have the discretion under Circular 59, Circular 7 and SAT Circular 37 to make adjustments to the taxable capital gainsbased on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue anyacquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considereda non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of thetransactions under Circular 59, Circular 7 and SAT Circular 37, our income tax costs associated with such potential acquisitions will be increased, which mayhave an adverse effect on our financial condition and results of operations. The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, assuch, our investors are deprived of the benefits of such inspection. Our independent registered public accounting firm that issues the audit reports included in our annual report filed with the U.S. Securities andExchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company AccountingOversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with thelaws of the United States and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB iscurrently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB. 45Table of Contents Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and qualitycontrol procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in Chinaprevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits ofPCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s auditprocedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence inour reported financial information and procedures and the quality of our financial statements. If additional remedial measures are imposed on the “big four” PRC-based accounting firms, including our independent registered public accounting firm,in administrative proceedings brought by the SEC alleging such firms’ failure to meet specific criteria set by the SEC with respect to requests for theproduction of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act. Starting in 2011, the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, wereaffected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and thePCAOB sought to obtain from the Chinese accounting firms access to their audit work papers and related documents. The firms were, however, advised anddirected that under Chinese law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access tosuch papers in China had to be channeled through the China Securities Regulatory Commission, or the CSRC. In late 2012 this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under theSarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. In January 2014, theadministrative law judge reached an initial decision to impose penalties on the firms including a temporary suspension of their right to practice before theSEC. The accounting firms filed a petition for review of the initial decision. On February 6, 2015, before a review by the commissioners of the SEC had takenplace, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documentswill normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures withrespect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retainsauthority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliancecould include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against afirm, or in extreme cases the resumption of the current proceeding against all four firms. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States withmajor PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statementsbeing determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about anysuch future proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market priceof our ADSs may be adversely affected. If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable totimely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determinednot to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares fromthe NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. 46Table of Contents 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$19.85 to US$53.5 per ADS in 2017. The trading prices of our ADSs are likely to be volatile andcould fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance andfluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed theirsecurities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial publicofferings, including, in some cases, substantial decline in their trading prices. The trading performances of other Chinese companies’ securities after theirofferings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performanceof our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practicesor fraudulent accounting, corporate structure or other matters of us or other Chinese companies may also negatively affect the attitudes of investors towardsChinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may fromtime to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices inthe United States, China and other jurisdictions in late 2008, early 2009, the second half of 2011, the third quarter of 2015 and the first quarter of 2016,which may have a material adverse effect on the market price of our ADSs. 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 unsecured consumer finance industries; · announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capitalcommitments; · 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; and · sales or perceived potential sales of additional ordinary shares or ADSs. 47Table of Contents If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSsand 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 publishinaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage ofour 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 tradingvolume of our ADSs to decline. We cannot assure you that our existing dividend policy will not change in the future or the amount the dividends that you may receive, and as such, youmust 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 certainrestrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in nocircumstances 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. Inaddition, 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 will be set at an amountequivalent to approximately 15% of our anticipated net income after tax in each half year commencing from the second half of 2017. The determination todeclare 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 andwill be based upon our operations and earnings, cash flow, financial condition and other relevant factors that the board may deem appropriate. As such, theamount 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 thefuture. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is noguarantee 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 yourinvestment 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 ofMarch 31, 2018, we had 121,409,056 ordinary shares outstanding. Among these shares, 20,895,194 ordinary shares are in the form of ADSs. All our ADSs arefreely 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, themarket 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 theSecurities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon theeffectiveness 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 have adopted share incentive plans in September 2015 and July 2017, under which we have the discretion to grant a broad range of equity-basedawards to eligible participants. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.” We have registeredcertain 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 incentiveplans. 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 limitationsapplicable to affiliates and relevant lock-up agreements. If a large number of our ordinary shares or securities convertible into our ordinary shares are sold inthe 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 raisefuture capital. In addition, any ordinary shares that we issue under our share incentive plans would dilute the percentage ownership held by the investors whopurchased ADSs. 48Table of Contents 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 ordinaryshares in accordance with the provisions of the deposit agreement. Under our current memorandum and articles of association, the minimum notice periodrequired to convene a general meeting is seven days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meetingto permit you to withdraw the shares underlying your ADSs to allow you to cast your vote with respect to any specific matter. In addition, the depositary andits agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts tocause 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 ensurethat you can instruct the depositary to vote the shares underlying your ADSs. Furthermore, the depositary and its agents will not be responsible for any failureto 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 exerciseyour 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 ADSholder, 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 donot 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 atshareholders’ 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; · a 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 sharesunderlying your ADSs from being voted, absent the situations described above. This may make it more difficult for shareholders to influence ourmanagement. Holders of our ordinary shares are not subject to this discretionary proxy. 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 thetransactions 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 aholder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocablysubmitted to the exclusive jurisdiction of such courts in any such action or proceeding. However, the depositary may, in its sole discretion, require that anydispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled by an arbitration conducted under theterms described in the deposit agreement. Also, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSsafter an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended. See “Item 12. Description of Securities OtherThan Equity Securities—D. American Depositary Shares” for more information. 49Table of Contents 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 rightsavailable 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 exemptionfrom the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights andthe 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 tobe declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unableto 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 otherdeposited securities, and we do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. To the extent that thereis 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 ordinaryshares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary sharesyour ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holdersof ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certaindistributions 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 timewhen it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers ofADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of anyrequirement 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 besubject to other shareholder class action lawsuits in the future. We were previously subject to two shareholder class action lawsuits that were subsequently dismissed. See details on the putative shareholder classaction lawsuits in “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” On July 12, 2017, theUnited States District Court for the Central District of California dismissed the class action lawsuits and concluded that the plaintiff’s action, which was notcertified as a class action, shall be dismissed with prejudice. However, we cannot assure you that we will not be subject to other shareholder class actionlawsuits 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, ifany, 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 wewill 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 adverseeffect on our business, financial condition, results of operation, cash flows and reputation. In addition, there can be no assurance that our insurance carrierswill 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 ourresources and divert management’s attention from the day-to-day operations of our company, all of which could harm our business. We also may be subject toclaims for indemnification related to these matters, and we cannot predict the impact that indemnification claims may have on our business or financialresults. 50Table of Contents 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 operationsin 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 mostof 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 UnitedStates 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 rightshave 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 CaymanIslands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the CaymanIslands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will berecognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an actioncommenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competentjurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect oftaxes, a fine or a penalty, and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policyof the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisionsof 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 arepenal 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 liabilityjudgments 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 enforceforeign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where thejudgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United Statesthat provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courtswill not enforce a foreign judgment against us or our director and officers if they decide that the judgment violates the basic principles of PRC laws ornational 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 acourt 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 areincorporated 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 ourmemorandum and articles of association, the Companies Law (2016 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rightsof shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands laware 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 comparativelylimited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, butare 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 asclearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a lessdeveloped body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies ofcorporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federalcourt of the United States. Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or toobtain copies of lists of shareholders of these companies. Our directors have discretion under our current memorandum and articles of association todetermine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them availableto our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution orto solicit proxies from other shareholders in connection with a proxy contest. 51Table of Contents 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 bymanagement, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the UnitedStates. Our memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us and adversely affectthe 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 withoutaction 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 theeffect of depriving our shareholders and ADSs holders of the opportunity to sell their shares or ADSs at a premium over the prevailing market price bydiscouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions. We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements. We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirementsapplicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditorattestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company. As a result, if we elect not tocomply with such auditor attestation requirements, our investors may not have access to certain information they may deem important. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standardsuntil such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out”of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. Thisdecision to opt out of the extended transition period under the JOBS Act is irrevocable. 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 toU.S. domestic public companies. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulationsin 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 theExchange Act; · the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders whoprofit 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 resultson a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and materialevents 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 andless 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 orinformation that would be made available to you were you investing in a U.S. domestic issuer. 52Table of Contents As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance mattersthat differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they wouldenjoy 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 permita foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the CaymanIslands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. Currently, we do not plan to rely on homecountry practice with respect to our corporate governance. However, if we choose to follow home country practice in the future, our shareholders may beafforded less protection than they otherwise would enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers. There can be no assurance that we will not be passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxableyear, which could subject United States investors in our ADSs or ordinary shares to significant adverse United States income tax consequences. We will be a “passive foreign investment company,” or “PFIC,” if, in any particular taxable year, either (a) 75% or more of our gross income for suchyear consists of certain types of “passive” income or (b) 50% or more of the average quarterly value of our assets (as determined on the basis of fair marketvalue) during such year produce or are held for the production of passive income (the “asset test”). Although the law in this regard is unclear, we intend totreat Heng Cheng and Yi Ren Wealth Management as being owned by us for United States federal income tax purposes, not only because we exerciseeffective control over the operation of these entities but also because we are entitled to substantially all of their economic benefits, and, as a result, weconsolidate their results of operations in our consolidated financial statements. Assuming that we are the owner of Heng Cheng and Yi Ren WealthManagement for United States federal income tax purposes, and based upon our income and assets, including goodwill, and the value of our ADSs andordinary shares, we do not believe that we were be a PFIC for the taxable year ended December 31, 2017 and do not anticipate becoming a PFIC in theforeseeable future. While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test may be determined by reference to the marketprice of our ADSs or ordinary shares, fluctuations in the market price of our ADSs or ordinary shares may cause us to become a PFIC for the current orsubsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and assets,which may be affected by how, and how quickly, we use our liquid assets and the cash raised in our initial public offering. If we determine not to deploysignificant amounts of cash for active purposes or if it were determined that we do not own the stock of Heng Cheng and Yi Ren Wealth Management forUnited States federal income tax purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of therelevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be aPFIC for the current taxable year or any future taxable year. If we are a PFIC in any taxable year, a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income TaxConsiderations”) may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ADSs or ordinaryshares 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 theUnited States federal income tax rules and such holder may be subject to burdensome reporting requirements. Further, if we are a PFIC for any year duringwhich a U.S. holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S.holder holds our ADSs or ordinary shares. For more information see “Item 10. Additional Information—E. Taxation—United States Federal Income TaxConsiderations—Passive Foreign Investment Company Considerations.” 53Table of Contents We will incur increased costs as a result of being a public company, particularly after we cease 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 Actof 2002, as well as rules subsequently implemented by the SEC and the NYSE, impose various requirements on the corporate governance practices of publiccompanies. As a company with less than US$1.07 billion in net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to theJOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generallyto public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 inthe assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accountingstandards until such time as those standards apply to private companies. However, we have elected to “opt out” of the provision that allow us to delayadopting new or revised accounting standards and, as a result, we will comply with new or revised accounting standards as required when they are adopted forpublic companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable. 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. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial managementeffort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 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, andwe may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, wewill incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serveon our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, andwe 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 themarket 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 andother 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 issuccessfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition andresults of operations. Item 4. Information on the Company A. History and Development of the Company We commenced our online consumer finance marketplace business in March 2012 as a business unit under our parent company, CreditEase, whichremains as our parent company and controlling shareholder after our initial public offering in December 2015. CreditEase incorporated Yirendai Ltd. in theCayman Islands to be our holding company in September 2014. Yirendai Ltd. then established a wholly owned subsidiary in Hong Kong, Yirendai HongKong Limited, or Yirendai HK, in October 2014, and Yirendai HK further established Yi Ren Heng Ye Technology Development (Beijing) Co., Ltd., or HengYe, our wholly owned subsidiary in China, in January 2015. Yirendai HK further established Chongqing Heng Yu Da Technology Co., Ltd., or Heng Yu Da,our wholly owned subsidiary in China, in March 2016. Heng Ye further established Yi Ren Information Consulting (Beijing) Co., Ltd. or Yi Ren Information,our wholly owned subsidiary in China, in August 2017. Heng Cheng Technology Development (Beijing) Co., Ltd., or Heng Cheng, was established in China in September 2014. Mr. Ning Tang,Mr. Fanshun Kong and Ms. Yan Tian are the shareholders of Heng Cheng, owning 40%, 30% and 30% of the equity interest in Heng Cheng, respectively, asof the date of this annual report. We obtained control and became the primary beneficiary of Heng Cheng in February 2015 by entering into a series ofcontractual arrangements with Heng Cheng and its shareholders. 54Table of Contents To execute our strategy of offering more value-added services to investors, we established Yiren Financial Information Service (Beijing) Co., Ltd., orYi Ren Wealth Management, in China in October 2016 to mainly conduct our wealth management business, aiming to provide investors with an expandedarray of investment options, including fund and insurance products offered by third parties. Mr. Ning Tang, Mr. Fanshun Kong and Ms. Yan Tian are theshareholders of Yi Ren Wealth Management, owning 40%, 30% and 30% of the equity interest in Yi Ren Wealth Management, respectively, as of the date ofthis annual report. We obtained control and became the primary beneficiary of Yi Ren Wealth Management by entering into a series of contractualarrangements with Yi Ren Wealth Management and its shareholders in October 2016. On December 18, 2015, our ADSs commenced trading on the NYSE under the symbol “YRD.” We raised from our initial public offeringapproximately US$64.9 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us. Concurrently with ourinitial public offering, we sold 2,000,000 ordinary shares to Baidu (Hong Kong) Limited, or Baidu Hong Kong, in a private placement, resulting in netproceeds to us of approximately US$9.0 million. We currently conduct our online consumer finance marketplace business in China through Heng Ye and Heng Yu Da, and our consolidated variableinterest entities, Heng Cheng and Yi Ren Wealth Management. Heng Cheng operates our website www.yirendai.com and has an ICP license as an internetinformation provider. Yi Ren Wealth Management operates our wealth management website and mobile application, which serves as an online portal forinvestment products, including the loan products offered by us as well as other investment products offered by third parties. Yi Ren Wealth Management is inthe process of applying for an ICP license. In addition, Yi Ren Information provides assistance to borrowers on our platform in seeking loans from banks andother institutional fund providers. Our principal executive offices are located at 10/F, Building 9, 91 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China. Ourtelephone number at this address is +86 10 5395-3680. B. Business Overview We are a leading fintech company in China connecting investors and individual borrowers. We facilitated loans in an aggregate principal amount ofapproximately RMB73.9 billion (US$11.4 billion) and served 1,092,938 borrowers and 1,300,398 investors from our inception in March 2012 throughDecember 31, 2017. Our online platform automates key aspects of our operations and enables us to efficiently match borrowers with investors and execute loantransactions. Leveraging the extensive experience of our parent company CreditEase, we provide an effective solution to address largely underservedinvestor and individual borrower demand in China. CreditEase is a large financial services company focusing on providing inclusive finance and wealthmanagement products and services in China. Our borrowers come from a variety of channels, including online sources, such as the internet and our mobileapplications, as well as offline sources, such as referrals from CreditEase’s nationwide service network. In 2015, 2016 and 2017, we facilitated overRMB2,728.9 million, RMB7,612.7 million and RMB 22,537.4 million (US$3,463.9 million) in loans through our mobile applications, respectively,representing 28.6%, 37.2% and 54.4% of the total amount of loans facilitated through our marketplace in the respective periods. We currently target prime borrowers, comprising credit card holders with stable credit performance and salary income, whose increasingconsumption credit needs are largely underserved by traditional financial institutions. We strategically focus on prime borrowers as we believe members ofthis group tend to be more creditworthy and more receptive to internet finance solutions and thus have greater tendency to use innovative consumer financeproducts to fund their consumption needs. Our technology-driven platform provides a flexible, cost-efficient and time-saving solution to address theirfinancial needs. Our online marketplace offers qualified borrowers who successfully complete our online application and meet our borrower requirementsquick and convenient access to affordable credit at competitive prices. All of the loans facilitated through our marketplace feature fixed interest rates. Toprovide a transparent marketplace, the interest rates, transaction fees and other charges are all clearly disclosed to borrowers upfront. Our online marketplace provides investors with attractive returns with investment thresholds as low as RMB100 (US$15.4). Investors have theoption to individually select specific loans to invest in or to use our automated investing tool that identifies and selects loans on the basis of a targetedreturn. With the aim of limiting losses to investors from borrower defaults, we also offer investors a quality assurance program, which is funded by a portion ofthe transaction fees that we charge borrowers. In addition, we provide investors with access to a liquid secondary market, giving them an opportunity to exittheir investments before the underlying loans become due. We currently conduct our business operations exclusively in China, and our online consumerfinance marketplace does not facilitate investments by investors located in the United States. Currently, all of the investors come from online channels. 55Table of Contents We are transitioning into a comprehensive online financial services platform that enables independent third parties to promote and sell a diversifiedportfolio of services to cater to various needs of the investors on the platform, including the growing needs of online wealth management services. With thepersonalized online wealth management services available on our platform, our online wealth management platform is well-positioned to tap into China’sindividual wealth management market. We believe we have developed an industry leading risk management system using our proprietary credit decisioning and fraud detection modules.We accumulate data from our expanding borrower base and CreditEase’s extensive database to continually enhance the sophistication and reliability of ourrisk management system. Our proprietary risk management system enables us to assess the creditworthiness of borrowers more effectively in a market wherereliable credit scores and borrower databases are still at an early stage of development. This system also enables us to appropriately price the risks associatedwith borrowers and offer quality loan investment opportunities to investors. We generate revenues primarily from fees charged for our services in matching investors with individual borrowers and for other services we provideover the life of a loan. We charge borrowers transaction fees for services provided through our platform in facilitating loan transactions, and charge investorsservice fees for using our automated investing tool or self-directed investing tool. As an information intermediary, we do not use our own capital to invest inloans facilitated through our marketplace. We have experienced significant growth since we launched our marketplace in March 2012. Our total net revenues increased from RMB1,313.6million in 2015 to RMB3,238.0 million in 2016, and further increased to RMB5,543.4 million (US$852.0 million) in 2017. Our net income increased fromRMB275.3 million in 2015 to RMB1,116.4 million in 2016, and further increased to RMB1,371.8 million (US$210.8 million) in 2017. Our Solution Our marketplace embraces the significant opportunities presented by a financial system that leaves many creditworthy individuals underserved oreven unserved. Our online business model, empowered by a technology-driven and user-centric platform, allows us to efficiently match borrowers withinvestors. We provide borrowers with fast and convenient access to consumer credit at competitive rates, while we offer investors easy and quick access to analternative asset class with attractive returns. 56Table of Contents * Historically, borrower and investor funds were deposited into a custody account managed by any one of a number of established third party onlinepayment platforms. In August 2015, we fully migrated to a new system whereby China Guangfa Bank, one of the largest commercial banks in China,took over the custody accounts previously managed by the various third party payment platforms. Our Borrowers Target Borrower Group We currently target prime borrowers, comprising credit card holders with stable credit performance and salary income. We strategically focus onprime borrowers because we believe members of this group tend to be more creditworthy and receptive to internet finance solutions. Borrower Profile and Base Based on the information disclosed to us, as of December 31, 2017, our historical borrower profile was 77.9% male and 22.1% female, while 69.4%were 35 years of age or less. In 2015, 2016 and 2017, we facilitated loans to 146,390, 321,019 and 649,154 borrowers through our platform, respectively. We do not permitborrowers to hold more than one loan that has been facilitated through our platform at a time. The total amount of funds loaned to borrowers through ourplatform was RMB9,557.6 million, RMB20,486.1 million and RMB41,406.1 million (US$6,364.0 million) in 2015, 2016 and 2017, respectively. Borrower Acquisition We attract a fast growing number of borrowers through various online channels. Our online borrower acquisition efforts are supported by our bigdata capabilities and are primarily directed toward search engine marketing, search engine optimization, mobile application downloads through majorapplication stores, partnering with online channels through application programming interfaces, as well as various marketing campaigns. We also acquire borrowers through referrals from CreditEase’s nationwide service network across over 267 locations in China as part of ourcontractual arrangement with CreditEase. Under this arrangement, CreditEase is obligated to refer borrowers who fall within our target borrower group to ouronline marketplace, in exchange for which we pay CreditEase a referral fee. The cost of services which CreditEase provides to us may from time to timeincrease, based on commercial negotiations between CreditEase and us. In 2016, pursuant to our contractual agreement with CreditEase, the fee rate for theoffline borrower acquisition services which CreditEase provides to us increased from 5% to 6% of the loans facilitated to borrowers referred by CreditEase forthe three years starting 2016. After that, the fee rate may be adjusted on a yearly basis based on commercial negotiation, and after taking into considerationthe costs to CreditEase for providing such services and with reference to market rates. Once a potential borrower is referred to us, all the remaining aspects ofthe transaction life cycle are handled by us, with our online marketplace facilitating the loan transaction, from application to credit decisioning to matchingand servicing. Our referral arrangement with CreditEase is designed so that CreditEase does not compete with our online consumer finance marketplacebusiness. In 2015, 2016 and 2017, 49.5%, 42.5% and 27.1% of our borrowers were acquired through referrals from CreditEase, respectively. The average sizeof loans sourced through offline channels tends to be larger than that of loans sourced through online channels. 57Table of Contents The following table provides a breakdown of the number of borrowers using our platform by channel: For the Year Ended December 31, 2015 2016 2017 Number of borrowers:Borrowers from online channels74,000184,430472,960Borrowers from offline channels72,390136,589176,194Total number of borrowers146,390321,019649,154 (1) The number of borrowers for a specified period represents the number of borrowers whose loans were funded during such period. We do not permitborrowers to hold more than one loan that has been facilitated through our platform at a time. A borrower who obtains loans through our platform fromboth online and offline channels during a period is counted as a borrower acquired from online channels for the purpose of the table above. For the Year Ended December 31, 2015 20162017 RMB % RMB %RMBUS$% (in thousands)Amount of loans facilitated9,557,613100.020,486,128100.041,406,0586,363,995100.0Loans generated from online channels3,152,27233.07,780,55538.022,543,2983,464,84254.4Loans generated from offline channels6,405,34167.012,705,57362.018,862,7602,899,15345.6 (1) In October 2016, we launched a new program named “Top-up Program” whereby we facilitate a new loan for a qualified borrower to replace his or herexisting loan on our platform. Top-up Program is a service provided to qualified borrowers to enhance customer experience and serve their lifetime creditneeds. The entire amount of the new loans facilitated under the Top-up Program is included in the amount of loans facilitated presented in the tableabove and elsewhere in this annual report . The total contractual amount of all loans facilitated in 2017, including only the top-up amount, i.e. theportion of the new loan exceeding the outstanding balance of the existing loan, was RMB39,453.4 million (US$6,063.9 million). (2) RMB247.4 million of loans generated from offline channels for 2015 were funded through Trust No. 1. RMB300.0 million of loans generated fromoffline channels for 2016 were funded through Trust No. 2. RMB556.8 million (US$85.6 million) of loans generated from offline channels for 2017 werefunded through Trust No. 3. RMB196.0 million(US$30.1 million) of loans generated from offline channels for 2017 were funded through Bohai TrustNo. 1. For more information about the trusts, please see “Item 5. Operating and Financial Review and Prospectus—A. Operating Results—CriticalAccounting Policies, Judgments and Estimates—Basis of Presentation, Combination and Consolidation.” The following table provides the number of borrowers and new borrowers who took out a loan during each quarter presented: 58(1)(1)(2)Table of Contents For the Three Months EndedMarch31,2015 June30,2015 September30,2015 December31, 2015 March31,2016 June30,2016 September30,2016December31,2016March31,2017June30,2017September30,2017December31,2017Number of newborrowers27,53634,48736,30747,54949,77267,75690,772104,160115,221126,901172,169175,221Total number ofborrowers27,58134,56836,49348,07250,54268,88292,479110,785124,953138,529192,725202,370 We acquire borrowers through various online channels as well as referrals from CreditEase’s nationwide service network. The increase in the numberof borrowers over the periods presented was attributable to our efforts in borrower acquisition. As of December 31, 2017, 5.4% of our cumulative borrowershave borrowed more than one loan on our platform. Our Investors Target Investor Group We accept investments from investors of all income levels. However, we focus our efforts on attracting mass affluent investors. This large and rapidlygrowing sector of the Chinese population is currently underserved by traditional investment products in China. We seek to attract mass affluent investorsbecause members of this demographic group are a significant untapped source of capital. In the future, we plan to expand our investor base from our currentfocus on individual investors to also include institutional investors. Investor Profile and Base Based on the information disclosed to us, as of December 31, 2017, our historical investor profile was 55.6% male and 44.4% female, while 74.5%were 40 years of age or less. In 2015, 2016 and 2017, 326,055, 597,765 and 592,642 investors invested through our platform, respectively. The total amount of funds investedby investors through our marketplace was RMB11.9 billion, RMB25.0 billion and RMB48.1 billion (US$7.4 billion) in 2015, 2016 and 2017, respectively. Investor Acquisition We attract a fast growing majority of our investors through online channels and currently attract almost all of our investors from such channels. Ourinvestor acquisition efforts are primarily directed towards enhancing our brand name, building investor trust, and word-of-mouth marketing. We also attractinvestors through CreditEase’s nationwide service network, which refers potential investors to our marketplace who have expressed interest in the types ofloan products offered on our online marketplace. The following table provides a breakdown of the number of investors using our platform by channel: For the Year Ended December 31,2015 2016 2017Number of investors:Investors from online channels317,051597,765592,642Investors from offline channels9,004——Total number of investors326,055597,765592,642 (1) The number of investors for a specified period represents the number of investors who have made at least one investment in loans during such period. Aninvestor who makes investments through our platform through both online and offline channels during a period is counted as an investor acquired fromonline channels for the purpose of the table above. 59(1)Table of Contents The following table provides the number of investors and new investors who made at least one investment during each quarter presented: For the Three Months EndedMarch31,2015June30,2015September30, 2015December31,2015March31,2016June30,2016September30, 2016December31,2016March31,2017June30,2017September30, 2017December31,2017Number of newinvestors16,20731,281125,667139,608163,682136,120101,236111,03199,01698,012114,629127,558Total number ofinvestors25,12444,000144,107177,501212,318206,706177,499194,505192,505199,591214,967233,374 We attract a fast growing majority of our investors through online channels and currently attract almost all of our investors from such channels. Ourinvestor acquisition efforts are primarily directed towards enhancing our brand name, building investor trust, and word-of-mouth marketing. We also attractinvestors through CreditEase’s nationwide service network, which refers potential investors to our marketplace who have expressed interest in the types ofloan products offered on our online marketplace. While we observed a decline in the number of new investors from the second quarter of 2016 to the first half of 2017, the average investment amountof new investors increased continuously throughout the same period. This mainly resulted from our strategy to focus more on acquiring quality investors whoare more willing to increase their investment amounts or reinvest on our platform. Starting from the third quarter of 2017, the number of new investorsincreased, which was mainly due to our increased investments in our online wealth management platform. As of December 31, 2017, 41.3% of our cumulativeinvestors have made more than one investment on our platform. Our Products and Services Products Offered to Borrowers Our online marketplace primarily facilitates standard loan products and FastTrack loan products to borrowers. We believe that these loans are simpleand quality credit products that make it easy for borrowers to budget their repayment obligations and meet their financial needs. All of our loan products areunsecured, feature fixed monthly payments and offer terms of 12, 18, 24, 36 or 48 months. In October 2016, we launched a new program named “Top-upProgram” whereby we facilitate a new loan for a qualified borrower to payback his or her existing loan on our platform. Top-up Program is a service providedto qualified borrowers to enhance customer experience and serve their lifetime credit needs. The fee structure of loans facilitated under the Top-up Program isthe same as other loan products except that we offer a credit of upfront fee of the existing loan to encourage the acceptance of the new loan, which isconsidered as a cash incentive provided to the borrower and recorded as a reduction to revenue. Standard Loan Products In 2015, 2016 and 2017, the average loan amounts for our standard loan products were approximately RMB82,816, RMB90,143 and RMB102,265(US$15,718), respectively. To apply for a standard loan, a borrower needs to complete an online application providing information such as their PRC identitycard information, a bank statement with proof of monthly income and credit report from the PBOC, as well as the desired loan amount and term. In 2015,2016 and 2017, our standard loan products represented the majority of the loans that were made through our marketplace. FastTrack Loan Products FastTrack loans are a new, fast expanding product that is currently only available through our mobile applications. These loans can be as large asRMB100,000 (US$15,369.7). In 2015, 2016 and 2017, the average FastTrack loan amounts were RMB39,458, RMB39,272 and RMB45,618 (US$7,011),respectively. To apply for a FastTrack loan, a borrower completes an online application providing their PRC identity card information, e-commerce accountinformation, mobile phone number, credit card statement and if applicable, PBOC credit report, housing fund information and life insurance policyinformation, as well as the desired loan amount and duration. This product offers near instantaneous credit approval, allowing qualified borrowers to receivean initial decision in as fast as ten minutes. 60Table of Contents Loan Pricing Mechanism We use a proprietary credit scoring model to assess the creditworthiness of potential borrowers. Our credit scoring model aggregates and analyzes thedata submitted by the borrower as well as the data we collect from a number of internal and external sources, and then generates a score for the prospectiveborrower. In the second quarter of 2017, we launched our new credit scoring system, the Yiren score, which can be used to more accurately characterize aborrower’s credit profile. Under this new credit scoring system, we have an upgraded risk grid with five segments, which we refer to as Grade I, Grade II, GradeIII, Grade IV and Grade V. The expected M3+ Net Charge-off Rate and actual observed results for each of these customer groups divide potential borrowersinto distinctively different credit segments. See “Item 4. Information on the Company—B. Business Overview—Risk Management—Proprietary CreditScoring Model and Loan Qualification System.” All of the loans offered through our marketplace feature fixed interest rates, which are paid to investors less any defaults over the term of theapplicable loan and fees charged to investors. In addition, we charge borrowers transaction fees for matching them with investors. The transaction fee ischarged as a percentage of the loan contract. A penalty fee for late payment is imposed as a percentage of the amount past due. All fees are clearly disclosedto the borrower upfront. Services Offered to Investors Through our marketplace investors have the opportunity to invest in a wide range of loan products with attractive returns. We believe ourproprietary credit scoring and fraud detection systems will increase investor confidence in the quality of loans that they are investing in. Investing Tools Our online marketplace provides investors with several investing tools. Automated investing tool. Our automated investing tool represents the most popular way for investors to invest in loans through our marketplace.With our automated investing tool, an investor agrees to invest a specified amount of money to borrowers through our marketplace for a specified period oftime. Once an investor commits funds using the tool, his funds are automatically allocated among approved borrowers. Our automated investing toolautomatically reinvests investors’ funds as soon as a loan is repaid, enabling investors to speed the reinvestment of cash flows without having to continuallyrevisit our website or mobile application. Unless an emergency withdrawal fee is paid, investors using our automated investing tool are not allowed towithdraw their funds prior to the expiration of the specified investment period, which does not necessarily match the term of the loans to which the automatedinvesting tool allocates the investor’s funds. In 2015, 2016 and 2017, the vast majority of funds invested by investors through our marketplace were investedutilizing this automated investing tool. The minimum threshold for a lending commitment made through our automated investing tool is RMB100 (US$15.4). In 2015, 2016 and 2017, theaverage amounts invested through our automated investing tool by each investor were RMB35,327, RMB41,530 and RMB80,446 (US$12,364),respectively, and the current average annual rates of return to investors after deducting the management fee were up to 10.5%. The specific rate of returnoffered to an investor using our automated investing tool varies with the duration of the committed investment term, which can be as short as three months,and the average interest returns of the loans to which the automated investing tool allocates the investor’s funds, which are also dependent on loan term. Self-directed investing tool. Our self-directed investing tool enables investors to personally select among the hundreds of new lending opportunitiesto approved borrowers that are posted on our marketplace every day. After selecting a desired loan, the investor then agrees to lend a specified amount ofmoney to a specific borrower through our marketplace for a specified duration which must match the tenure of the borrower’s loan. In order to encourageinvestors to diversify their risks, we have a policy capping each investor’s investment in a given loan at 20% of the loan amount. Our platform providesinvestors using our self-directed investing tool with the ability to use filters based on credit and application data, such as term, amount and interest rate, toscreen loans on our platform for review. 61Table of Contents The minimum threshold for a lending commitment made through our self-directed investing tool is RMB100 (US$15.4). In 2015, 2016 and 2017,the average amounts invested through our self-directed investing tool by each investor were RMB85,787, RMB58,419 and RMB139,136 (US$21,385),respectively. The rate of return offered to an investor after deducting the management fee varies with the duration of the investment term, with 9.0%corresponding to a 12-month loan and 11.3% corresponding to a 48-month loan. Quality Assurance Program and Guarantee In January 2015, we launched our current quality assurance program. Under the current arrangement, we set aside a certain amount of cash in aninterest-bearing custody account. The quality assurance program covers loans originated on or after January 1, 2015. If a loan originated on or after January 1,2015 defaults, we will withdraw funds from the quality assurance program to repay the principal and accrued interest for the defaulted loan, unless the qualityassurance program is depleted. At the inception of each loan, we set aside cash in an amount equal to a certain percentage of the loan amount facilitated onour platform. We reserve the right to revise this percentage upwards or downwards from time to time. In addition, we monitor the balance of the qualityassurance program on a monthly basis, and adjust on a quarterly basis by putting an appropriate additional amount of cash from other sources into the qualityassurance program as needed to ensure we can sufficiently cover the expected net payouts. See “Item 4. Information on the Company—B. Business Overview—Risk Management—Investor Protection.” We cooperated with Zhejiang Chouzhou Commercial Bank to furnish borrower referral and facilitation services to the bank from August 2017 toDecember 2017. We provided guarantee deposits to the bank to protect it from potential losses due to loan delinquency and undertook to replenish suchdeposit from time to time so that the amount of guarantee deposits met a certain percentage of the related outstanding loan. We also undertake to repay thebank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon such full repayment to the bank, we will obtain the creditor’s rights inrespect of the relevant default amount. In January 2018, we entered into a three-year business agreement with PICC Property and Casualty Company Limited.PICC Property and Casualty Company Limited provides surety insurance for loans facilitated through our online marketplace and will reimburse investorstheir principal and expected interest in the event of loan default. In March 2018, we began to cooperate with a guarantee company, whereby the guaranteecompany provides guarantee for loans facilitated through our online marketplace for the assurance that investors’ principal and interest would be repaid inthe event that their loans default. See “Item 4. Information on the Company—B. Business Overview—Risk Management—Investor Protection.” Secondary Loan Market We maintain a secondary loan market on our marketplace where investors can transfer the loans they hold prior to maturity at the fair value of theremaining loans. This secondary loan market is liquid, with loans typically exchanging hands within the same day it is posted. This liquidity offers investorsthe opportunity to enter and exit their investments without waiting until maturity, increasing their frequency and willingness to lend and, as a result, theamount of funds ultimately available to borrowers. Fees Charged to Investors We charge investors various on-going as well as one-time fees, depending on their specific investment activity on our marketplace. We chargeinvestors a monthly management fee for using our automated investing tool and self-directed investing tool. The monthly management fee for using theautomated investing tool is the difference between the interest rates on the underlying loans which range from 10.0% and 12.5%, and the targeted returnsoffered to investors which up to 10.5%. The monthly management fee for using the self-directed investing tool is equal to 10% of the interest that investorsreceive, which ranges from 10.0% to 12.5%. A one-time fee is charged to all investors for each loan transferred over our secondary loan market. 62Table of Contents Our Platform and the Transaction Process We believe that our platform enables a fast loan application process, a credit assessment that more accurately determines an applicant’screditworthiness and a superior overall user experience. Our platform touches each point of our relationship with our borrowers and investors, from theapplication process through the funding and servicing of loans. We provide an automated, streamlined application process. To borrowers and investors alike, the process is designed to appear simple, seamless andefficient but our platform leverages sophisticated, proprietary technology to make it possible. The entire process from initial application to disbursement offunds typically takes 30 minutes to 24 hours. Stage 1: Application Our borrower application process begins with the submission of a loan application by a prospective borrower. Borrowers can apply through ourwebsite or mobile applications. For borrowers acquired through CreditEase’s nationwide service network, a CreditEase salesperson will guide the prospectiveborrower in completing the application process and input the application and required information into our system. As part of both the online and offlineapplication process, the prospective borrower is asked to provide various personal details. The specific personal details required will depend upon theborrower’s desired loan product, but typically include PRC identity card information, employer information, bank account information, credit cardinformation and a credit report from the PBOC. For our FastTrack product, applicants may complete an application on our platform in three steps taking aslittle as ten minutes, significantly reducing the time normally spent applying for a loan. New investors sign up to our marketplace using a simple online portal in which they input their PRC identity card information and bank accountinformation. Prior to June 2015, the funds they invested over our marketplace were deposited into a custody account run by any one of a number ofestablished third-party online payment platforms. In August 2015, we fully migrated to a new system whereby China Guangfa Bank took over the investorcustody accounts previously managed by the various third party payment platforms. Stage 2: Verification Upon submission of a completed application by borrowers from both online and offline channels, our credit models are populated with allinformation contained in the submitted loan application. Additional data from a number of internal and external sources is then matched with theapplication, including the following: Internal· historical credit data accumulated through our online platform; and · behavioral data that we glean from an applicant’s behavior as they apply to us for loans, such as the self-reported use of proceedsor use of multiple devices to access our platform; External· credit database maintained by CreditEase; · personal identity information maintained by an organization operated under the Ministry of Public Security; · personal credit information maintained by an organization operated under the PBOC; · online data from internet or wireless service providers, including social network information; · online shopping and payment information for their accounts with certain popular Chinese e-commerce websites; · credit card statement data authorized by applicants; and 63Table of Contents · fraud list and database. This data is then aggregated and used to verify an applicant’s identity, for possible fraud detection and for assessment and determination ofcreditworthiness. Stage 3: Anti-Fraud, Credit Assessment and Decisioning In order to efficiently screen applicants, we have designed an initial qualification phase to review the basic information regarding a prospectiveborrower that has been submitted with the application and gathered by us from available sources. As a matter of policy, we do not permit borrowers to holdmore than one loan that has been facilitated through our platform at a time, although we currently do not have a comprehensive way to determine whetherborrowers have obtained loans through other consumer finance marketplaces. Once complete, an initial check is performed using our anti-fraud system, andthe prospective borrower’s loan application either proceeds to the next phase of the application process or the prospective borrower is notified of the decisionto decline the application. Following initial qualification, we commence a credit review utilizing our proprietary credit scoring model to generate an Yirendai score for theprospective borrower that drives the decision whether to extend credit. Our current proprietary credit-scoring model originates from a credit scoring systemthat was developed by CreditEase in conjunction with Fair Issac Corporation, or FICO, a leading U.S. provider of analytics software and tools used to managerisk and fight fraud. We have further modified our credit scoring system to adapt it to the realities of the Chinese market, which has historically had no sourceof widely available consumer credit information. In the second quarter of 2017, we launched our new credit scoring system, the Yiren score, which can beused to more accurately characterize borrower’s credit profile. Under this new credit scoring system, we have an upgraded risk grid with five segments, whichwe refer to as Grade I, Grade II, Grade III, Grade IV and Grade V. Today, our credit scoring system uses our own scoring criteria, and is routinely monitored,tested, updated and validated by our risk management team. Following the generation of the Yirendai score and Yiren score, our credit decisioning systemmakes a determination as to whether the prospective borrower is qualified. Unqualified borrowers are notified of the decision to decline their applications forfailing to meet minimum requirements. For a potential borrower who passes our initial qualification phase and is applying for our loan products, the application proceeds to our creditassessment team for review. A member of our credit assessment team will first conduct a telephone verification interview with the applicant. After the initialtelephone verification interview, at least one member of credit assessment team will analyze the application and Yirendai score or Yiren Score. If a member ofthe credit assessment team suspects there may be fraud involved with a particular loan application or determines that additional verification is needed tocomplete the credit decisioning process, that team member will conduct further due diligence and verification, such as additional phone calls to the borrowerapplicant and the applicant’s employer that is identified in the application. While these additional steps have led us to discover instances of invalidinformation provided by prospective borrowers in the past, the number of such instances has not been significant. Following this review, the creditassessment team will either approve the loan as is, approve the loan with one or more modified sets of loan characteristics, or decline the loan application. In2015, 2016 and 2017, 25.7%, 39.7% and 72.0% of all loan applications that passed the initial qualification phase were approved by our credit assessmentteam, respectively. The approval rate by our credit assessment team improved as we enhanced our initial qualification process by rejecting non-qualifiedborrowers at an early stage. In 2015, 2016 and 2017, 12.7%, 14.5% and 14.5% of all loan applications were approved. Stage 4: Approval, Listing and Funding Once the loan application is approved, we make a loan agreement available online for the prospective borrower’s review and approval. This loanagreement is between the borrower, the investors who fund the borrower’s loan and our platform. Upon acceptance of the loan agreement, if the loan has notbeen matched automatically through automated investing tool, the loan is then listed on our marketplace for investors to view. Once a loan is listed on ourmarketplace, investors may then subscribe to the loan using either our automated or self-directed investing tools. Before a loan is disbursed to the borrower, itmust be fully subscribed to by investors. Our liquidity management system is designed to ensure the fast and effective matching of borrowers’ loanapplications and investors’ investment demand through the use of a detailed demand forecasting model and real time monitoring. Once a loan is fullysubscribed, funds are then drawn from a custody account and disbursed to the borrower. 64Table of Contents Stage 5: Servicing and Collections We utilize an automated process for collecting scheduled loan payments from our borrowers. Upon loan origination, we establish a paymentschedule with payment occurring on a set business day each month. Borrowers then make scheduled loan repayments via a third-party payment platform to acustody account, and authorize us to debit the custody account for the transfer of scheduled loan repayments to the lending investors. We check the balancesin the custody account and reconcile the transactions against our records on a daily basis. As a day-to-day service to borrowers, we provide payment reminder services such as sending reminder text messages on the day a repayment is due.Once a repayment is past due, we also send additional reminder text messages during the first fourteen days of delinquency. We outsource all stages of the collections process to CreditEase, which commences once a loan is fifteen days delinquent. To facilitate repaymentand as a service to investors, the collections process is divided into distinct stages based on the severity of delinquency, which dictates the level of collectionsteps taken. For example, reminder text messages and emails are sent to a delinquent borrower as soon as the collections process commences, and if thepayment is still outstanding, the collection team will make phone calls, then followed by visits to the delinquent borrower’s home. Although all stages of thecollections process are outsourced to CreditEase, we handle all decisions to restructure or defer delinquent loans that are above a certain threshold, whileCreditEase collection teams have the discretion to make decisions for the loans that are below such threshold. Risk Management Traditional risk management tools and the types of consumer finance data available in developed economies, such as widely available consumercredit reporting services, are currently at an early stage of development in China. We believe our industry leading risk management capabilities provide uswith a competitive advantage in attracting capital to our marketplace by providing investors with comfort that they are investing in high quality loansthrough a sustainable marketplace. Proprietary Fraud Detection System We use a proprietary fraud detection system, which is part of our larger risk management system, to identify and reject potential borrowerapplications. Our system combines quantitative modeling, internet technology, offline verification and the use of third-party services. The quantitativemodeling aspect of our fraud detection system involves the use of a big data platform to locate potential inconsistencies in a particular borrower application.The internet technology aspect includes IP verification and monitoring. Our offline verification activities involve members of our credit assessment teamspeaking with potential borrowers to inquire after any inconsistencies in a loan application. Our big data platform is also used to enhance our offlineverification processes. Lastly, we employ third-party services to check the online behavior of potential borrowers, and utilize government agency’s opendatabase to check their identity card numbers against known criminals. We also maintain a blacklist after detecting any fraudulent borrowers. Currently, ourrisk management system utilizes over 250 decisioning rules and contains a blacklist with over 1,000,000 fraud detection data points. Proprietary Credit Scoring Model and Loan Qualification System We use a proprietary credit scoring model to assess the creditworthiness of potential borrowers. This credit scoring model originates from a creditscoring system that was developed by CreditEase in conjunction with FICO. We have further modified our credit scoring model to adapt it to the realities ofthe Chinese market, which has historically had no source of widely available consumer credit information. Our credit scoring model aggregates and analyzesthe data submitted by the borrower as well as the data we collect from a number of internal and external sources, and then generates a score for the prospectiveborrower. In the second quarter of 2017, we launched our new credit scoring system, the Yiren score, which can be used to more accurately characterizeborrower’s credit profile. Our relationship with CreditEase allows us to further enhance the depth of our credit scoring model through our ability to rely on itsover ten years of loan data. In addition to its strong analytical foundation, our credit scoring model is routinely monitored, tested, updated and validated byour risk management team. The following table presents the key criteria that materially impact a borrower’s credit score: 65Table of Contents Criteria Examples Effect on Credit ScorePurpose of the loanPersonal consumption· No monotonic correlation Customer attributesEducation background· Positive correlation· Higher education leads to higher score Usage and performance of the loans from otherfinancial institutionsMaximum amount of loans that the borrower hasborrowed from commercial banks· Positive correlation· The larger the amount of bank loans, thehigher the score Credit card usage and payment patternFrequency of credit card usage· Negative correlation· Above a certain threshold, the higher thefrequency of credit card usage, the lower thescore Public recordCourt enforcement record· No monotonic correlation· A borrower’s score is lower if he/she has beensubject to court enforcement Income and debt conditionSalaries· Positive correlation· Below a certain threshold, the higher thesalary, the higher the score Geographic locationProvince or city where the borrower is located· No monotonic correlation· A borrower’s score is lower if he/she is locatedin a province or city where we face intensemarket competition Job stabilityLength of employment· Positive correlation· The longer the employment, the higher thescore Online merchant purchasing patternRecent average consumption level· Positive correlation· The higher the recent average consumptionlevel, the higher the score The credit scores derived from our proprietary credit scoring model containing the criteria mentioned above are used to determine which of thesegments in our pricing grid a particular borrower falls into. Under our new credit scoring system, we have an upgraded risk grid with five segments, which we refer to as Grade I, Grade II, Grade III, Grade IVand Grade V. The expected M3+ Net Charge-off Rate and actual observed results for each of these customer groups divide potential borrowers intodistinctively different credit segments. The following table presents the risk grades with the corresponding Yiren scores, the expected M3+ Net Charge-offRate, the current annualized interest rate and the average transaction fee rate: RiskGrade Yiren Scores ExpectedM3+ Net Charge-off Rate AnnualizedInterest Rate Average TransactionFee Rate I790+ <3.0% 10.0-12.0%13.6%II750-<790 3.0% - 5.0% 10.0-12.0%17.4%III720-<750 5.0% - 7.0% 10.0-12.0%19.7%IV690-<720 7.0% - 9.0% 10.0-12.0%24.0%V640-<690 9.0% - 13.0% 10.0-12.0%27.0% 66 (1) (2)Table of Contents (1) The annualized interest rate that borrowers pay to investors varies from 10.0% to 12.0%, depending on the term of the loan. (2) The transaction fee rate is calculated as the total transaction fee that we charge borrowers for the entire life of the loan, divided by the total amount ofprincipal. The average transaction fee rate presented in the table above is the simple average of the transaction fee rates for loans falling under the samerisk grade, but with different tenures and repayment schedules. We allow prospective borrowers who initially fail to meet our borrower criteria to reapply for a loan after a certain period of time, typically sixmonths, if they are able to demonstrate a verifiable improvement in the criteria that impact their Yiren score. For prospective borrowers that we determinepresent a fraud risk, reapplications are never permitted. Our Risk Management Committee, Risk Management Division and Credit Assessment Team Organizationally, we have a risk management committee, comprised of our executive chairman, chief executive officer, chief financial officer andchief risk officer, that meets monthly to examine the credit, liquidity and operational risks on our platform. We have an independent risk management division, responsible for loan performance analysis, credit model validation and credit decisioningperformance. This division engages in various risk management activities, including reporting on performance trends, monitoring of loan concentrations andstability, performing economic stress tests on loans, randomly auditing loan decisions by our credit assessment team members and conducting peerbenchmarking and external risk assessments. Our credit assessment team consisted of 88 members as of December 31, 2017. Each application for loan products received through our platform isreviewed by at least one member of our credit assessment team. Members of our credit assessment team analyze loan applications and also assist with frauddetection and borrower verification, leveraging skills learned through training and on-the-job experience to evaluate loans on the basis of directcommunications with potential borrowers. For each loan application, at least one member of credit assessment team will analyze the application and Yirendaiscore or Yiren Score.In 2015, 2016 and 2017, 25.7%, 39.7% and 72.0% of all loan applications that passed the initial qualification phase were approved byour credit assessment team, respectively. Loan Servicing and Collections Our technology platform is capable of monitoring and tracking payment activity. With built-in payment tracking functionality and automatedmissed payment notifications, the platform allows us to monitor the performance of outstanding loans on a real-time basis. CreditEase has developed a strategy to optimize the collections process for our delinquent loans. Our collections process is divided into distinctstages based on the severity of delinquency, which dictates the level of collection steps taken. Loans progress through the collection cycle based upon thenumber of days past due but can be accelerated based on specific circumstances. Investor Protection Prior to August 2013, we offered investors an investor protection service in the form of a quality assurance program, whereby we set aside a portionof the service fees we received in the quality assurance program. In the event that a loan defaults for more than fifteen days, we will use cash from the qualityassurance program to pay the loan principal and accrued interest to the investor. According to our agreements with investors, our contractual obligation forrepayment of defaulted loans is limited to the amount of cash we set aside in the quality assurance program. We charged investors a quality assuranceprogram management fee at a rate of 10% of the loan interest for this service. 67Table of Contents In August 2013, we replaced the previous quality assurance program with a guarantee system. Under this system, we worked with Tian Da Xin An, aguarantee company, to provide investors with the option of purchasing the assurance that their principal and interest would be repaid in the event that theirloans defaulted, and the guarantee company charged investors 10% of the loan interest for the guarantee service. Historically, more than 99% of investorsopted into the guarantee system. When we switched to the guarantee model in August 2013, we paid Tian Da Xin An a one-time fee of US$0.3 million for itsassumption of the outstanding loan balances covered under our previous quality assurance program. Starting on January 1, 2015, we ended our relationship with the guarantee company, which will still continue to guarantee all previously guaranteedloans, and launched our current quality assurance program. This quality assurance program covers loans originated on or after January 1, 2015. Under thisarrangement, at the inception of each loan we set aside cash in an amount equal to a certain percentage of the loan amount facilitated on our platform in aninterest-bearing custody account managed by China Guangfa Bank. We reserve the right to revise this percentage upwards or downwards from time to time.The factors that we consider in determining such percentage include market dynamics, our product lines, profitability, cash position and our actual andexpected quality assurance net payouts. Under the quality assurance arrangement, if a borrower is 15 days delinquent in repaying an installment of principal and interest of a loan, we willwithdraw an amount from the custody account to repay the delinquent installment of principal and interest to the corresponding investor. If a borrower is 90days delinquent in repaying an installment of principal and interest on a loan, we will withdraw an amount from the custody account to repay the delinquentinstallment principal and interest, plus the entire outstanding balance of the loan principal, to the corresponding investor. If the quality assurance programbecomes insufficient to pay back all the investors with delinquent loans, these investors will be repaid on a pro rata basis. Prior to July 2017, theiroutstanding unpaid balances would be deferred to the next time the quality assurance program was replenished, at which time a distribution would again bemade to all investors with delinquent loans. Following replenishment of the quality assurance program, in the event that the amount of funds was againinsufficient to pay back all investors with delinquent loans, the investors would again be repaid on a pro rata basis, although in this case the number ofinvestors sharing pro rata in the quality assurance program would increase to include the unpaid investors from prior periods as well as the unpaid investorsfrom the current period. If the quality assurance program was continually underfunded, investors may need to wait for extended periods to receive a fulldistribution from the quality assurance program, or incur a loss on their investment if the quality assurance program was not sufficient. In addition, fromNovember 2015 to July 2017, we placed a two-year limit on the period during which an investor had the right to receive distribution from the qualityassurance program, which meant if an investor had not recovered the full default amount by the time that was two years and 90 days from the original duedate, then the investor would no longer have the right to receive pro rata repayment from our quality assurance program. After July 2017, after being repaidon a pro rata basis in the event the quality assurance program becomes insufficient to pay back all the investors with delinquent loans, the investors'outstanding unpaid balances would not be deferred to the next time the quality assurance program was replenished. As a result, investors will bear the riskthat they will not be able to fully recover their investment principal and unpaid interest. Once we make a payment to an investor, we seek to collect the amounts from the borrower through the collection process. The amount collectedfrom the borrower, if any, is remitted to first replenish the portion of the quality assurance program used to repay the investor, and if there is any additionalamount remaining, then to reimburse our collection expenses. If we are not successful in collecting a sufficient amount from the default borrower to cover ourcollection expenses, our quality assurance service agreement with investors calls for investors to reimburse us for any litigation or arbitration expenses wemay have advanced on their behalf during the collection process, although in practice we will bear the unrecovered portion of these and all other collectionexpenses. In the first three quarters of 2015, the amount of cash we set aside for the quality assurance program is equivalent to 6% of the loans facilitatedthrough our marketplace during the period. This amount was not sufficient to cover all expected net payouts for loans facilitated during this period. In the fourth quarter of 2015, in order to continue to attract new and retain existing investors and to remain consistent with the current industrypractice in China, we revised our quality assurance program funding policy to ensure that we set aside sufficient cash in the quality assurance program tocover the expected net payouts, based on our business intention but not legal obligation. In addition to setting aside a certain percentage of the loan amountat the inception of each loan, we monitor the balance of the quality assurance program on a monthly basis, and adjust on a quarterly basis by putting anappropriate additional amount of cash from other sources into the quality assurance program as needed to ensure we can sufficiently cover the expected netpayouts. Moreover, in July 2017, we changed our funding policy for our quality assurance program. Instead of setting aside the full amount to be contributedto the program in a lump sum, we contribute to the program in installments with each instalment equal to 30% of transaction fee we receive from the borrowereach time until the full amount is contributed. 68Table of Contents Our current quality assurance program funding policy aims to have sufficient cash in the quality assurance program to cover expected net payouts.Subject to the terms and limits in our agreements with investors, we currently allow investors to fully recover their outstanding principal and accrued interestin the event of loan default. However, as the industry continues to evolve and becomes more sophisticated, we may revisit our policy or the terms on whichwe offer the quality assurance program so that investors may recover less than 100% of the outstanding principal and accrued interest. From August 2017 to December 2017, we cooperated with Zhejiang Chouzhou Commercial Bank, which made its own lending decisions in certainloans facilitated on our platform. Pursuant to the cooperation agreement, we, together with CreditEase, furnished borrower referral and facilitation services toZhejiang Chouzhou Commercial Bank with a maximum loan amount of RMB3 billion by assessing and providing a preliminary assessment of borrowers’credit risks to Zhejiang Chouzhou Commercial Bank to facilitate its own lending decision, which was subject to its own assessments of borrowers’ credit risksand own loan approvals. We provided guarantee deposits to Zhejiang Chouzhou Commercial Bank to protect it from potential losses due to loandelinquency and undertook to replenish such deposit from time to time. We also undertake to repay Zhejiang Chouzhou Commercial Bank on behalf ofdefaulting borrowers if any repayment is 80 days overdue and upon such full repayment to Zhejiang Chouzhou Commercial Bank we will obtain thecreditor’s rights in respect of the relevant default amount. In January 2018, we entered into a three-year business agreement with PICC Property and Casualty Company Limited. Pursuant to the businessagreement, PICC Property and Casualty Company Limited provides surety insurance for loans facilitated through our online marketplace with 12-month termand with an amount not exceeding RMB200,000 (approximately US$31,000), and will reimburse investors their principal and expected interest in the eventof loan default within the agreed scope of the agreement. In March 2018, we began to cooperate with a guarantee company, whereby the guarantee companyprovides guarantee for loans facilitated through our online marketplace with 12-month term, 24-month term and 36-month term for the assurance thatinvestors’ principal and interest would be repaid in the event that their loans default, and the guarantee companies charge borrowers a guarantee fee for theguarantee services. The guarantee company can further purchase credit insurance for the loss compensation resulted from their guarantee services in the eventthe guaranteed loans default from certain qualified insurance company to reduce its credit risk exposure. For our liabilities associated with the quality assurance program and guarantee, see “Item 5. Operating and Financial Review and Prospects—A.Operating Results—Selected Statements of Operations Items—Quality Assurance Program and Guarantee.” Our Technology We believe our technology platform is a competitive advantage and an important reason that borrowers and investors utilize our marketplace. Keyfeatures of our technology platform include: · Highly automated process. Our platform covers all five stages of the customer life cycle: application; verification; credit assessment anddecisioning; listing and funding; and servicing and collections. Our web and mobile based platform also provides a superior customer experience.We offer a fast and easy-to-use online application process and provide both borrowers and investors with access to live support and online toolsthroughout the process and for the lifetime of the loan or investment. Our liquidity management system is designed to ensure the fast and effectivematching of borrowers’ loan applications and investors’ investment demand by forecasting the borrowing demand on a weekly and monthly basisand monitoring the fund flow on a real time basis. 69Table of Contents · Mobile applications. We have developed different user-friendly mobile applications for borrowers and investors, which enable borrowers andinvestors alike to access our platform at any time or location that is convenient. We launched our first mobile application during the fourth quarterof 2013, and approximately 28.6% , 37.2% and 54.4% of loans in terms of amount were facilitated through our mobile applications in 2015, 2016and 2017, respectively. · Proprietary fraud detection. We use a combination of current and historical data obtained during the application process, third-party data andsophisticated analytical tools to help determine an application’s fraud risk. High risk applications are subject to further investigation. In case wherefraud is confirmed, the application is cancelled, and we identify and flag characteristics of the loan to help refine our fraud detection efforts. · Scalable platform. Our platform is built on a distributed, load-balanced computing infrastructure, which is both highly scalable and reliable. Theinfrastructure can be expanded easily as data storage requirements and user visits increase. We have designed a unified platform, which administratesall systems and servers and can reconfigure or redeploy systems or servers automatically whenever needed. · Data security. Our network is configured with multiple layers of security to isolate our databases from unauthorized access and we use sophisticatedsecurity protocols for communication among applications. To prevent unauthorized access to our system we utilize a system of firewalls and alsomaintain a perimeter network, or DMZ, to separate our external-facing services from our internal systems. Our entire website and public and privateAPIs use the Secure Sockets Layer networking protocol. · Stability. Our systems infrastructure is hosted in co-located redundant data centers in two separate districts in Beijing. We have multiple layers ofredundancy to ensure the reliability of our network. We also have a working data redundancy model with comprehensive backups of our databasesand our development environment conducted every day. Brand Promotion Our general marketing efforts are designed to build brand awareness and reputation and to attract and retain borrowers and investors. We believereputation and word-of-mouth drive continued organic growth in our borrower and investor bases. In this respect, our association with CreditEase is avaluable marketing and promotion asset. Competition The online consumer finance marketplace industry in China is intensely competitive and we compete with other consumer finance marketplaces.Our key competitor is Lufax (). In light of the low barriers to entry in the online consumer finance industry, more players may enter this market andincrease the level of competition. We anticipate that more established internet, technology and financial services companies that possess large, existing userbases, substantial financial resources and established distribution channels may enter the market in the future. We also compete with other financial products and companies that attract borrowers, investors or both. With respect to borrowers, we compete withother consumer finance marketplaces and traditional financial institutions, such as consumer finance business units in commercial banks, credit card issuersand other consumer finance companies. With respect to investors, we primarily compete with other investment products and asset classes, such as equities,bonds, investment trust products, bank savings accounts and real estate. Intellectual Property We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we relyon trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect ourproprietary rights. We have made applications for 273 trademarks, all of which are pending with the Trademark Office under the State Administration forIndustry and Commerce. As of the date of this annual report, a total of 44 trademarks have been transferred to us by CreditEase. We have also obtained aworldwide and royalty-free license from CreditEase to use certain of its trademarks, including “” (Chinese equivalent for CreditEase). 70Table of Contents Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology.Monitoring unauthorized use of our technology is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation ofour technology. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs anddiversion of our resources. In addition, third parties may initiate litigation against us alleging infringement of their proprietary rights or declaring their non-infringement of ourintellectual property rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology or license theinfringed or similar technology on a timely basis, our business could be harmed. Moreover, even if we are able to license the infringed or similar technology,license fees could be substantial and may adversely affect our results of operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We may not be able to prevent others from unauthorized use of ourintellectual property, which could harm our business and competitive position.” and “Item 3. Key Information—D. Risk Factors—Risks Related to OurBusiness—We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.” Insurance We maintain property insurance policies covering certain equipment and other property that are essential to our business operation to safeguardagainst risks and unexpected events. We also provide social security insurance including pension insurance, unemployment insurance, work-related injuryinsurance and medical insurance for our employees. We do not maintain business interruption insurance or general third-party liability insurance, nor do wemaintain product liability insurance or key-man insurance. We consider our insurance coverage to be sufficient for our business operations in China. Seasonality We experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal consumption patterns, as ourindividual borrowers typically use their borrowing proceeds to finance their personal consumption needs. For example, we generally experience lowertransaction value on our online consumer finance marketplace during national holidays in China, particularly during the Chinese New Year holiday seasonin the first quarter of each year. Overall, the historical seasonality of our business has been mild due to our rapid growth but may increase further in the future.Due to our limited operating history, the seasonal trends that we have experienced in the past may not apply to, or be indicative of, our future operatingresults. Regulation This section sets forth a summary of the most significant rules and regulations that affect our business activities in China. As an online consumer finance marketplace connecting investors with individual borrowers, we are regulated by various government authorities,including, among others: · the Ministry of Industry and Information Technology, or the MIIT, regulating the telecommunications and telecommunications-related activities,including, but not limited to, the internet information services and other value-added telecommunication services; · the People’s Bank of China, or the PBOC, as the central bank of China, regulating the formation and implementation of monetary policy, issuing thecurrency, supervising the commercial banks and assisting the administration of the financing; · China Banking and Insurance Regulatory Commission, or the CBIRC, a newly established public institution in April 2018 which has consolidatedthe duties of the former China Banking Regulatory Commission and the duties of the former China Insurance Regulatory Commission, regulatingfinancial institutions and promulgating the regulations related to the administration of financial institutions. 71Table of Contents Regulations Relating to Foreign Investment Industry Catalog Relating to Foreign Investment Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment, or theCatalog, which was promulgated and is amended from time to time by the MOC and the National Development and Reform Commission. Industries listed inthe Catalog are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalog are generally deemed as constitutinga fourth “permitted” category. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged and permitted industries. Somerestricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in suchjoint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest inindustries in the prohibited category. Industries not listed in the Catalog are generally open to foreign investment unless specifically restricted by other PRCregulations. Our PRC subsidiaries are mainly engaged in providing investment and financing consultations and technical services, which fall into the“encouraged” or “permitted” category under the Catalog. Our PRC subsidiaries have obtained all material approvals required for its business operations.However, industries such as value-added telecommunication services (except e-commerce), including internet information services, are restricted from foreigninvestment. We provide the value-added telecommunication services that are in the “restricted” category through our consolidated variable interest entities,Heng Cheng and Yi Ren Wealth Management. Foreign Investment in Value-Added Telecommunication Services The Provisions on Administration of Foreign Invested Telecommunications Enterprises promulgated by the State Council in December 2001 andsubsequently amended respectively in September 2008 and February 2016 prohibit a foreign investor from owning more than 50% of the total equityinterest in any value-added telecommunications service business in China and require the major foreign investor in any value-added telecommunicationsservice business in China have a good and profitable record and operating experience in this industry. The Guidance Catalog of Industries for ForeignInvestment amended in 2017 and Circular 196 promulgated by MIIT in June 2015 allow a foreign investor to own more than 50% of the total equity interestin an online data processing and transaction business (e-commerce business). In July 2006, the Ministry of Information Industry, the predecessor of the MIIT, issued the Circular on Strengthening the Administration of ForeignInvestment in the Operation of Value-added Telecommunications Business, pursuant to which a domestic PRC company that holds an operating license forvalue-added telecommunications business, which we refer to as the VATS License, is prohibited from leasing, transferring or selling the VATS License toforeign investors in any form and from providing any assistance, including resources, sites or facilities, to foreign investors that conduct a value-addedtelecommunications business illegally in China. Further, the domain names and registered trademarks used by an operating company providing value-addedtelecommunications services must be legally owned by that company or its shareholders. In addition, the VATS License holder must have the necessaryfacilities for its approved business operations and to maintain the facilities in the regions covered by its VATS License. In light of the above restrictions and requirements, we operate our online marketplaces through Heng Cheng and Yi Ren Wealth Management, ourconsolidated variable interest entities. Heng Cheng has received an ICP License, the VATS License for internet information services, and Yi Ren WealthManagement is in the process of applying for an ICP License. Certain trademarks relating to our value-added telecommunications business have beentransferred to us by CreditEase, in order to comply with the requirement that registered trademarks used by an operating company providing value-addedtelecommunications services must be legally owned by that company or its shareholders. Regulations Relating to Online Lending Information Intermediary Due to the relatively brief history of the online lending information intermediary service industry in China, the regulatory framework governing ourindustry have undergone significant changes in recent years and may continue to evolve. In addition, there are certain other general rules, laws andregulations that may be relevant or applicable to the online lending information intermediary service industry, including the PRC Contract Law, the GeneralPrinciples of the Civil Law of the PRC, and related judicial interpretations promulgated by the Supreme People’s Court. 72Table of Contents Regulations on Loans between Individuals The PRC Contract Law governs the formation, validity, performance, enforcement and assignment of contracts. The PRC Contract Law confirms thevalidity of loan agreement between individuals and provides that the loan agreement becomes effective when the individual lender provides the loan to theindividual borrower. The PRC Contract Law requires that the interest rates charged under the loan agreement must not violate the applicable provisions ofthe PRC laws and regulations. In accordance with the Provisions on Several Issues Concerning Laws Applicable to Trials of Private Lending Cases issued bythe Supreme People’s Court on August 6, 2015, or the Private Lending Judicial Interpretations, which came into effect on September 1, 2015, private lendingis defined as financing between individuals, legal entities and other organizations. When private loans between individuals are paid by wire transfer, throughonline lending information intermediaries or by other similar means, the loan contracts between individuals are deemed to be validated upon the deposit offunds to the borrower’s account. In the event that the loans are made through an online lending information intermediary, which only provides intermediaryservices, the courts will dismiss the claims of the parties concerned against the platform demanding the repayment of loans by the platform as guarantors.However, if the online lending information intermediary guarantees repayment of the loans as evidenced by its web page, advertisements or other media, orthe court is provided with other proof, the lender’s claim alleging that the online lending information intermediary assumes the obligations of a guarantorwill be upheld by the courts. The Private Lending Judicial Interpretations also provide that agreements between the lender and borrower on loans withinterest rates below 24% per annum are valid and enforceable. As to loans with interest rates per annum between 24% and 36%, if the interest on the loans hasalready been paid to the lender, and so long as such payment has not damaged the interest of the state, the community and any third parties, the courts willturn down the borrower’s request to demand the return of the interest payment. If the annual interest rate of a private loan is higher than 36%, the excess willnot be enforced by the courts. The Supreme People’s Court issued Certain Opinions Concerning Further Strengthening Finance Judgment Work on August 4,2017, or the Opinions on Finance Judgment, which provides that the courts in adjudication of private loan disputes should invalidate contractual provisionsattempting to circumvent the cap on judicially-protected interest rate, such as pre-deduction of principal or interest, or disguised high interest rate, and ifonline lending information intermediaries and lenders seek to use the form of intermediary charges to circumvent the cap on judicially-protected interest rate,it should be invalidated. In December 2017, the Leading Group Office of the Internet Financial Risk Rectification Campaign and the National Rectification Office jointlyissued the Notice on Rectification of Cash Loan Businesses, or Circular 141, which requires that the interests and all the comprehensive capital costs chargedand collected from a borrower should be uniformly converted into an annualized capital cost which shall not exceed the ceiling amount provided by thePrivate Lending Judicial Interpretations. See “—Our Products and Services—Loan Pricing Mechanism.” Pursuant to the PRC Contract Law, a creditor may assign its rights under an agreement to a third party, provided that the debtor is notified. Upon dueassignment of the creditor’s rights, the assignee is entitled to the creditor’s rights and the debtor must perform the relevant obligations under the agreementfor the benefit of the assignee. We operate a secondary loan market on our platform where investors can transfer the loans they hold to other investors beforethe loan reaches maturity. To facilitate the assignment of the loans, the template loan agreement applicable to the lenders and borrowers on our platformspecifically provides that a lender has the right to assign his/her rights under the loan agreement to any third parties and the borrower agrees to suchassignment. In addition, according to the PRC Contract Law, an intermediation contract is a contract whereby an intermediary presents to its client anopportunity for entering into a contract or provides the client with other intermediary services in connection with the conclusion of a contract, and the clientpays the intermediary service fees. Our business of connecting investors with individual borrowers may constitute intermediary service, and our serviceagreements with borrowers and investors may be deemed as intermediation contracts under the PRC Contract Law. Pursuant to the PRC Contract Law, anintermediary must provide true information relating to the proposed contract. If an intermediary conceals any material fact intentionally or provides falseinformation in connection with the conclusion of the proposed contract, which results in harm to the client’s interests, the intermediary may not claim forservice fees and is liable for the damages caused. 73Table of Contents Regulations on Illegal Fund-Raising Raising funds by entities or individuals from the general public must be conducted in strict compliance with applicable PRC laws and regulations toavoid administrative and criminal liabilities. The Measures for the Banning of Illegal Financial Institutions and Illegal Financial Business Operationspromulgated by the State Council in July 1998 and amended in January 2011, and the Notice on Relevant Issues Concerning the Penalty on Illegal Fund-Raising issued by the General Office of the State Council in July 2007, explicitly prohibit illegal public fund-raising. The main features of illegal publicfund-raising include: (i) illegally soliciting and raising funds from the general public by means of issuing stocks, bonds, lotteries or other securities withoutobtaining the approval of relevant authorities, (ii) promising a return of interest or profits or investment returns in cash, properties or other forms within aspecified period of time, and (iii) using a legitimate form to disguise the unlawful purpose. To further clarify the criminal charges and punishments relating to illegal public fund-raising, the Supreme People’s Court promulgated the JudicialInterpretations to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising, or the Illegal Fund-Raising JudicialInterpretations, which came into force in January 2011. The Illegal Fund-Raising Judicial Interpretations provide that a public fund-raising will constitute acriminal offense related to “illegally soliciting deposits from the public” under the PRC Criminal Law, if it meets all the following four criteria: (i) the fund-raising has not been approved by the relevant authorities or is concealed under the guise of legitimate acts; (ii) the fund-raising employs general solicitationor advertising such as social media, promotion meetings, leafleting and SMS advertising; (iii) the fundraiser promises to repay, after a specified period oftime, the capital and interests, or investment returns in cash, properties in kind and other forms; and (iv) the fund-raising targets at the general public asopposed to specific individuals. An illegal fund-raising activity will be fined or prosecuted in the event that it constitutes a criminal offense. Pursuant to theIllegal Fund-Raising Judicial Interpretations, an offender that is an entity will be subject to criminal liabilities, if it illegally solicits deposits from the generalpublic or illegally solicits deposits in disguised form (i) with the amount of deposits involved exceeding RMB1,000,000 (US$153,697), (ii) with over 150fund-raising targets involved, or (iii) with the direct economic loss caused to fund-raising targets exceeding RMB500,000 (US$76,849), or (iv) the illegalfund-raising activities have caused baneful influences to the public or have led to other severe consequences. An individual offender is also subject tocriminal liabilities but with lower thresholds. In addition, an individual or an entity who has aided in illegal fund-raising from the general public and chargesfees including but not limited to agent fees, rewards, rebates and commission, constitute an accomplice of the crime of illegal fund-raising. In accordancewith the Opinions of the Supreme People’s Court, the Supreme People’s Procurator and the Ministry of Public Security on Several Issues concerning theApplication of Law in the Illegal Fund-Raising Criminal Cases, the administrative proceeding for determining the nature of illegal fund-raising activities isnot a prerequisite procedure for the initiation of criminal proceeding concerning the crime of illegal fund-raising, and the administrative departments’ failurein determining the nature of illegal fund-raising activities does not affect the investigation, prosecution and trial of cases concerning the crime of illegalfund-raising. We have taken measures to avoid conducting any activities that are prohibited under the illegal-funding related laws and regulations. We act as aplatform for borrowers and investors and are not a party to the loans facilitated through our platform. In addition, we do not directly receive any funds frominvestors in our own accounts as funds loaned through our platform are deposited into and settled by a third-party custody account managed by ChinaGuangfa Bank, one of the largest commercial banks in China. Regulations on Online Lending Information Intermediary Service Provider In July 2015, ten PRC regulatory agencies, including the PBOC, the MIIT and the CBRC, jointly issued the Guidelines on Promoting the HealthyDevelopment of Online Finance Industry, or the Guidelines. The Guidelines sets forth certain core principles for the online lending information intermediaryservice industry. Based on the core principles under the Guidelines, in August 2016, the CBRC, the MIIT, the PRC Ministry of Public Security and the PRCState Internet Information Office issued the Interim Measures on Administration of Business Activities of Online Lending Information Intermediaries, or theInterim Measures. The Interim Measures defines online lending as the direct lending among individuals (including natural persons, legal persons and otherorganizations) through Internet platforms, and the online lending information intermediaries as the legally established financial information intermediariesspecialized in the online lending information intermediary business, which provide, mainly through Internet, such services as information collection,information release, credit assessment, information exchange, and lending matchmaking to facilitate the direct lending between borrowers and lenders. 74Table of Contents The Interim Measures require the online lending information intermediaries and their branches that propose to carry out the online lendinginformation intermediary services to file a record with the local financial regulatory department at the place where it is registered with the localadministration for industry and commerce within 10 business days upon obtaining the business license. Local financial regulatory departments have thepower to assess and classify the online lending information intermediaries which have filed a record, and to publicize the record-filing information and theclassification results on their respective official websites in a timely manner. However, specific rules and procedures on the record-filing, assessment andclassification of the online lending information intermediaries, particularly those in existence before the promulgation of the Interim Measures, are yet to beformulated and issued. Institutions engaged in the online lending information intermediary business must explicitly identify the online lending informationintermediaries in their business scope. The online lending information intermediaries are prohibited from engaging in any of the following activities, among other things: (i) financing forthemselves directly or in a disguised form; (ii) accepting, collecting or gathering funds of lenders directly or indirectly; (iii) providing security to lenders orpromising break-even principals and interests directly or in a disguised form; (iv) advertising or promoting financing projects on other physical premisesother than such digital channels as the Internet, fixed-line telephone or mobile phone by themselves or upon entrustment or authorization of any third party;(v) providing loans, unless otherwise stipulated by laws and regulations; (vi) splitting the term of any financing project; (vii) raising funds by issuing suchfinancial products as wealth management products by themselves, or selling wealth management products of banks, assets management products of securitiestraders, funds, insurance, trust products or other financial products on a commission basis; (viii) carrying out any business analogous to asset securitization orconducting transfer of creditor’s rights in the form of packaged assets, asset-backed securities, trust assets or fund units, among others; (ix) engaging in anyform of mixture, bundling or agency with other businesses such as institutional investment, sale on a commission basis and brokerage, unless otherwisepermitted by laws, regulations and relevant regulatory provisions on online lending information intermediaries; (x) false statement, misrepresenting or failureto disclose important information regarding the financial projects; (xi) providing information intermediary services for those highly risky financing projectswhose purpose is investing in stock market, over-the-counter financing, futures contracts, structured products and other derivatives; and (xii) engaging inequity-based crowd funding. The Interim Measures do not allow (i) the balance of money borrowed by the same natural person and the same legal person or other organization onthe same online lending information intermediary platform to exceed RMB200,000 (US$30,739) and RMB1,000,000 (US$153,697), respectively; or (ii) thetotal balance of money borrowed by the same natural person and the same legal person or other organization on different online lending informationintermediary platforms to exceed RMB1,000,000 (US$153,697) and RMB5,000,000 (US$76,849), respectively. The fund raising period set by an onlinelending information intermediary for each single financing project must not exceed 20 business days. Further, the Interim Measures set forth certain information disclosure requirements for the online lending information intermediaries, including(i) fully disclosure on their respective official websites of the basic information of borrowers, basic information of financing projects, risk assessment, possiblerisk results, use of funds by the matched lending projects and other related information; (ii) publishing on their respective official websites matched lendingprojects and other information on their operation and management; (iii) maintaining certain column on their official websites for information on theirbusiness operation and management and regularly disclosing their annual reports, laws and regulations, and relevant regulatory provisions on the onlinelending information intermediary service industry to the public; (iv) retaining accounting firms to regularly audit the deposit and management of the lenders’and borrowers’ funds, information disclosure, security of information technology infrastructure, compliance of operation and other key processes, and alsoretaining qualified information security assessment and certification institutions to regularly assess and certify their information security, and disclose tolenders, borrowers and others such auditing, assessment and certification results. 75Table of Contents In November 2016, the CBRC, the Ministry of Industry and Information Technology, or the MIIT, and the State Administration for Industry andCommerce jointly issued the Guide to the Record-filing of Online Lending Information Intermediaries, or the Record-filing Guidelines, which outlines therules, procedures and required documents for the record-filing of online lending information intermediaries, and directs local financial regulatorydepartments to adopt detailed implementation rules for the record-filing by online lending information intermediaries within their jurisdictions. However,specific rules and procedures regarding, among other things, assessment standards and classification rules for the filings by online lending informationintermediaries with local financial regulatory departments, application for appropriate telecommunication business licenses and the addition of onlinelending information intermediary services to the business scope on business licenses have yet to be formulated and issued. In December 2017, the Office ofLeading Group on Special Rectification of Risks in the Online Lending, the regulator for administration and supervision on the nationwide Internet financeand online lending, or the National Rectification Office, issued the Notice on Rectification and Inspection Acceptance of Risk of Online Lending, or Circular57, which provides further clarification on several matters in connection with the rectification and record-filling of online lending information intermediaries.Circular 57, among other things, requires certain local governmental authorities to establish an inspection team to conduct risk rectification inspections ononline lending information intermediaries within their jurisdictions. If an online lending information intermediary institution passes the inspection, the localgovernmental authorities shall complete its record-filling. Circular 57 also requires local authorities to complete record-filings of online lending informationintermediaries within its jurisdiction by the end of April 2018, except that the deadline for certain complicated cases may be postponed to May 2018 orJune 2018. In accordance with the Guidelines and the Interim Measures, the CBRC also issued two other implementation rules and regulations in addition tothe Record-Filing Guidelines, namely, (i) the Guidelines for the Depository Business of Online Lending Funds in February 2017, or the CustodianGuidelines; and (ii) the Guidelines for the Disclosure of Information on Business Activities of Online Lending Information Intermediaries in August 2017, orthe Disclosure Guidelines. The Custodian Guidelines require each online lending information intermediary to set up a custody account with a singlecommercial bank for the funds of investors on its platform, take responsibility for the continued development and secure operation of its technical system,make appropriate information disclosure to the custody bank, perform daily account reconciliation with the custody bank, safely maintain its accounts andrecords, arrange for the independent audits of the custody account and publicly disclose the audit results, and cooperate with the custody bank in meetinganti-money laundering obligations. The Disclosure Guidelines sets forth the information disclosure requirement for online lending informationintermediaries, including with respect to their filings and licenses, fund custody, organization, operation, risk management, data regarding loans facilitated,financial audit and compliance review, and channels for customer complaints. In addition, the Disclosure Guidelines require online lending informationintermediaries to disclose to investors information concerning borrowers, projects, project risk assessment and possible risk outcome. Under the DisclosureGuidelines, an online lending information intermediary must provide consistent information disclosure across all online channels such as its website, mobilephone application, WeChat public accounts and Weibo accounts, and set up on its website and other online channels a conspicuous section for informationdisclosure. Furthermore, in May 2017, the CBRC, the Ministry of Education and the Ministry of Human Resources and Social Security jointly released theNotice to Further Enhance the Management of Campus Loans, which prohibits online lending information intermediaries from facilitating loans to collegestudents. In December 2017, the Leading Group Office of the Internet Financial Risk Rectification Campaign and the National Rectification Office jointlyissued the Notice on Rectification of Cash Loan Businesses, or Circular 141, which sets out certain principles in connection with cash loan businesses andonline lending information intermediaries. According to Circular 141, online lending information intermediaries are prohibited from: (i) deducting interests,commissions, management fees and deposits from the loans before they are released to the borrowers; (ii) outsourcing core functions such as data collection,customer identification, credit assessment or account openings; (iii) enabling banking financial institutions to engage in P2P online lending; (iv) providingloan facilitation services to individuals who do not possess sufficient debt repayment capabilities or to students; (vi) conducting real-estate financing such asdown payment loans for real estate purchasing. To comply with the laws, rules and regulations relating to the online lending information intermediary service industry, we have implementedvarious policies and procedures, which we believe set the best practice in the industry. 76Table of Contents Anti-money Laundering Regulations The PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirementsapplicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary andsupervisory measures, establishment of various systems for client identification, retention of clients’ identification information and transactions records, andreports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurancecompanies and other financial institutions as listed and published by the State Council, while the list of the non-financial institutions with anti-moneylaundering obligations will be published by the State Council. The PBOC and other governmental authorities issued a series of administrative rules andregulations to specify the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions.However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations. The Guidelines jointly released by ten PRC regulatory agencies in July 2015, purport, among other things, to require internet finance serviceproviders, including online lending information intermediaries, to comply with certain anti-money laundering requirements, including the establishment of acustomer 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-moneylaundering matters. The Interim Measures jointly issued by four PRC regulatory agencies in August 2016 require the online lending informationintermediaries, among other things, to comply with certain anti-money laundering obligations, including verifying customer identification, reportingsuspicious transactions and preserving customer information and transaction records. The Custodian Guidelines issued by PBOC in February 2017 requirethe online lending platforms to set up custody accounts with commercial banks and comply with the anti-money laundry requirements of the relevantcommercial banks. In cooperation with our partnering custody banks and payment companies, we have adopted various policies and procedures, such as internalcontrols and “know-your-customer” procedures, for anti-money laundering purposes. Regulations on Value-Added Telecommunication Services The Telecommunications Regulations promulgated by the State Council and its related implementation rules, including the Catalog ofClassification of Telecommunications Business issued by the MIIT, categorize various types of telecommunications and telecommunications-relatedactivities into basic or value-added telecommunications services, while internet information services, or ICP services, and data processing and transactionprocessing services, or EDI services, are classified as value-added telecommunications businesses. In 2009, the MIIT promulgated the AdministrativeMeasures on Telecommunications Business Operating Licenses, amended in July 2017, which set forth more specific provisions regarding the types oflicenses required to operate value-added telecommunications services, the qualifications and procedures for obtaining such licenses and the administrationand supervision of such licenses. Under these regulations, a commercial operator of value-added telecommunications services must first obtain a license forvalue-added telecommunications business, or VATS License, from the MIIT or its provincial level counterparts, which must identify the specific type ofvalue-added telecommunications services it provides. An internet information service provider must obtain a VATS License for internet information services,or ICP License and a data processing and transaction processing service provider must obtain a VATS License for data processing and transaction processingservices, or EDI License. In September 2000, the State Council also issued the Administrative Measures on Internet Information Services, which was amended inJanuary 2011. Pursuant to these measures, “internet information services” refer to provision of internet information to online users, and are divided into“commercial internet information services” and “non-commercial internet information services.” A commercial internet information services operator mustobtain a VATS License for internet information services, or ICP License, from the relevant government authorities before engaging in any commercialinternet information services operations in China. The ICP License has a term of five years and can be renewed within 90 days before expiration. 77Table of Contents Heng Cheng, our consolidated variable interest entity operating our online marketplace and Yi Ren Wealth Management, our consolidated variableinterest entity operating our wealth management website and mobile application, may be deemed to be providing commercial internet information servicesand data processing and transaction processing services, which would require Heng Cheng and Yi Ren Wealth Management to obtain an ICP License and anEDI License. Heng Cheng has an ICP License for provision of commercial internet information services issued by Beijing TelecommunicationAdministration Bureau in April 2015, and Yi Ren Wealth Management is in the process of applying for an ICP License. The Guidelines jointly released byten PRC regulatory agencies in July 2015, purport, among other things, to require internet finance service providers, including online lending informationintermediaries, to complete registration with the relevant local counterpart of the MIIT in accordance with implementation regulations that may bepromulgated by the MIIT and/or the Office for Cyberspace Affairs pursuant to the Guidelines. The Interim Measures jointly issued by four PRC regulatoryagencies in August 2016 require the online lending information intermediaries, among other things, to apply for appropriate telecommunication businesslicense in accordance with the relevant requirements of telecommunication authorities subsequent to completion of the record-filing with the local financialregulatory department. In accordance with the Guidelines and the Interim Measures, the relevant authorities are in the process of making detailedimplementation rules in relation to the record-filing procedures, as well as the application procedures for appropriate telecommunication business license byonline lending information intermediaries. We plan to apply for any requisite telecommunication services license once the detailed implementationrules become available. Regulations on Internet Information Security Internet information in China is also regulated and restricted from a national security standpoint. The National People’s Congress, China’s nationallegislative body, has enacted the Decisions on Maintaining Internet Security, which may subject violators to criminal punishment in China for any effort to:(i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spreadfalse commercial information; or (v) infringe intellectual property rights. In November 2016, the Standing Committee of National People’s Congresspromulgated the PRC Cyber Security Law taking into effect in June 2017, or the PRC Cyber Security Law, which established a regulatory system with respectto the construction, operation, maintenance and use of internet and set forth provisions on the supervision and administration of cyber security within theterritory of the PRC. Pursuant to the PRC Cyber Security Law, the national internet information department shall take charge of the arrangement,coordination, supervision and administration in connection with cyber-security issues, and the telecommunications administrative departments, publicsecurity departments as well as other relevant departments shall be responsible for the security protection, supervision and administration within the scope oftheir respective duties. The Ministry of Public Security has promulgated measures that prohibit use of the internet in ways which, among other things, resultin a leakage of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the Ministry ofPublic Security and the local security bureaus may revoke its operating license and shut down its websites. In addition, the Guidelines jointly released by ten PRC regulatory agencies in July 2015 purport, among other things, to require internet financeservice providers, including online lending information intermediaries, to improve technology security standards, and safeguard customer and transactioninformation. The Interim Measures jointly issued by four PRC regulatory agencies in August 2016 requires the online lending information intermediaries,among other things, to (i) carry out grading filing and testing for their information systems, (ii) implement thorough cyberspace security facilities andmanagement measures, including firewall, intrusion detect, data encryption, and disaster recovery, etc., (iii) establish information technology management,technology risk management, technology auditing and related systems, (iv) allocate sufficient resources and implement thorough management and controlmeasures and technological means to ensure safe and steady operation of their information systems, (v) protect the security of the information of lenders andborrowers, (vi) carry out a comprehensive security evaluation at least once every two years, (vii) accept the information security inspection and auditing bycompetent authorities, and (viii) establish or adopt application-level disaster recovery systems and facilities compatible with their business scales within twoyears after their establishment. 78Table of Contents Regulations on Privacy Protection In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from anyunauthorized disclosure. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT inDecember 2011, an ICP service operator may not collect any user personal information or provide any such information to third parties without the consent ofa user. An ICP service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personalinformation and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly maintainthe user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedialmeasures and, in severe circumstances, make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision onStrengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress in December 2012 and the Order forthe Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personalinformation must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes,methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering ordestroying of any such information, or selling or providing such information to other parties. An ICP service operator is required to take technical and othermeasures to prevent the collected personal information from any unauthorized disclosure, damage or loss. According to the PRC Cyber Security Law, an ICPservice operator is required to formulate security management system and operational procedures, take measures to prevent acts that jeopardize cyber securitysuch as computer virus, network attacks and network intrusion, and safeguard personal information, user information and business secrets. Any violation ofthese laws and regulations may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings,closedown of websites or even criminal liabilities. The Guidelines jointly released by ten PRC regulatory agencies in July 2015 also prohibit internet financeservice providers, including online lending information intermediaries, from illegally selling or disclosing customers’ personal information. The PBOC andother relevant regulatory authorities will jointly adopt the implementing rules. The Interim Measures jointly issued by four PRC regulatory agencies inAugust 2016 requires the online lending information intermediaries, among other things, to strengthen the management of lenders’ and borrowers’information to ensure the legitimacy and security regarding the collection, processing and use of lenders’ and borrowers’ information, to keep confidentialthe lenders’ and borrowers’ information collected in the course of their business, and not to use such information for any other purpose except for servicesthey provide without approval of lenders or borrowers. The lenders’ and borrowers’ information collected within the territory of China shall be stored,processed and analyzed within the territory of China. The online lending information intermediaries shall not provide the lenders’ and borrowers’information to any party located outside the territory of China, unless otherwise required by laws and regulations. Pursuant to the Ninth Amendment to theCriminal Law issued by the Standing Committee of the National People’s Congress in August 2015 and becoming effective in November, 2015, any internetservice provider that fails to fulfill the obligations related to internet information security administration as required by applicable laws and refuses to rectifyupon orders, shall be subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to theleakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells orprovides personal information to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information, shall be subject tocriminal penalty in severe situation. Regulations on Intellectual Property Rights The PRC has adopted comprehensive legislation governing intellectual property rights, including trademarks. The PRC Trademark Law and itsimplementation rules protect registered trademarks. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. TheTrademark Office under the State Administration of Industry and Commerce is responsible for the registration and administration of trademarks throughoutthe PRC, and grants a term of ten years to registered trademarks and another ten years if requested upon expiry of the initial or extended term. Trademarklicense agreements must be filed with the Trademark Office for record. As of the date of this annual report, we have made applications for 273 trademarks, allof which are pending with the Trademark Office under the State Administration for Industry and Commerce. We also have obtained a worldwide and royalty-free license from CreditEase to use certain of its trademarks, including “” (Chinese equivalent for CreditEase). However, the trademark licenses byCreditEase to us have not been filed with the Trademark Office under the State Administration for Industry and Commerce. Regulations Relating to Dividend Withholding Tax Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishmentin the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it willbe subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong KongSpecial Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment ofdividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clausesof Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reducedwithholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must havedirectly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. There are also other conditions forenjoying the reduced withholding tax rate according to other relevant tax rules and regulations. In August 2015, the State Administration of Taxationpromulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or Circular 60, which became effective onNovember 1, 2015. Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoythe reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that theprescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documentswhen performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, Yirendai HK, our Hong Kongsubsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from Heng Ye and Heng Yu Da, our PRC subsidiaries, if theysatisfy the conditions prescribed under Circular 81 and other relevant tax rules and regulations. However, according to Circular 81 and Circular 60, if therelevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant taxauthorities may adjust the favorable withholding tax in the future. 79Table of Contents Regulations Relating to Foreign Exchange Regulations on Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recentlyamended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments andtrade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certainprocedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted intoforeign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans,repatriation of investments and investments in securities outside of China. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on ForeignDirect Investment, most recently amended in May 2015, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to thiscircular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accountsand guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits anddividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts forthe same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013,which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way ofregistration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided bySAFE and its branches. On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the ForeignExchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvalsregarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for suchforeign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conductthe registration. On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchangecapitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both previous Circular 142 and Circular 36 on June 1, 2015. OnJune 9, 2016, SAFE promulgated Circular 16 to further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-invested enterprises inthe PRC are allowed to use their foreign exchange funds under capital accounts and RMB funds from exchange settlement for expenditure under currentaccounts within its 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) investments in securities or other investmentsthan banks’ principal-secured products; (iii) granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and(iv) construction or purchase of real estate for purposes other than self-use (except for real estate enterprises). 80Table of Contents Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment throughSpecial Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE Circular 75. SAFE Circular 37 regulatesforeign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing orconduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRCresidents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests,while “round trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-investedenterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRCresidents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on FurtherSimplifying 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 inconnection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as requiredbefore the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to theregistration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRCresidents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure tocomply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclosecontrollers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreignexchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reductionin capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRCresidents or entities to penalties under PRC foreign exchange administration regulations. We are aware that our PRC resident beneficial owners subject to these registration requirements have registered with the Beijing SAFE branch and/orqualified banks to reflect the recent changes to our corporate structure. Regulations on Stock Incentive Plans SAFE promulgated the Stock Option Rules in February 2012, replacing the previous rules issued by SAFE in March 2007. Under the Stock OptionRules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required toregister with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain aqualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRCsubsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of the participants. In addition, the PRCagent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRCagent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee share options, apply toSAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee shareoptions. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividendsdistributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRCresidents. 81Table of Contents We have adopted two share incentive plans, under which we have the discretion to grant a broad range of equity-based awards to eligibleparticipants. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.” We plan to advise the recipients ofawards under our share incentive plans to handle foreign exchange matters in accordance with the Stock Option Rules. However, we cannot assure you thatthey can successfully register with SAFE in full compliance with the Stock Option Rules. Any failure to complete their registration pursuant to the StockOption Rules and other foreign exchange requirements may subject these PRC individuals to fines and legal sanctions, and may also limit our ability tocontribute additional capital to our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially adversely affectour business. Regulations on Dividend Distribution Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from Heng Ye, which is a whollyforeign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have. The principal regulations governing distributionof dividends of foreign-invested enterprises include the Foreign-Invested Enterprise Law, as amended in September 2016, and its implementation rules.Under these laws and regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated after-tax profits, if any,determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate atleast 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registeredcapital of the enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accountingstandards to staff welfare and bonus funds. These reserves are not distributable as cash dividends. Regulations Relating to Employment The PRC Labor Law and the Labor Contract Law require that employers must execute written employment contracts with full-time employees. If anemployer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship isestablished, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice theemployee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the dayprior to the execution of the written employment contract. All employers must compensate their employees with wages equal to at least the local minimumwage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative sanctions, andserious violations may result in criminal liabilities. Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds,namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, anda housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of theemployees as specified by the local government from time to time at locations where they operate their businesses or where they are located. Failure to makeadequate contributions to various employee benefit plans may be subject to fines and other administrative sanctions. We have not made adequate contributions to employee benefit plans, as required by applicable PRC laws and regulations. See “Item 3. KeyInformation—D. Risk Factors—Risks Related to Doing Business in China—Failure to make adequate contributions to various employee benefit plans asrequired by PRC regulations may subject us to penalties.” C. Organizational Structure The following diagram illustrates our corporate structure, including (1) Heng Ye, Heng Yu Da and Yi Ren Information, our subsidiaries, (2) HengCheng and Yi Ren Wealth Management, our consolidated variable interest entities, and (3) Trust No. 1, Yiren Elite Loan Trust Beneficial Right Asset BackedSpecial Plan, Trust No. 2, Zhong Yi Trust, Trust No. 3 and Bohai Trust No. 1, our consolidated assets backed financing entities, as of the date of this annualreport: 82Table of Contents (1) The shareholders of Yi Ren Wealth Management are Mr. Ning Tang, Mr. Fanshun Kong and Ms. Yan Tian, owning 40%, 30% and 30% of Yi Ren WealthManagement’s equity interest, respectively. Mr. Ning Tang is our executive chairman. Mr. Fanshun Kong is a non-executive PRC employee ofCreditEase, and Ms. Yan Tian is a third-party individual designated by CreditEase. (2) The shareholders of Heng Cheng are Mr. Ning, Mr. Fanshun Kong and Ms. Yan Tian, owning 40%, 30% and 30% of Heng Cheng’s equity interest,respectively. 83Table of Contents Contractual Arrangements with Heng Cheng and Yi Ren Wealth Management Due to PRC legal restrictions on foreign ownership and investment in value-added telecommunications services, and internet content provisionservices in particular, we currently conduct these activities through Heng Cheng and Yi Ren Wealth Management, which we effectively control through aseries of contractual arrangements. These contractual arrangements allow us to: · exercise effective control over Heng Cheng and Yi Ren Wealth Management; · receive substantially all of the economic benefits of Heng Cheng and Yi Ren Wealth Management; and · have an exclusive option to purchase all or part of the equity interests in Heng Cheng and Yi Ren Wealth Management when and to the extentpermitted by PRC law. As a result of these contractual arrangements, we have become the primary beneficiary of Heng Cheng and Yi Ren Wealth Management, and we treatHeng Cheng and Yi Ren Wealth Management as our variable interest entities under U.S. GAAP. We have consolidated the financial results of Heng Chengand Yi Ren Wealth Management in our consolidated financial statements in accordance with U.S. GAAP. Contractual Arrangements with Heng Cheng The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Heng Ye, ourconsolidated variable interest entity, Heng Cheng, and the shareholders of Heng Cheng. Agreements that Provide Us with Effective Control over Heng Cheng Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, each shareholder of Heng Cheng has pledged all of his or herequity interest in Heng Cheng to guarantee the shareholder’s and Heng Cheng’s performance of their obligations under the exclusive business cooperationagreement, loan agreement, exclusive option agreement and power of attorney. If Heng Cheng or any of its shareholders breaches their contractualobligations under these agreements, Heng Ye, as pledgee, will be entitled to certain rights regarding the pledged equity interests, including receivingproceeds from the auction or sale of all or part of the pledged equity interests of Heng Cheng in accordance with the law. Each of the shareholders of HengCheng agrees that, during the term of the equity interest pledge agreements, he or she will not dispose of the pledged equity interests or create or allow anyencumbrance on the pledged equity interests without the prior written consent of Heng Ye. The equity interest pledge agreements remain effective until HengCheng and its shareholders discharge all their obligations under the contractual arrangements. We have registered the equity pledge with the relevant officeof the Administration for Industry and Commerce in accordance with the PRC Property Rights Law. Powers of Attorney. Pursuant to the powers of attorney, each shareholder of Heng Cheng has irrevocably appointed Heng Ye to act as suchshareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Heng Cheng requiringshareholder approval, disposing of all or part of the shareholder’s equity interest in Heng Cheng, and appointing directors and executive officers. Heng Ye isentitled to designate any person to act as such shareholder’s exclusive attorney-in-fact without notifying or the approval of such shareholder, and if requiredby PRC law, Heng Ye shall designate a PRC citizen to exercise such right. Each power of attorney will remain in force for so long as the shareholder remains ashareholder of Heng Cheng. Each shareholder has waived all the rights which have been authorized to Heng Ye and will not exercise such rights. Agreement that Allows us to Receive Economic Benefits from Heng Cheng Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement between Heng Ye and Heng Cheng, Heng Ye hasthe exclusive right to provide Heng Cheng with technical support, consulting services and other services. Without Heng Ye’s prior written consent, HengCheng agrees not to accept the same or any similar services provided by any third party. Heng Ye may designate other parties to provide services to HengCheng. Heng Cheng agrees to pay service fees on a monthly basis and at an amount determined by Heng Ye after taking into account multiple factors, such asthe complexity and difficulty of the services provided, the time consumed, the content and commercial value of services provided and the market price ofcomparable services. Heng Ye owns the intellectual property rights arising out of the performance of this agreement. In addition, Heng Cheng has grantedHeng Ye an irrevocable and exclusive option to purchase any or all of the assets and businesses of Heng Cheng at the lowest price permitted under PRC law.Unless otherwise agreed by the parties or terminated by Heng Ye unilaterally, this agreement will remain effective permanently. 84Table of Contents Agreements that Provide Us with the Option to Purchase the Equity Interest in Heng Cheng Exclusive Option Agreement. Pursuant to the exclusive option agreements, each shareholder of Heng Cheng has irrevocably granted Heng Ye anexclusive option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of theshareholder’s equity interests in Heng Cheng. The purchase price is equal to the higher of the amount of loan extended by Heng Ye to each shareholder ofHeng Cheng under the respective loan agreement or the minimum price required by PRC law. If Heng Ye exercises the option to purchase part of the equityinterest held by a shareholder, the purchase price shall be calculated proportionally. Heng Cheng and each of its shareholders have agreed to appoint anypersons designated by Heng Ye to act as Heng Cheng’s directors. Without Heng Ye’s prior written consent, Heng Cheng shall not amend its articles ofassociation, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on itsassets or other beneficial interests, provide any loans to any third parties, enter into any material contract with a value of more than RMB100,000(US$15,370) (except those contracts entered into in the ordinary course of business), merge with or acquire any other persons or make any investments, ordistribute dividends to the shareholders. The shareholders of Heng Cheng have agreed that, without Heng Ye’s prior written consent, they will not dispose oftheir equity interests in Heng Cheng or create or allow any encumbrance on their equity interests. Moreover, without Heng Ye’s prior written consent, nodividend will be distributed to Heng Cheng’s shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transferor liquidation, the shareholder must give such profit, interest, dividend and proceeds to Heng Ye. These agreements will remain effective until all equityinterests of Heng Cheng held by its shareholders have been transferred or assigned to Heng Ye or its designated person(s). Loan Agreements. Pursuant to the loan agreements between Heng Ye and the shareholders of Heng Cheng, Heng Ye made loans in an aggregateamount of RMB30.0 million (US$4.6 million) to the shareholders of Heng Cheng solely for the capitalization of Heng Cheng. Pursuant to the loanagreement, the shareholders can only repay the loans by the sale of all their equity interest in Heng Cheng to Heng Ye or its designated person(s) pursuant totheir respective exclusive option agreements. The shareholders must pay all of the proceeds from sale of such equity interests to Heng Ye. In the event thatshareholders sell their equity interests to Heng Ye or its designated person(s) with a price equivalent to or less than the amount of the principal, the loans willbe interest free. If the price is higher than the amount of the principal, the excess amount will be paid to Heng Ye as the loan interest. The loan must be repaidimmediately under certain circumstances, including, among others, if a foreign investor is permitted to hold majority or 100% equity interest in Heng Chengand Heng Ye elects to exercise its exclusive equity purchase option. The term of the loans is ten years and can be extended upon mutual written consent ofthe parties. Contractual Arrangements with Yi Ren Wealth Management The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Heng Yu Da, ourconsolidated variable interest entity, Yi Ren Wealth Management, and the shareholders of Yi Ren Wealth Management. Agreements that Provide Us with Effective Control over Yi Ren Wealth Management Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, each shareholder of Yi Ren Wealth Management has pledgedall of his or her equity interest in Yi Ren Wealth Management to guarantee the shareholder’s and Yi Ren Wealth Management’s performance of theirobligations under the exclusive business cooperation agreement, exclusive option agreement, loan agreement and power of attorney. If Yi Ren WealthManagement or any of its shareholders breaches their contractual obligations under these agreements, Heng Yu Da, as pledgee, will be entitled to certainrights regarding the pledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of Yi RenWealth Management in accordance with the law. Each of the shareholders of Yi Ren Wealth Management agrees that, during the term of the equity interestpledge agreements, he or she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without theprior written consent of Heng Yu Da. The equity interest pledge agreements remain effective until Yi Ren Wealth Management and its shareholders dischargeall their obligations under the contractual arrangements. We have registered the equity pledge with the relevant office of the Administration for Industry andCommerce in accordance with the PRC Property Rights Law. 85Table of Contents Powers of Attorney. Pursuant to the powers of attorney, each shareholder of Yi Ren Wealth Management has irrevocably appointed Heng Yu Da toact as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Yi Ren WealthManagement requiring shareholder approval, disposing of all or part of the shareholder’s equity interest in Yi Ren Wealth Management, and appointingdirectors and executive officers. Heng Yu Da is entitled to designate any person to act as such shareholder’s exclusive attorney-in-fact without notifying orthe approval of such shareholder, and if required by PRC law, Heng Yu Da shall designate a PRC citizen to exercise such right. Each power of attorney willremain in force for so long as the shareholder remains a shareholder of Yi Ren Wealth Management. Each shareholder has waived all the rights which havebeen authorized to Heng Yu Da and will not exercise such rights. Agreement that Allows us to Receive Economic Benefits from Yi Ren Wealth Management Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement between Heng Yu Da and Yi Ren WealthManagement, Heng Yu Da has the exclusive right to provide Yi Ren Wealth Management with technical support, consulting services and other services.Without Heng Yu Da’s prior written consent, Yi Ren Wealth Management agrees not to accept the same or any similar services provided by any third party.Heng Yu Da may designate other parties to provide services to Yi Ren Wealth Management. Yi Ren Wealth Management agrees to pay service fees on amonthly basis and at an amount determined by Heng Yu Da and Yi Ren Wealth Management after taking into account multiple factors, such as thecomplexity and difficulty of the services provided, the time consumed, the content and commercial value of services provided and the market price ofcomparable services. Heng Yu Da owns the intellectual property rights arising out of the performance of this agreement. In addition, Yi Ren WealthManagement has granted Heng Yu Da an irrevocable and exclusive option to purchase any or all of the assets and businesses of Yi Ren Wealth Managementat the lowest price permitted under PRC law. Unless otherwise agreed by the parties or terminated by Heng Yu Da unilaterally, this agreement will remaineffective permanently. Agreements that Provide Us with the Option to Purchase the Equity Interest in Yi Ren Wealth Management Exclusive Option Agreement. Pursuant to the exclusive option agreements, each shareholder of Yi Ren Wealth Management has irrevocably grantedHeng Yu Da an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, allor part of the shareholder’s equity interests in Yi Ren Wealth Management. The purchase price shall be the higher of the amount equal to the registeredcapital contributed by the respective shareholders of Yi Ren Wealth Management (or such other price then accepted by Heng Yu Da) or the minimum pricerequired by PRC law, which purchase pirce could be paid by way of offset of the outstanding debts owed by the shareholders of Yi Ren Wealth Managementto Heng Yu Da (including without limitation the outstanding amount of the loan owed by the shareholders of Yi Ren Wealth Management to Heng Yu Daand any interest thereon under the respective loan agreement). If Heng Yu Da exercises the option to purchase part of the equity interest held by a shareholderof Yi Ren Wealth Management, the purchase price shall be calculated proportionally. Yi Ren Wealth Management and each of its shareholders have agreedto appoint any persons designated by Heng Yu Da to act as Yi Ren Wealth Management’s directors. Without Heng Yu Da’s prior written consent, Yi RenWealth Management shall not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of, or create or allow anyencumbrance on its assets or beneficial interest with a value of more than RMB500,000 (US$76,849), provide any loans to any third parties, enter into anymaterial contract with a value of more than RMB500,000 (US$76,849) (except those contracts entered into in the ordinary course of business), merge with oracquire any other persons or make any investments, or distribute dividends to the shareholders. The shareholders of Yi Ren Wealth Management have agreedthat, without Heng Yu Da’s prior written consent, they will not dispose of their equity interests in Yi Ren Wealth Management or create or allow anyencumbrance on their equity interests. Moreover, without Heng Yu Da’s prior written consent, no dividend will be distributed to Yi Ren WealthManagement’s shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transfer or liquidation, the shareholdermust give such profit, interest, dividend and proceeds to Heng Yu Da. These agreements will remain effective until all equity interests of Yi Ren WealthManagement held by its shareholders have been transferred or assigned to Heng Yu Da or its designated person(s). 86Table of Contents Loan Agreements. Pursuant to the loan agreements between Heng Yu Da and the shareholders of Yi Ren Wealth Management, Heng Yu Da madeloans of RMB4.0 million (US$0.6 million), RMB3.0 million (US$0.5 million) and RMB3.0 million (US$0.5 million) to Ning Tang, Fanshun Kong and YanTian, respectively, who are the shareholders of Yi Ren Wealth Management, solely for the capitalization of Yi Ren Wealth Management. Pursuant to the loanagreement, the shareholders can only repay the loans by the sale of all their equity interest in Yi Ren Wealth Management to Heng Yu Da or its designatedperson(s) pursuant to their respective exclusive option agreements. The shareholders must pay all of the proceeds from sale of such equity interests to HengYu Da. In the event that shareholders sell their equity interests to Heng Yu Da or its designated person(s) with a price equivalent to or less than the amount ofthe principal, the loans will be interest free. If the price is higher than the amount of the principal, the excess amount will be paid to Heng Yu Da as the loaninterest. The loan must be repaid immediately under certain circumstances, including, among others, if a foreign investor is permitted to hold majority or100% equity interest in Yi Ren Wealth Management and Heng Yu Da elects to exercise its exclusive equity purchase option. The term of the loans is tenyears and can be extended upon mutual written consent of the parties. In the opinion of Han Kun Law Offices, our PRC counsel: · the ownership structures of Heng Ye, Heng Cheng, Heng Yu Da and Yi Ren Wealth Management will not result in any violation of PRC laws orregulations currently in effect; and · the contractual arrangements among Heng Ye, Heng Cheng and the shareholders of Heng Cheng and the contractual arrangements among Heng YuDa, Yi Ren Wealth Management and the shareholders of Yi Ren Wealth Management governed by PRC law are valid, binding and enforceable, anddo not and will not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Inparticular, in January 2015, the MOC published a discussion draft of the proposed Foreign Investment Law for public review and comments. Among otherthings, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determiningwhether a company is considered a foreign-invested enterprise, or an FIE. Under the draft Foreign Investment Law, variable interest entities would also bedeemed as FIEs, if they are ultimately “controlled” by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has nottaken a position on what actions will be taken with respect to the existing companies with the “variable interest entity” structure, whether or not thesecompanies are controlled by Chinese parties. It is uncertain when the draft may be signed into law, if at all, and whether any final version would havesubstantial changes from the draft. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRCcounsel. If the PRC government finds that the agreements that establish the structure for operating our online consumer finance marketplace business do notcomply with PRC government restrictions on foreign investment in value-added telecommunications services businesses, such as internet content provisionservices, we could be subject to severe penalties, including being prohibited from continuing operations. See “Item. 3 Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government deems that the contractual arrangements in relation to Heng Cheng and Yi Ren WealthManagement, our consolidated variable interest entities, do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or ifthese regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish ourinterests in those operations,” “Item. 3 Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be adversely affected by thecomplexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses orpermits applicable to our business may have a material adverse effect on our business and results of operations,” “Item. 3 Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legalprotections available to us,” and “Item. 3 Key Information—D. Risk Factors—Risks Related to Doing Business in China—Substantial uncertainties existwith respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of ourcurrent corporate structure, corporate governance and business operations.” 87Table of Contents D. Property, Plant and Equipment Our principal executive offices are located on leased premises comprising 4,166.9 square meters in Beijing, China. We have leased additional officespaces of 1,097.0 square meters in Beijing, China and 1,839.0 square meters in Chongqing, China. We lease our premises from unrelated third parties underoperating lease agreements. The lease for our principal executive offices will expire in January 2019. Our servers are primarily hosted at internet data centersowned by major domestic internet data center providers. The hosting services agreements typically have three year terms. We believe that we will be able toobtain adequate facilities, principally through leasing, to accommodate our future expansion plans. Item 4A. Unresolved Staff Comments None. Item 5. Operating and Financial Review and Prospects The following discussion of our financial condition and results of operations is based upon, and should be read in conjunction with, our auditedconsolidated financial statements and the related notes included in this annual report on Form 20-F. This report contains forward-looking statements. See“Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3. KeyInformation—D. Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantialrisks and uncertainties. A. Operating Results Overview We are a leading fintech company in China connecting investors and individual borrowers. We facilitated loans in an aggregate principal amount ofapproximately RMB73.9 billion (US$11.4 billion) and served 1,092,938 borrowers and 1,300,398 investors from our inception in March 2012 throughDecember 31, 2017. Our online platform automates key aspects of our operations and enables us to efficiently match borrowers with investors and facilitateand execute loan transactions. Our borrowers come from a variety of channels, including online sources, such as the internet and our mobile applications, aswell as offline sources, such as referrals from CreditEase’s nationwide service network. Currently, all of our investors come from online channels. We currently target prime borrowers, comprising credit card holders with stable credit performance and salary income, whose increasingconsumption credit needs are largely underserved by traditional financial institutions. We strategically focus on prime borrowers as we believe members ofthis group tend to be more creditworthy and more receptive to internet finance solutions. Our technology-driven platform provides a flexible, cost-efficientand time-saving solution to address their consumption needs. Our online marketplace provides investors with attractive returns with investment thresholds as low as RMB100 (US$15.4). Investors have theoption to individually select specific loans to invest in or to use our automated investing tool that identifies and selects loans on the basis of a targetedreturn. With the aim of limiting losses to investors from borrower defaults, we also offer investors a quality assurance program, which is funded by a portion ofthe transaction fees that we charge borrowers. In addition, we provide investors with access to a liquid secondary market, giving them an opportunity to exittheir investments before the underlying loans become due. We have started to enable independent third parties to promote and sell insurance products andmutual fund investment products to our investors on our platform so as to cater to various needs of our investors, including the growing needs of onlinewealth management services. We generate revenues primarily from fees charged for our services in matching individual borrowers with investors and for other services we provideover the life of a loan. We charge borrowers transaction fees for services provided through our platform in facilitating loan transactions, and charge investorsservice fees for using our automated investing tool or self-directed investing tool. We currently do not charge separate fees for the quality assurance programwe offer. 88Table of Contents Major Factors Affecting Our Results of Operations Major factors affecting our results of operations include the following: Economic Conditions in China The demand for online consumer finance marketplace services from borrowers and investors is dependent upon overall economic conditions inChina. General economic factors, including the interest rate environment and unemployment rates, may affect borrowers’ willingness to seek loans andinvestors’ ability and desire to invest in loans. For example, significant increases in interest rates could cause potential borrowers to defer obtaining loans asthey wait for interest rates to become stable or decrease. Additionally, a slowdown in the economy, such as from a rise in the unemployment rate and adecrease in real income, may affect individuals’ level of disposable income. This may negatively affect borrowers’ repayment capability, which in turn maydecrease their willingness to seek loans and potentially cause an increase in default rates. If actual or expected default rates increase generally in China or theconsumer finance market, investors may delay or reduce their investments in loan products in general, including on our marketplace. Ability to Acquire Borrowers and Investors Effectively Our ability to increase the loan volume facilitated through our marketplace largely depends on our ability to attract potential borrowers andinvestors through sales and marketing efforts. Our sales and marketing efforts include those related to borrower and investor acquisition and retention, andgeneral marketing. We intend to continue to dedicate significant resources to our sales and marketing efforts and constantly seek to improve the effectivenessof these efforts, in particular with regard to borrower and investor acquisition. We utilize online channels and offline channels, such as CreditEase’s nationwide service network, for borrower acquisition. We attract a fast growingnumber of our borrowers through various online channels. In addition, CreditEase’s nationwide service network refers borrowers who fall within our targetborrower group to our online marketplace. CreditEase charges us a fee for offline borrower acquisition services. For the three years starting 2016, the fee ratewill be 6% of the loans facilitated to borrowers referred by CreditEase. After that, the fee rate may be adjusted on a yearly basis based on commercialnegotiation, and after taking into consideration the costs to CreditEase for providing such services and with reference to market rates. Currently, referrals fromCreditEase’s nationwide service network account for a majority of our borrowers and loan volume. In 2015, 2016 and 2017, 49.5 %, 42.5% and 27.1% of ourborrowers were acquired through referrals from CreditEase, respectively, contributing 67.0%, 62.0% and 45.6% of the total amount of loans facilitatedthrough our marketplace, respectively. As we acquire more borrowers, the volume of loans facilitated over our marketplace is expected to continue toincrease. Furthermore, our fee collection schedules from borrowers differ depending on the channels in which the borrowers are acquired. Borrowers acquiredfrom online channels typically only pay a portion of the transaction fee upfront, with the remainder on a monthly basis over the term of the loan whiletransaction fees are collected upfront from borrowers acquired through offline channels. As a result, for each pricing grade, the overall fee for the lifetime of aloan charged to a borrower acquired from online channels is generally higher than that charged to a borrower acquired from offline channels. Given revenuesare currently recognized at the time when the transaction fees are collected, the combination of loans facilitated by channel during a specific period may havean impact on our revenues and results of operations. Currently, all of our investors come from online channels. Our investor acquisition efforts are primarily directed towards enhancing our brand name,building investor trust, and word-of-mouth marketing. Effectiveness of Risk Management Our ability to effectively segment borrowers into appropriate risk profiles affects our ability to offer attractive pricing to borrowers as well as ourability to offer investors attractive returns, both of which directly relate to the level of user confidence in our marketplace. Our proprietary risk managementsystem is built upon data accumulated through our operations, and is further supported by an extensive database accumulated by CreditEase over the pastnine years. Our risk management model utilizes big data capabilities to automatically evaluate a borrower’s credit characteristics. At the same time, we useautomated verification and fraud detection tools to ensure the quality of the loans facilitated on our marketplace, and supplement these technology driventools with manual processes when necessary. Furthermore, our ability to effectively evaluate a borrower’s risk profile and likelihood of default may directlyaffect our results of operations. For some of the loans facilitated through our marketplace, borrowers pay us a certain portion of the transaction fees upfrontupon the completion of our loan facilitation services and the rest on a monthly basis over the term of the applicable loan. If a borrower defaults, we may notbe able to collect the outstanding transaction fees from the borrower. 89Table of Contents Additionally, we started offering a quality assurance program from January 1, 2015 and revised our quality assurance program funding policy in thefourth quarter of 2015. The funding and operation of quality assurance program may have a material impact on our financial condition. Moreover, inJuly 2017, we changed our funding policy for our quality assurance program. Instead of setting aside the full amount to be contributed to the program in alump sum, we contribute to the program in installments with each instalment equal to 30% of transaction fee we receive from the borrower each time until thefull amount is contributed. A significant increase in our expected quality assurance program net payouts will have a negative impact on our net revenues andnet income. Our ability to assess the expected quality assurance program net payouts depends on our ability to manage and forecast the performance, or thecharge-off rates, of the loans facilitated through our marketplace. Since we commenced our online consumer finance business only in March 2012, we havelimited information regarding the charge-off rates on the loans generated through online channels. If the actual net payouts turn out to be higher thanexpected, we may choose to set aside additional cash in our quality assurance program or have to recognize additional expenses and liabilities on ourfinancial statements. This could result in constraints to our working capital, or have a material and adverse impact on our financial condition, results ofoperations and business operations. We cooperated with Zhejiang Chouzhou Commercial Bank to furnish borrower referral and facilitation services to the bank from August 2017 toDecember 2017. We provided guarantee deposits to the bank to protect it from potential losses due to loan delinquency and undertook to replenish suchdeposit from time to time so that the amount of guarantee deposits met a certain percentage of the related outstanding loan. We also undertake to repay thebank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon such full repayment to the bank, we will obtain the creditor’s rights inrespect of the relevant default amount. At the inception of each loan, we recognize a liability from quality assurance program and guarantee at the fair value of the quality assuranceprogram and guarantee, which is the present value of the expected quality assurance program and guarantee net payouts incorporating a service markupmargin. Our net revenues for a given period will be fees billed net of amount allocated to the liability from quality assurance program and guarantee andother items. When we make actual net payouts from the quality assurance program and guarantee in the event of default of loans, such net payouts arerecorded as a reduction of the liability from quality assurance program and guarantee. When our contingent liability exceeds our stand-ready liability, thedifference is recorded as additional liability from quality assurance program and guarantee and expensed in our financial statements. As a result, a significantincrease in our expected quality assurance program and guarantee net payouts may have a negative impact on our net income. Product Mix and Pricing Our ability to maintain profitability largely depends on our ability to continually optimize our product mix and to accurately price the loansfacilitated through our platform. As part of our efforts to introduce risk-based pricing, we have developed four different segments in our previous pricing grid,and starting May 1, 2017, we have adopted, an upgraded risk grid with five segments, which we refer to as Grade I, Grade II, Grade III, Grade IV and Grade V.The expected net charge off rate and actual observed results for each of these customer groups divide potential borrowers into distinctively different creditsegments. See “Item 4. Information on the Company—Business Overview—Risk Management—Proprietary Credit Scoring Model and Loan QualificationSystem.” In the transition period from May 1, 2017 to September 30, 2017, we used both the upgraded risk grid and the previous pricing grid for loansfacilitated on our platform. In response to market competition or further developments, we may spend more effort promoting certain loan products, managethe growth in volume of other loan products, introduce new products with new pricing grades or adjust the pricing of our existing products. In addition, as weoffer investor protection service in the form of a quality assurance program to cover potential defaults, the product mix also has a significant impact on ourliabilities from quality assurance program, given the different levels of default risk associated with the different pricing grades. Any material change in theproduct mix could have a significant impact on our profitability and net income margin. 90Table of Contents Ability to Innovate Our growth to date has depended on, and our future success will depend in part on, successfully meeting borrower and investor demand with newand innovative loan and investment products. We have made and intend to continue to make efforts to develop loan and investment products for borrowersand investors. We constantly evaluate the popularity of our existing product offerings and develop new products and services that cater to the ever evolvingneeds of our borrowers and investors. Over time we will continue to expand our offerings by introducing new products. From the borrower perspective, wewill continue to develop tailored credit products to meet the specific needs of our target borrowers. We plan to expand our ability to implement risk-basedpricing by developing more pricing grades to optimize loans based on individual credit criteria, enabling us to facilitate customized loans tailored toindividual borrowers’ specific credit profiles. See “—C. Research and Development.” Failure to continue to successfully develop and offer innovativeproducts and for such products to gain broad customer acceptance could adversely affect our operating results and we may not recoup the costs of launchingand marketing new products. Ability to Compete Effectively Our business and results of operations depend on our ability to compete effectively in the markets in which we operate. The online consumer financemarketplace industry in China is intensely competitive, and we expect that competition to persist and intensify in the future. In addition to competing withother consumer finance marketplaces, we also compete with other types of financial products and companies that attract borrowers, investors or both. Withrespect to borrowers, we primarily compete with traditional financial institutions, such as consumer finance business units in commercial banks, credit cardissuers and other consumer finance companies. With respect to investors, we primarily compete with other investment products and asset classes, such asequities, bonds, investment trust products, bank savings accounts, real estate and alternative asset classes. If we are unable to compete effectively, the demandfor our marketplace could stagnate or substantially decline, we could experience reduced revenues or our marketplace could fail to maintain or achieve morewidespread market acceptance, any of which could harm our business and results of operations. Regulatory Environment in China The regulatory environment for the online lending information intermediary service industry in China is developing and evolving, creating bothchallenges and opportunities that could affect our financial performance. Due to the relatively short history of the online lending information intermediaryservice industry in China, although PRC government has issued certain guidelines, regulations and rules to regulate and support the development of, theonline lending information intermediary service industry in China, the PRC government has yet to establish a comprehensive regulatory frameworkgoverning our industry. We will continue to make efforts to ensure that we are compliant with the existing laws, regulations and governmental policiesrelating to our industry and to comply with new laws and regulations or changes under existing laws and regulations that may arise in the future. While newlaws and regulations or changes to existing laws and regulations could make loans more difficult to be accepted by investors or borrowers on terms favorableto us, or at all, these events could also provide new product and market opportunities. Loan Performance Data Delinquency Rates We define the delinquency rates as the balance of principal and interest for loans unpaid by borrowers that were 15 to 29, 30 to 59, 60 to 89, 90 to179, 180 to 359, and 360 and over 360 calendar days past due as of the end of the period as a percentage of the total unpaid balance of principal and interestfor the relevant group of loans. The following tables provide our delinquency rates for all loans and by channel as of December 31, 2015, 2016 and 2017: 91Table of Contents Delinquent for 15-29 days 30-59 days 60-89 days 90-179 days 180-359days 360 daysand above All LoansDecember 31, 20150.4%0.5%0.4%0.9%1.1%0.4%December 31, 20160.4%0.7%0.6%1.3%1.7%1.5%December 31, 20170.8%0.9%0.7%1.5%1.9%2.9% Online ChannelsDecember 31, 20150.6%0.8%0.6%1.4%1.9%0.6%December 31, 20160.6%1.0%0.8%1.6%2.1%2.1%December 31, 20171.2%1.2%0.9%1.8%2.0%2.7% Offline ChannelsDecember 31, 20150.3%0.4%0.3%0.7%0.8%0.3%December 31, 20160.4%0.6%0.4%1.1%1.4%1.2%December 31, 20170.5%0.7%0.5%1.2%1.8%3.0% (1) Loans that are delinquent for more than 89 days are counted towards the M3+ Net Charge-off Rates. See “—M3+ Net Charge-off Rates.” We also track the time it takes to recover the net payouts made from the quality assurance program. We currently estimate based on the historicalrecovery data of the loans facilitated on our platform that the average recovery time for the default loans is about nine months. This estimate of recovery timeis calculated based on the amount weighted average of the recovery time of defaulted loans from certain vintages, which we consider to have sufficientcollection performance history (currently defined as two and half years after the loan has defaulted). M3+ Net Charge-off Rates We currently define M3+ Net Charge-off Rate, with respect to loans facilitated during a specified time period, which we refer to as a vintage, as thedifference between (i) the total balance of outstanding principal of loans that become over three months delinquent during a specified period and (ii) the totalamount of recovered past due payments of principal and accrued interest in the same period with respect to all loans in the same vintage that have everbecome over three months delinquent, divided by (iii) the total initial principal of the loans facilitated in such vintage. As this definition is different from theone used in the past, we have applied the change retroactively to all the historical periods. The following chart and table display the historical lifetimecumulative M3+ Net Charge-off Rates through December 31, 2017, by vintage, for loan products facilitated through our online marketplace for each of themonths shown for all loans: 92(1)(1)(1)Table of Contents Month on Book Vintage4 7 10 13 16 19 22 25 28 31 34 2013Q11.9%3.2%3.1%2.3%2.0%0.9%0.5%0.5%0.4%0.4%0.4%2013Q21.8%3.6%4.5%5.9%6.4%7.4%6.1%7.0%7.5%7.5%7.8%2013Q30.5%2.8%4.2%5.5%6.1%6.5%7.1%7.1%7.0%6.9%6.9%2013Q40.7%3.4%4.8%6.2%6.8%7.5%8.3%8.3%8.2%8.5%8.3%2014Q11.0%4.2%6.1%7.0%8.4%9.3%9.8%9.7%9.9%9.8%9.5%2014Q20.5%1.8%2.6%3.8%4.3%4.6%4.6%4.7%4.7%4.7%4.8%2014Q30.2%0.8%2.0%2.8%3.3%3.7%4.0%4.2%4.2%4.1%4.1%2014Q40.3%1.5%2.7%3.5%4.1%4.6%5.1%5.2%5.2%5.3%5.3%2015Q10.6%2.7%4.4%5.8%7.1%8.2%9.1%9.6%9.9%10.2%10.3%2015Q20.5%2.1%3.7%5.3%6.6%7.7%8.6%9.2%9.6%9.9%—2015Q30.2%1.6%3.4%4.9%6.4%7.4%8.1%8.6%9.0%——2015Q40.2%1.6%3.2%4.9%6.2%7.2%8.0%8.7%———2016Q10.2%1.3%2.9%4.3%5.4%6.4%7.2%————2016Q20.2%1.7%3.4%4.9%6.1%7.1%—————2016Q30.1%1.5%3.2%4.6%5.9%——————2016Q40.2%1.5%3.0%4.6%———————2017Q10.2%1.4%3.2%————————2017Q20.3%1.9%—————————2017Q30.4%——————————2017Q4——————————— The following charts display the historical lifetime cumulative M3+ Net Charge-off Rates through December 31, 2017, by vintage, for loan productsfacilitated through our online marketplace for each of the months shown for loans generated from our online and offline channels, respectively: 93ththththththndththstthTable of Contents We developed our segments in our previous pricing grid, which we refer to as Grade A, Grade B, Grade C and Grade D loans. The introduction ofthese pricing grades was part of our continued focus on prime borrowers and enables us to further segment this group of borrowers and pricing the risksassociated with them more effectively. In the second quarter of 2017, we launched our new credit scoring system, the Yiren score, which can be used to moreaccurately characterize borrower’s credit profile. We have also decided to adopt, starting May 1, 2017, an upgraded risk grid with five segments, which werefer to as Grade I, Grade II, Grade III, Grade IV and Grade V. The expected M3+ Charge-off Rates and actual observed results for each of these customergroups divide potential borrowers into distinctively different credit segments. See “Item 4. Information on the Company—Business Overview—RiskManagement—Proprietary Credit Scoring Model and Loan Qualification System.” In the transition period from May 1, 2017 to September 30, 2017, we usedboth the upgraded risk grid and the previous pricing grid for loans facilitated on our platform. The following table provides the amount of loans generated through our platform during each of the periods presented and the correspondingaccumulated M3+ Net Charge-off and M3+ Net Charge-off Rate data as of December 31, 2017 for the loans facilitated during each of the periods presented bypricing grade. Period Risk grade Amount of loans facilitatedduring the period Accumulated M3+Net Charge-off as of December 31, 2017 Net Charge-off Rate as of December 31, 2017 (in RMB thousands) % (in RMB thousands) 2015I146,4901.5%3,8652.6%II1,614,35416.9%83,8805.2%III2,521,70526.4%195,3787.7%IV2,506,10726.2%238,7429.5%V2,768,95729.0%366,27913.2%Total9,557,613100.0%888,1449.3%2016I497,2202.4%7,8241.6%II3,137,88915.4%81,6072.6%III3,763,08118.5%141,2083.8%IV5,183,23325.4%269,6575.2%V7,799,18038.3%709,4729.1%Total20,380,603100.0%1,209,7685.9%2017I2,701,1626.5%6,5220.2%II9,079,64721.9%43,5010.5%III10,611,45125.6%83,4200.8%IV10,263,13524.8%106,1681.0%V8,750,66321.1%202,8122.3%Total41,406,058100.0%442,4231.1% 94Table of Contents (1) We define M3+ Net Charge-off, with respect to loans facilitated during a specified time period, which we refer to as a vintage, as the difference between(i) the total balance of outstanding principal of loans that become over three months delinquent during a specified period and (ii) the total amount ofrecovered past due payments of principal and accrued interest in the same period with respect to all loans in the same vintage that have ever become overthree months delinquent. (2) We define M3+ Net Charge-off Rate, with respect to loans facilitated during a specified time period, which we refer to as a vintage, as the M3+ NetCharge-off divided by the total initial principal of the loans facilitated in such vintage. The M3+ Net Charge-off Rates presented do not represent our liabilities for expected quality assurance program net payouts, as (i) we only pay offthe outstanding principal and accrued interest at the time of default, rather than the outstanding principal over the life of the loan that are accounted for in theM3+ Net Charge-off Rates, and (ii) our collection efforts continue and may succeed in collecting some past due amount after the original term of the defaultloan has expired, and thus would reduce the quality assurance program net payouts, which factors are not reflected in the M3+ Net Charge-off Rates. See“Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies, Judgments and Estimates—Fair Value ofQuality Assurance Program.” Our business and financial performance depend on our ability to manage and forecast net charge-off rates. However, given our limited operatinghistory, we have limited information on historical charge-off rates and limited experience in operating the quality assurance program, and as a result, we maynot be able to conduct an accurate charge-off forecast for our target borrower group. In addition, due to the uncertainty of industry regulations, we expectborrower credit performance may volatile in foreseeable future, which may lead to higher default rates and adverse impacts on our reputation, business, resultsof operations and financial positions. See “Item 4. Information on the Company—B. Business Overview—Risk Management.” Selected Statements of Operations Items Net Revenues Our revenues result from fees charged for providing services, including transaction fees, service fees and others. We charge borrowers transaction feesfor services provided through our platform in facilitating loan transactions. We also charge investors a monthly management fee. In addition, we charge otherfees contingent on future events, such as penalty fees for late payment, one-time fees for transferring loans over our secondary loan market, and other servicefees. Our revenues are presented net of VAT and related surcharges. Our net revenues are fees billed net of stand-ready liabilities associated with thequality assurance program, deferred revenues associated with post-origination services, and cash incentives, and are recognized as revenues from loanfacilitation services, revenues from post-origination services and other revenues. The following table sets forth the reconciliation of our net revenues with fees billed for the periods presented: 95Table of Contents For the Year Ended December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Fees billed:Transaction fees billed to borrowers2,179,6114,830,5668,361,0261,285,066Service fees billed to investors97,816399,3111,011,724155,499Others8,48921,639137,16321,082VAT(131,817)(340,295)(644,685)(99,086) Total fees billed2,154,0994,911,2218,865,2281,362,561Stand-ready liabilities associated with quality assuranceprogram and guarantee(682,254)(1,598,238)(3,156,349)(485,122)Deferred revenue associated with post-origination services(117,484)(71,322)(78,491)(12,064)Cash incentives(80,952)(98,173)(273,397)(42,020)VAT40,23094,503186,35928,643 Net revenues1,313,6393,237,9915,543,350851,998 (1) In 2014, we recognized 100% of the transaction fees as revenue, as all the transaction fees in relation to loans facilitated before December 31, 2014 wereguaranteed by Tian Da Xin An. Starting the first quarter of 2015, revenue is recognized upon completion of the services and collection of cash. See “—Critical Accounting Policies, Judgments and Estimates—Revenue Recognition—Revenue from loan facilitation services.” Accordingly, in 2015, 2016and 2017, fees billed refer to the fees billed and collected. (2) Represent amounts prior to VAT. The following table sets forth the breakdown of our net revenues, both in absolute amount and as a percentage of our total net revenues, for theperiods presented: For the Year Ended December 31, 2015 2016 2017 RMB % RMB % RMB US$ % (in thousands, except for percentages)Net revenues:Loan facilitationservices1,278,53997.33,133,42396.85,226,691803,32894.3Post-originationservices27,0862.184,1542.6187,21628,7753.4Others8,0140.620,4140.6129,44319,8952.3Total net revenues1,313,639100.03,237,991100.05,543,350851,998100.0 We consider the loan facilitation services, quality assurance program and post-origination services as one multiple deliverable revenue arrangementand the investors are regarded as the sole customers. All non-contingent fees, including mainly the transaction fees charged to borrowers and the service feescharged to investors, are allocated among these three elements. The total non-contingent fees are allocated first to the stand-ready liabilities associated withquality assurance program as discussed under “—Critical Accounting Policies, Judgments and Estimates—Liabilities from Quality Assurance Program,” andthen allocated between loan facilitation services and post-origination services based on their relative selling prices. See “—Critical Accounting Policies,Judgments and Estimates—Revenue Recognition.” Transaction fees. Transaction fees are charged for the work we perform through our platform in connecting borrowers with investors and forfacilitating loan transactions. The amount of the transaction fee charged is based upon the pricing and amount of the underlying loan. We developed four segments in our previous pricing grid. We have facilitated loans falling under Grade A since our inception. As part of our effortsto introduce risk-based pricing, we raised the minimum borrower qualification standards for Grade A loans, and started to facilitate Grade B and Grade Dloans in the fourth quarter of 2014 and Grade C loans in the first quarter of 2015. In the second quarter of 2017, we launched our new credit scoring system,the Yiren score, which can be used to more accurately characterize borrower’s credit profile. We have also decided to adopt, starting May 1, 2017, anupgraded risk grid with five segments, which we refer to as Grade I, Grade II, Grade III, Grade IV and Grade V. The expected net charge off rate and actualobserved results for each of these customer groups divide potential borrowers into distinctively different credit segments. See “Item 4. Information on theCompany—Business Overview—Risk Management—Proprietary Credit Scoring Model and Loan Qualification System.” In the transition period fromMay 1, 2017 to September 30, 2017, we used both the upgraded risk grid and the previous pricing grid for loans facilitated on our platform. 96(1)(2)(2)(2)Table of Contents The transaction fee rate that we charge borrowers varies depending on the pricing grade of the loan facilitated. For loans within the same pricinggrade, the transaction fee rate also varies depending on the term of the loan and repayment schedule. The rate for transaction fees we charge borrowers is acomponent of the total cost of borrowing for borrowers, with the other component being the fixed interest rate to investors for each pricing grade. See “Item 4.Information on the Company—B. Business Overview—Risk Management—Proprietary Credit Scoring Model and Loan Qualification System.” The following table presents the risk grades with the corresponding Yiren scores, the expected M3+ Net Charge-off Rate, the current annualizedinterest rate and the average transaction fee rate: RiskGrade Yiren Scores ExpectedM3+ Net Charge-off Rate Annualized Interest Rate Average TransactionFee Rate I790+<3.0%10.0-12.0%13.6%II750-<7903.0% - 5.0%10.0-12.0%17.4%III720-<7505.0% - 7.0%10.0-12.0%19.7%IV690-<7207.0% - 9.0%10.0-12.0%24.0%V640-<6909.0% - 13.0%10.0-12.0%27.0% (1) The annualized interest rate that borrowers pay to investors varies from 10.0% to 12.0%, depending on the term of the loan. (2) The transaction fee rate is calculated as the total transaction fee that we charge borrowers for the entire life of the loan, divided by the total amount ofprincipal. The average transaction fee rate presented in the table above is the simple average of the transaction fee rates for loans falling under the samerisk grade, but with different tenures and repayment schedules. In 2015, 2016 and 2017, our weighted average transaction fee rate was 22.8%, 23.6% and 20.2%, respectively. The increase in the weighted averagetransaction fee rate from 2015 to 2016 was primarily due to the change of product mix on our platform as we began offering new loan products with differentpricing grades since the fourth quarter of 2014. The decrease in the weighted average transaction fee rate from 2016 to 2017 was primarily due to shorterweighted average tenor of loans facilitated on our platform in 2017. In terms of cash collection, borrowers pay the transaction fees primarily on a monthly basis over the term of the loan for loans originated in 2013 andthrough the nine months ended September 30, 2014. In the fourth quarter of 2014, we adopted a new fee collection schedule whereby we either collect theentire amount of the transaction fee from borrowers upfront upon completion of our loan origination services, or collect a portion of the transaction feeupfront and the rest on a monthly basis over the term of the loan. We made this change to improve our cash flow position prior to our carve-out fromCreditEase in anticipation of the fact that we would no longer be able to rely on CreditEase for our corporate cash management and to ensure that we wouldreceive sufficient cash upfront to set aside funds for our new quality assurance program. The fee collection schedule is impacted by the channels throughwhich borrowers are acquired. Under this system, we collect full amount of the transaction fees upfront from borrowers acquired through referrals byCreditEase's nationwide service network in most cases, which is similar to CreditEase's current business practice and also help to provide the cash flowsrequired for our business operations. Borrowers acquired from online channels typically pay only a portion of the transaction fee upfront and the remainderon a monthly basis over the term of the loan. In July 2017, we changed our funding policy for our quality assurance program. Instead of setting aside the fullamount to be contributed to the program in a lump sum, we contribute to the program in installments with each instalment equal to 30% of transaction fee wereceive from the borrower each time until the full amount is contributed. 97 (1) (2)Table of Contents The amount of transaction fees billed is affected by the total amount of loans facilitated during the period. The following table presents the totalamount of loans facilitated and the breakdown of loans facilitated into those generated from online channels and those generated from offline channels,during the periods indicated: For the Year Ended December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Amount of loans facilitatedLoans generated from online channels3,152,2727,780,55522,543,2983,464,842Loans generated from offline channels6,405,34112,705,57318,862,7602,899,153Total amount of loans facilitated9,557,61320,486,12841,406,0586,363,995 (1) Starting from the third quarter of 2017, we changed our calculation method for the amount of loans facilitated. In October 2016, we launched a newprogram named “Top-up Program” whereby we facilitate a new loan for a qualified borrower to replace his or her existing loan on our platform. Previously,only the top-up amount, i.e. the portion of the new loan exceeding the outstanding balance of the existing loan, was included in the amount of loansfacilitated presented. To follow the industry’s general practice, under the new calculation method, the total contractual amount of the new loan will beincluded in the amount of loans facilitated. We believe this change of calculation method better aligns our operational metrics with the industry and betterreflects the loan performance. Prior period numbers have been restated to reflect the change. We expect that transaction fees will continue to increase in the foreseeable future, as our business further grows and we develop and introduce newcredit products and services on our marketplace. Service fees. Service fees mainly include the monthly management fee charged to investors for using the automated investing tool and the self-directed investing tool. The monthly management fee for using the automated investing tool is the difference between the interest rates on the underlyingloans which range from 10.0% and 12.5%, and the targeted returns offered to investors which up to 10.5%. The monthly management fee for using the self-directed investing tool is equal to 10% of the interest that investors receive, which ranges from 10.0% to 12.5%. The service fees charged to investors for theautomated investing tool or self-directed investing tool are collected on a monthly basis through the investment period. In 2017, more than 99% of investorsmade investments on our marketplace using the automated investing tool. We expect that service fees will increase in the foreseeable future, as our businessfurther grows and we develop and introduce new services and investing tools to investors. Others. We also charge other fees contingent on future events, such as penalty fee for loan prepayment or late payment, one-time fees for transferringloans over our secondary loan market and other service fees. Penalty fee for late payment is charged to borrowers as a certain percentage of the past dueamount and penalty fee for prepayment is charged to borrowers as a certain percentage of interest over the prepaid principal loan amount. Operating Costs and Expenses Our operating costs and expenses consist of sales and marketing expenses, origination and servicing expenses and general and administrativeexpenses. The following table sets forth our operating costs and expenses, both in absolute amount and as a percentage of our total operating costs andexpenses, for the periods indicated: For the Year Ended December 31, 2015 2016 2017 RMB % RMB % RMB US$ % (in thousands, except for percentages)Operating costs andexpenses:Sales and marketing679,77175.21,571,03873.02,921,236448,98675.6Origination andservicing86,3609.6180,0768.4417,88264,22710.8General andadministrative137,11415.2402,11118.6526,84580,97613.6Total operating costsand expenses903,245100.02,153,225100.03,865,963594,189100.0 98(1)Table of Contents Sales and marketing expenses. Sales and marketing expenses consist primarily of variable marketing expenses, including those related to borrowerand investor acquisition and retention and general brand and awareness building. Our user acquisition expenses include charges by third-party onlinechannels for online marketing services such as search engine marketing and search engine optimization, and referral fees charged by CreditEase relating tooffline borrower and investor acquisition through CreditEase. Our user acquisition expenses represent the primary costs that are associated with our loanfacilitation services. The following table presents the breakdown of sales and marketing expenses into those associated with user acquisition through online and offlinechannels and general brand promotion, both in absolute amount and as a percentage of total sales and marketing expenses, during the periods indicated: For the Year Ended December 31, 2015 2016 2017 RMB % RMB % RMB US$ % (in thousands, except for percentages)Sale and marketingexpenses:User acquisitionthrough onlinechannels312,18145.9818,07752.11,908,030293,25965.3User acquisitionthrough offlinechannels353,85352.1722,97846.0991,976152,46434.0General brandpromotion13,7372.029,9831.921,2303,2630.7Total sales andmarketing expenses679,771100.01,571,038100.02,921,236448,986100.0 (1) Sales and marketing expenses associated with user acquisition through offline channels consist solely of referral fees paid to CreditEase for borrower andinvestor referrals. We expect that our overall sales and marketing expenses will continue to increase, and our brand promotion expenses will also increase, in absoluteamount in the foreseeable future as our business further grows. In particular, pursuant to our contractual agreement with CreditEase, the fee rate for the offlineborrower acquisition services which CreditEase provides to us has increased from 5% to 6% of the loans facilitated to borrowers referred by CreditEase for thethree years starting 2016. After that, the fee rate may be adjusted on a yearly basis based on commercial negotiation, and after taking into consideration thecosts to CreditEase for providing such services and with reference to market rates. Origination and servicing expenses. Origination and servicing expenses consist primarily of variable expenses and vendor costs, including costsrelated to credit assessment, customer and system support, payment processing services and collection, associated with facilitating and servicing loans. Weexpect our origination and servicing expenses to increase in absolute amount in the foreseeable future as our business grows. General and administrative expenses. General and administrative expenses consist primarily of salaries and benefits related to technology,accounting and finance, business development, legal, human resources and other personnel. We expect our general and administrative expenses to continueto increase in absolute amount in the foreseeable future, as our business further grows and as we incur additional expenses relating to improving our internalcontrols, complying with Section 404 of the Sarbanes-Oxley Act and maintaining investor relations after we have become a public company. Quality Assurance Program and Guarantee Prior to August 2013, we offered investors an investor protection service in the form of a quality assurance program, whereby we set aside a portionof the service fees we received in the quality assurance program. In the event that a loan defaults for more than fifteen days, we will use cash from the qualityassurance program to pay the loan principal and accrued interest to the investor. According to our agreements with investors, our contractual obligation forrepayment of defaulted loans is limited to the amount of cash we set aside in the quality assurance program. For this service, we charged investors a monthlyservice fee at a rate of 10% of the monthly interest on loans. 99(1)Table of Contents From August 2013 to December 2014, we replaced the service discussed above with a guarantee arrangement to provide investors with the option ofpurchasing the assurance that their principal and interest would be repaid in the event that the loans in which they invested defaulted. Under thisarrangement, Tian Da Xin An, a guarantee company, was responsible for repaying the principal and accrued interest of the defaulted loan. For this guaranteeservice Tian Da Xin An charged investors at a rate of 10% of the monthly interest on their loans as service fee. Under the relevant loan facilitationagreements, we have no obligation to repay any defaulted loans. Instead, we are authorized by investors to require Tian Da Xin An to perform its guaranteeobligation in case of borrower defaults, and Tian Da Xin An as the guarantor of the corresponding borrower shall repay the outstanding principal and intereststo the investors, as well as the transaction fees due to our company. In practice, we reimbursed the loan principal and accrued interest to the investor in theevent of default, and then collected that amount from the guarantee company. We collected the guarantee service fee charged to investors by the guaranteecompany on its behalf, and then remitted this amount to the guarantee company. We ceased this guarantee arrangement in December 2014. The outstandingloan balance guaranteed under the previous guarantee arrangement will continue to be covered under the guarantee arrangement until such loans reachmaturity. Starting in January 2015, we began offering our current quality assurance program. For a very brief period during the first quarter of 2015, wecharged investors a quality assurance program management fee at a rate of 10% of the monthly interest rate paid by borrowers for providing this qualityassurance program on a trial basis, and recognized the fee as revenue. Currently, we integrate such fee with other service fees we charge investors and nolonger charge investors a separate fee for providing the quality assurance program. We currently do not provide investors with the ability to opt out of ourquality assurance program and we have made participation in the quality assurance program compulsory for all new investors utilizing our platform. As ofDecember 31, 2017, the remaining principal of performing loans covered by the quality assurance program was RMB39,717.0 million (US$6,104.4 million).See “Item 4. Information on the Company—B. Business Overview—Risk Management—Investor Protection.” We cooperated with Zhejiang Chouzhou Commercial Bank to furnish borrower referral and facilitation services to the bank from August 2017 toDecember 2017. We provided guarantee deposits to the bank to protect it from potential losses due to loan delinquency and undertook to replenish suchdeposit from time to time so that the amount of guarantee deposits met a certain percentage of the related outstanding loan. In addition, We undertake torepay the bank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon such full repayment to the bank, we will obtain the creditor’srights in respect of the relevant default amount. At the inception of each loan, we recognize a liability from quality assurance program and guarantee at the fair value of the quality assuranceprogram and guarantee, which is the present value of the expected quality assurance program and guarantee net payouts incorporating a service markupmargin. Our net revenues for a given period will be fees billed net of amount allocated to the liability from quality assurance program and guarantee andother items. When we make actual net payouts from the quality assurance program and guarantee in the event of default of loans, such net payouts arerecorded as a reduction of the liability from quality assurance program and guarantee. When our contingent liability exceeds our stand-ready liability, thedifference is recorded as additional liability from quality assurance program and guarantee and expensed in our financial statements. As a result, a significantincrease in our expected quality assurance program and guarantee net payouts may have a negative impact on our net income. Taxation Cayman Islands We are incorporated in the Cayman Islands. The Cayman Islands currently has no income, corporation or capital gains tax and no estate duty,inheritance tax or gift tax. The Cayman Islands does not impose a withholding tax on payments of dividends to shareholders. 100Table of Contents Hong Kong Our subsidiary incorporated in Hong Kong is subject to Hong Kong profit tax at a rate of 16.5%. No Hong Kong profit tax has been levied as we didnot have assessable profit that was earned in or derived from the Hong Kong subsidiary during the periods presented. Hong Kong does not impose awithholding tax on dividends. China Generally, our subsidiaries and consolidated variable interest entities, Heng Cheng and Yi Ren Wealth Management, in China are subject toenterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based on the entity’s global income asdetermined under PRC tax laws and accounting standards. We are subject to VAT at a rate of 6% on the services we provide to borrowers and investors, less any deductible VAT we have already paid or borne.We are also subject to surcharges on VAT payments in accordance with PRC law. During the periods presented, we were not subject to business tax on theservices we provide. Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding company in Hong Kong will be subject to awithholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong KongSpecial Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital andreceives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement, then the dividendspaid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5% by filing necessary forms and supporting documents whenperforming tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. 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 andfinancing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effecton our ability to conduct our business.” 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 PRCEnterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. RiskFactors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification couldresult in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.” Results of Operations The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amount and as apercentage of our net revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere inthis annual report. We only began our business operations in March 2012, and 2013 was the first year in which we generated revenues for the entire fiscalyear. Due to our limited operating history and because we only completed our carve-out from CreditEase in the first quarter of 2015, period-to-periodcomparisons below may not be meaningful and are not indicative of our future trends. See “Item 3. Key Information—D. Risk Factors—Risks Related to OurBusiness—We have a limited operating history in a new and evolving market, which makes it difficult to evaluate our future prospects.” 101Table of Contents For the Year Ended December 31, 2015 2016 2017 RMB % RMB % RMB US$ % (in thousands, except for percentages)Net revenues(1)1,313,639100.03,237,991100.05,543,350851,998100.0Operating costs andexpenses:Sales and marketing679,77151.71,571,03848.52,921,236448,98652.7Origination andservicing86,3606.6180,0765.6417,88264,2277.5General andadministrative137,11410.4402,11112.4526,84580,9769.5Total operating costsand expenses(903,245)(68.7)(2,153,225)(66.5)(3,865,963)(594,189)(69.7)Interest income4,7990.436,8431.1114,85117,6522.1Fair value adjustmentsrelated toConsolidatedABFE(2)(11,333)(0.9)(19,735)(0.6)(40,124)(6,167)(0.7)Non-operating income,net——575—876135—(Loss)/income beforeprovision for incometaxes403,86030.81,102,44934.01,752,990269,42931.7Income tax expense(128,521)(9.8)13,9490.4(381,207)(58,590)(6.9)Net (loss)/income275,33921.01,116,39834.41,371,783210,83924.8 (1) Net revenues are broken down as follows: For the Year Ended December 31, 2015 2016 2017 RMB % RMB % RMB US$ % (in thousands, except for percentages)Loan facilitationservices1,278,53997.33,133,42396.85,226,691803,32894.3Post-originationservices27,0862.184,1542.6187,21628,7753.4Others8,0140.620,4140.6129,44319,8952.3 (1) We consolidated Trust No. 1, Yiren Elite Loan Trust Beneficial Right Asset Backed Special Plan, CreditEase Wealth Consumer Credit Investment Fund,Trust No. 2, Zhong Yi Trust, Trust No. 3 and Bohai Trust No. 1 as a whole, which we refer to in this annual report collectively as “Consolidated AssetsBacked Financing Entities” or the “Consolidated ABFE.” For more information about the Consolidated ABFE, please see “—Critical AccountingPolicies, Judgments and Estimates—Basis of Presentation, Combination and Consolidation.” Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Net revenues. Our net revenues increased from RMB3,238.0 million in 2016 to RMB5,543.4 million (US$852.0 million) in 2017, primarily due tothe substantial increase in the volume of loans facilitated through our marketplace, which increased from approximately RMB20,486.1 million in 2016 toRMB41,406.1 million (US$6,364.0 million) in 2017. The increase in the volume of loans facilitated through our marketplace was driven by a substantialincrease in the number of borrowers from 321,019 in 2016 to 649,154 in 2017. The increase of net revenues was also, to a less extent, attributable to theincreased service fees billed to investors and increased monthly fees billed to borrowers as our remaining loan balance continued to expand . Operating costs and expenses. Our total operating costs and expenses increased from RMB2,153.2 million in 2016 to RMB3,866.0 million(US$594.2 million) in 2017, primarily attributable to the increase in sales and marketing expenses. · Sales and marketing expenses. Our sales and marketing expenses increased from RMB1,571.0 in 2016 to RMB2,921.2 million (US$449.0 million)in 2017. The increase was primarily due to the increase in expenses associated with our continued user acquisition efforts. The increases in sales andmarketing expenses were primarily due to an increase in expenses associated with our continued user acquisition efforts. Our sales and marketingexpenses as a percentage of our total revenues increased slightly from 48.5% to 52.7% during the same period. 102Table of Contents · Origination and servicing expenses. Our origination and servicing expenses increased from RMB180.1 million in 2016 to RMB417.9 million(US$64.2 million) in 2017, in line with the substantial increase in the volume of loans facilitated through our marketplace. Our origination andservicing expenses as a percentage of our total revenues increased from 5.6% to 7.5% during the same period, primarily attributable to our enhancedcollection efforts. · General and administrative expenses. Our general and administrative expenses increased by 31.0% from RMB402.1 million in 2016 to RMB526.8million (US$81.0 million) in 2017, primarily due to the increase in salaries and benefits paid to our general and administrative personnel.Ourgeneral and administrative expenses as a percentage of our total revenues decreased from 12.4% to 9.5% during the same period, primarily due toour improved operational efficiency and leverage. Interest income. Our interest income increased from RMB36.8 million in 2016 to RMB114.9 million (US$17.7 million) in 2017, primarilyattributable to the increase in the purchase of available-for-sale investments and held-to-maturity investments. Fair value adjustments related to Consolidated ABFE. Our fair value adjustments increased from RMB19.7 million in 2016 to RMB40.1 million(US$6.2 million) in 2017, primarily due to the establishment of new trusts. Income tax expense. Our income tax expense was RMB381.2 million (US$58.6 million) in 2017, as compared to a tax credit RMB13.9 million in2016, which was mainly because Heng Ye enjoyed an exemption of enterprise income tax for 2016 but was subject to enterprise income tax at the rate of12.5% in 2017. Net income/(loss). As a result of the foregoing, our net income increased from RMB1,116.4 million in 2016 to RMB1,371.8 million (US$210.8million) in 2017. Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 Net revenues. Our net revenues increased from RMB1,313.6 million in 2015 to RMB3,238.0 million in 2016, primarily due to the substantialincrease in the volume of loans facilitated through our marketplace, which increased from approximately RMB9,557.6 million in 2015 to RMB20,486.1million in 2016. The increase in the volume of loans facilitated through our marketplace was driven by a substantial increase in the number of borrowersfrom 146,390 in 2015 to 321,019 in 2016. The increase of net revenues was also, to a less extent, attributable to (i) the change of product mix on ourplatform, resulting in the increased weighted average transaction fee rate in 2016, and (ii) the significant year-over-year increase in net revenue of post-origination services as a result of the increase of remaining principal of performing loans from approximately RMB8,969.9 million in 2015 to RMB20,780.6million in 2016. Operating costs and expenses. Our total operating costs and expenses increased from RMB903.2 million in 2015 to RMB2,153.2 million in 2016,primarily attributable to the increase in sales and marketing expenses. · Sales and marketing expenses. Our sales and marketing expenses increased from RMB679.8 million in 2015 to RMB1,571.0 in 2016. The increasewas primarily due to the increase in expenses associated with our continued user acquisition efforts. Our sales and marketing expenses as apercentage of our total revenues decreased from 51.7% to 48.5% during the same period, primarily due to the improved effectiveness of our useracquisition efforts and in particular, user acquisition through online channels. · Origination and servicing expenses. Our origination and servicing expenses increased from RMB86.4 million in 2015 to RMB180.1 million in2016, in line with the substantial increase in the volume of loans facilitated through our marketplace. Our origination and servicing expenses as apercentage of our total revenues decreased from 6.6% to 5.6% during the same period, primarily attributable to our improved operational efficiency. · General and administrative expenses. Our general and administrative expenses increased by 193.3% from RMB137.1 million in 2015 to RMB402.1million in 2016, primarily due to the increase in salaries and benefits paid to our general and administrative personnel as well as a provision ofRMB81.3 million in connection with a fraud incident detected by us in July 2016. Our general and administrative expenses as a percentage of ourtotal revenues increased from 10.4% to 12.4% during the same period, primarily due to the provision in connection with the fraud incidentmentioned above. 103Table of Contents Interest income. Our interest income increased from RMB4.8 million in 2015 to RMB36.8 million in 2016, primarily attributable to the increase inthe purchase of available-for-sale investments and held-to-maturity investments. Fair value adjustments related to Consolidated ABFE. Our fair value adjustments increased from RMB11.3 million in 2015 to RMB19.7 million in2016, primarily due to the establishment of Trust No. 2 in July 2016. Income tax expense. Our income tax credit was RMB13.9 million in 2016, as compared to expense of RMB128.5 million in 2015, which was mainlybecause Heng Ye became qualified as a “software enterprise,” which makes it eligible for an exemption of enterprise income tax for 2015 and 2016 and afavorable enterprise income tax rate of 12.5% from 2017 through 2019. The effect of tax exemption for 2015 was received and recorded as a tax credit for2016. Net income/(loss). As a result of the foregoing, our net income increased from RMB275.3 million in 2015 to RMB1,116.4 million in 2016. Discussion of Certain Balance Sheet Items The following table sets forth selected information from our audited consolidated balance sheets as of December 31, 2015, 2016 and 2017. As of December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Assets:Cash and cash equivalents846,120968,2251,857,175285,443Restricted cash483,9651,218,2861,805,693277,530Prepaid expenses and other assets246,723466,7631,068,990164,301Loans at fair value221,268371,033791,681121,679Available-for-sale investments—1,158,000963,253148,049Deferred tax assets175,862436,402801,089123,125Total assets2,190,0034,783,3887,518,6641,155,597Liabilities:Liabilities from quality assurance program and guarantee546,3321,471,0002,793,948429,422Payable to investors at fair value252,907418,686113,44517,436Accrued expenses and other liabilities288,171564,1651,296,650199,291Total liabilities1,213,0612,643,4694,548,611699,108Total equity976,9422,139,9192,970,053456,489Total liabilities and equity2,190,0034,783,3887,518,6641,155,597 Cash and Cash Equivalents Our cash and cash equivalents increased by 14.4% from RMB846.1 million as of December 31, 2015 to RMB968.2 million as of December 31, 2016and further increased by 91.8% to RMB1,857.2 million (US$285.4 million) as of December 31, 2017, primarily due to strong cash inflow from operatingactivities. Restricted Cash Restricted cash included (i) cash in quality assurance program and guarantee which is managed by us through restricted bank accounts, and (ii) cashheld by the Consolidated ABFE through segregated bank accounts which is not available to fund our general liquidity needs. The following table sets fortha breakdown of our restricted cash as of December 31, 2015, 2016 and 2017: 104Table of Contents As of December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Restricted cash:Quality assurance program453,2301,114,8051,701,454261,509Consolidated ABFE30,735103,48182,99012,755Guarantee Deposit——21,2493,266Total restricted cash483,9651,218,2861,805,693277,530 Restricted cash increased by 151.7% from RMB484.0 million as of December 31, 2015 to RMB1,218.3 million as of December 31, 2016, primarilydue to a substantial increase in cash in quality assurance program from RMB453.2 million as of December 31, 2015 to RMB1,114.8 million as ofDecember 31, 2016 resulting from the significant increase in the volume of loans facilitated through our marketplace. Restricted cash increased by 48.2% from RMB1,218.3 million as of December 31, 2016 to RMB1,805.7 million (US$277.5 million) as ofDecember 31, 2017, primarily due to the cash we set aside in the quality assurance program, which was partially offset by net payouts from the qualityassurance program upon occurrence of default. Prepaid Expenses and Other Assets Prepaid expenses and other assets included (i) funds receivable from external payment network providers, (ii) prepaid VAT and surcharge tax,(iii) tax refund receivable, (iv) prepaid expense, and (v) others. The following table sets forth a breakdown of our prepaid expenses and other assets as ofDecember 31, 2015, 2016 and 2017: As of December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Prepaid Expenses and Other Assets:Funds receivable from external payment network providers197,904306,758855,363131,467Prepaid VAT and surcharge tax27,53686,767162,99625,052Tax refund receivable—47,338——Prepaid expense14,35410,54023,4473,604Others6,92915,36027,1844,178Total prepaid expenses and other assets246,723466,7631,068,990164,301 Prepaid expenses and other assets increased by 89.2% from RMB246.7 million as of December 31, 2015 to RMB466.8 million as of December 31,2016, and further increased by 129.0% to RMB1,069.0 million (US$164.3 million) as of December 31, 2017, primarily due to an increase in funds receivablefrom external payment network providers. Funds receivable from external payment network providers mainly represent accumulated amounts of transactionfees and service fees. To a lesser extent, the increase in prepaid expenses and other assets was attributable to an increase in prepaid VAT and surcharge tax,which resulted from the increase in liabilities from quality assurance program and deferred revenue associated with post-origination services. Loans at Fair Value Loans at fair value represented the fair value of loans invested by the Consolidated ABFE, which increased by 67.7% from RMB221.3 million as ofDecember 31, 2015 to RMB371.0 million as of December 31, 2016, and then increased by 113.4% to RMB791.7 million (US$121.7 million) as ofDecember 31, 2017, primarily due to the establishment of new trusts. Available-for-sale Investments Available-for-sale investments primarily included debt securities which can be redeemed on a T+1 basis or upon maturity. 105Table of Contents Deferred Tax Assets Deferred tax assets increased by 148.1% from RMB175.9 million as of December 31, 2015 to RMB436.4 million as of December 31, 2016 andfurther to RMB801.1 million (US$123.1 million) as of December 31, 2017, primarily due to the increase in liabilities from quality assurance program andguarantee. Liabilities from Quality Assurance Program and Guarantee Liabilities from quality assurance program and guarantee increased by 169.3% from RMB546.3 million as of December 31, 2015 to RMB1,471.0million as of December 31, 2016 and further to RMB2,793.9 million (US$429.4 million) as of December 31, 2017, primarily due to the significant increase inthe volume of loans facilitated through our marketplace. Payable to Investors at Fair Value Payable to investors at fair value represented the amount payable by the Consolidated ABFE to its investors, which increased by 65.6% fromRMB252.9 million as of December 31, 2015 to RMB418.7 million as of December 31, 2016, and then decreased to RMB113.4 million (US$17.4 million) asof December 31, 2017. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities included (i) accrued payroll and welfare, (ii) tax payable, (iii) accrued initial public offering related expense,(iv) accrued customer incentives and Yiren coins, (v) accrued advertisement expense, (vi) dividend payable and (vii) other accrued expenses. The followingtable sets forth a breakdown of our accrued expenses and other liabilities as of December 31, 2015, 2016 and 2017: As of December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Accrued Expenses and Other Liabilities:Accrued payroll and welfare18,58935,47056,7308,719Tax payable190,393406,698785,217120,685Accrued initial public offering related expense22,087——Accrued customer incentives and Yiren coins35,63354,731197,81630,404Accrued advertisement expense12,67755,463169,82726,102Dividend payable——50,0007,685Others8,79211,80337,0605,696Total accrued expenses and other liabilities288,171564,1651,296,650199,291 Accrued expenses and other liabilities increased by 95.8% from RMB288.2 million as of December 31, 2015 to RMB564.2 million as ofDecember 31, 2016, and further to RMB1,296.7 million (US$199.3 million) as of December 31, 2017, primarily due to the increase in tax payable as a resultof the increase in our net income and accumulated effect of deferred tax assets. Critical Accounting Policies, Judgments and Estimates An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highlyuncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accountingestimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. Wecontinually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various otherassumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process,actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgmentthan others in their application and require us to make significant accounting estimates. 106Table of Contents The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financialstatements and other disclosures included in this annual report. When reviewing our financial statements, you should consider (i) our selection of criticalaccounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changesin conditions and assumptions. Basis of Presentation, Combination and Consolidation Yirendai Ltd. was founded by our parent company, CreditEase, in September 2014. Prior to the establishment of Yirendai Ltd., our online consumerfinance marketplace business was carried out by various subsidiaries and variable interest entities of CreditEase as a business unit under CreditEase. Wecompleted 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 ourown subsidiaries and consolidated variable interest entities. Our consolidated financial statements include the assets, liabilities, revenues, expenses and cash flows that were directly attributable to our businessfor all periods presented. Since we and the subsidiaries and variable interest entities of CreditEase that operated our online marketplace business are undercommon control of CreditEase, the assets and liabilities have been stated at historical carrying amounts. In addition, our consolidated financial statementshave been prepared as if the current corporate structure had been in existence throughout the periods presented. Only those assets and liabilities that were specifically identifiable to our business were included in our consolidated balance sheets. For liabilitiesrelated to us for which CreditEase advanced the funding, such amounts were recorded as amounts due to CreditEase. Our consolidated statements ofoperations consist of all costs and expenses related to us, including costs and expenses related to us that were allocated from CreditEase. Allocations fromCreditEase, including amounts allocated to sales and marketing expenses, origination and servicing expenses, and general and administrative expenses, weremade using a proportional cost allocation method and based on headcount or transaction volume for the provision of services attributable to us. Income taxliability was calculated as if we had filed separate tax returns for all the periods presented. We conduct our online consumer finance marketplace business in China through our PRC subsidiaries, Heng Ye and Heng Yu Da, and ourconsolidated variable interest entities, Heng Cheng and Yi Ren Wealth Management. Due to PRC legal restrictions on foreign ownership and investment invalue-added telecommunications services, and internet content provision services in particular, we conduct our online operations in China through a series ofcontractual arrangements entered into between Heng Ye and Heng Cheng and its shareholders and a series of contractual arrangements entered into betweenHeng Yu Da, Yi Ren Wealth Management and its shareholders. Heng Cheng operates our website www.yirendai.com and has an ICP license as an internetinformation provider. Yi Ren Wealth Management operates our wealth management mobile application, which serves as an online portal for investmentproducts, including the loan products offered by us as well as other investment products offered by third party providers. Most of our revenues, costs andexpenses directly related to loan facilitation and servicing in China are generated through Heng Cheng and Yi Ren Wealth Management. As a result of thecontractual arrangements, we have the ability to direct the activities of Heng Cheng and Yi Ren Wealth Management that most significantly impact theireconomic performance, and to obtain a majority of the residual returns of Heng Cheng and Yi Ren Wealth Management. We are considered the primarybeneficiary of Heng Cheng and Yi Ren Wealth Management, and accordingly the entities are our variable interest entities under U.S. GAAP and weconsolidate their results in our consolidated financial statements. Any changes in PRC laws and regulations that affect our ability to control Heng Cheng andYi Ren Wealth Management might preclude us from consolidating the entities in the future. As part of our strategy to expand investor base from individual investors to institutional investors, in October 2015, we established a businessrelationship with a trust, or Trust No. 1, under which Trust No. 1 invested in loans through our online marketplace using funds received from its investors.Trust No. 1 is administered by a third-party state-owned trust company, or the trust company, which acts as the trustee, for the purposes of providing returns toits sole beneficiary through extending loans up to an aggregate principal amount of RMB250.0 million to borrowers recommended by us. The settlor andsole beneficiary of Trust No.1 is Fengsheng Private Investment Fund No. 1, or Fund No. 1, which is managed by Zhe Hao Shanghai Asset ManagementCompany, or Zhe Hao, an affiliate of CreditEase. 107Table of Contents In April 2016, Zhe Hao, on behalf of Fund No. 1, transferred Fund No. 1’s entire beneficial rights in Trust No. 1, or the Beneficial Right Asset, toChina International Capital Corporation Limited, or the SPV Manager, who created a Yiren Elite Loan Trust Beneficial Right Asset Backed Special Plan, orthe ABS plan, to host the Beneficial Right Asset. Securities were issued and listed on the Shenzhen Stock Exchange in April 2016 under the ABS plan. Wepurchased RMB47.5 million Senior A Tranche securities, representing 19% of total securities issued by the ABS plan. Puxin Hengye TechnologyDevelopment (Beijing) Co., Ltd., a subsidiary of CreditEase, purchased all subordinated securities amounting to RMB25.0 million and two funds set up andmanaged by Zhe Hao purchased various tranches of securities amounting to RMB67.5 million, representing 10% and 27% of the total price of securitiesissued, respectively. In July 2016, we established a business relationship with another trust, Huijin No.28 Single Capital Trust E2, or Trust No.2, which is of the similarstructure to Trust No.1 described above—Trust No.2 is administered by an independent third-party state-owned trust company and has a fund, CreditEaseWealth Consumer Credit Investment Fund managed by Zhe Hao, or Fund No.2, as its settlor and sole beneficiary. Trust No.2 invested an aggregate ofRMB300.0 million in loans to borrowers recommended by our platform using the funds raised by its sole beneficiary from ultimate investors, includingRMB30.0 million invested by Heng Cheng, one of our variable interest entities in the PRC, and RMB33.4 million invested by Shenzhen CreditEaseCommercial Factoring Co., Ltd., an affiliate of CreditEase. In April 2017, Zhe Hao, on behalf of Fund No.2, transferred Fund No. 2’s entire remaining beneficiary rights in Trust No.2 to Bohai InternationalTrust Co.,Ltd., an independent third party, which created Bohai Trust · Zhong Yi Property Trust No.1, or Zhong Yi Trust which was set up and served byBohai Trust Company as trustee, to host the beneficial rights. On the date of transfer, Heng Ye purchased all subordinated beneficiary rights amounted toRMB102.3 million (US$15.7 million) representing 34% of the total face value of securities issued by Zhong Yi Trust. Fund No. 2 was subsequentlyliquidated, and proceeds were distributed to its investors, including us, on April 18, 2017. In July 2017, we transferred a portion of the subordinated beneficiary rights held in Zhong Yi Trust to a third party investor with an obligation torepurchase the beneficiary rights at the original transfer price plus a pre-determined interest. This transfer is not considered a true sale and is recorded as asecured borrowing under ASC 860. We continue to consolidate the Zhong Yi Trust after the transfer. The proceeds received from the transfer is recorded inaccrued expenses and other liabilities as payable to investor of beneficiary rights under repurchase agreement on our consolidated balance sheets. In June 2017 and October 2017, we established similar business relationship with other trusts, Trust No. 3 and Bohai Trust No. 1, respectively. TrustNo. 3 and Bohai Trust No. 1 are administered by the trust company, with Heng Ye as their sole settlor and sole beneficiary. The Trust No. 3 and Bohai TrustNo. 1 invest on a revolving basis an aggregate of RMB556.8 million (US$85.6 million) and RMB196.0 million (US$30.1 million) in loans through ouronline marketplace as of December 31, 2017, respectively. As part of the above arrangements, we provide loan facilitation and post-origination services to Trust No. 1, Trust No. 2, Trust No. 3, and Bohai TrustNo. 1. To protect the trusts from potential losses from loan default, we also provide certain level of guarantee in the form of a security fund set up for the TrustNo. 1, whereby we make a security deposit to the security fund in an amount equal to 6% of the total loan principals invested by Trust No. 1. Our liability iscapped at the cash set aside in the security fund. When a default occurs, Trust No. 1 will use cash from the security fund to cover the defaulted amount. WhenTrust No. 1 is dissolved, if the amount of payouts is less than 20% of the cash set aside in the security fund, the remainder of the security fund will berefunded to us. Otherwise, the remainder of the security fund will become part of the trusts’ assets subject to distribution. We hold significant variable interest in Trust No. 1 through the transaction fees charged and the guarantee provided in the form of security deposit,and hold significant variable interest in Trust No. 2 through the transaction fees charged. We also hold significant variable interest in the ABS plan, Zhong YiTrust, Trust No. 3 and Bohai Trust No. 1 through direct investment. Through the transaction fees, deposit and direct investment, we have the right to receivebenefits from the Consolidated ABFE that could potentially be significant to the Consolidated ABFE. We also have power to direct the activities that can most significantly impact the economic performance of the Consolidated ABFE by providingloan servicing and default loan collection services to the trusts. 108Table of Contents Accordingly, we are considered the primary beneficiary of the Consolidated ABFE and have consolidated the Consolidated ABFE’s assets,liabilities, results of operations and cash flows in our consolidated financial statements. The assets of the Consolidated ABFE are not available to our creditors. In addition, the investors of the Consolidated ABFE have no recourse againstour assets. Our consolidated financial statements may not be reflective of our results of operations, financial position and cash flows had we been operating as astand-alone company during those periods prior to the completion of our carve-out in the first quarter of 2015. Our historical results for any period presentedare not necessarily indicative of the results to be expected for any future period. Although we believe that the assumptions underlying our consolidatedfinancial statements and the allocations made to us are reasonable, our basis of presentation and allocation methodologies required significant assumptions,estimates and judgments. Using a different set of assumptions, estimates and judgments would have materially impacted our financial position and results ofoperations. Revenue Recognition We provide services by connecting investors with individual borrowers and facilitating loan transactions through our online consumer financemarketplace. The three major deliverables provided are loan facilitation services, quality assurance program and post-origination services. We charge borrowers transaction fees for facilitating loan transactions, and we charge investors monthly management fees for using the automatedinvesting tool and the self-directed investing tool. These fees are collectively referred to as non-contingent fees. We also receive fees contingent on futureevents, such as a penalty fee for loan prepayment or late payment, a fee for transferring loans over the secondary loan market and other service fees. In October 2016, we launched a new program named “Top-up Program” whereby we facilitate a new loan for a qualified borrower to replace his orher existing loan. This arrangement is accounted for as an extinguishment of the existing loan with a simultaneous facilitation of a new loan. Top-up Programis services provided to qualified borrowers to enhance customer experience and serve their lifetime credit needs. The fee structure of loans facilitated underthe Top-up Program is the same as other loan products except that we offer a credit of upfront fee of the existing loan to encourage the acceptance of the newloan, which is considered as a cash incentive provided to the borrower and recorded as a reduction to revenue. From August 2017 to December 2017, we cooperated with Zhejiang Chouzhou Commercial Bank to furnish the borrower referral and facilitationservices to the bank. We provided guarantee deposits to the bank to protect it from potential losses due to loan delinquency and undertook to timelyreplenish such deposit from time to time. In addition, we undertake to repay the bank on behalf of defaulting borrowers if any repayment is 80 days overdueand upon such full repayment to the bank, we will obtain the creditor’s rights in respect of the relevant default amount. Multiple element revenue recognition We consider the loan facilitation services, the quality assurance program and post-origination services as a multiple deliverable revenuearrangement and the investors are regarded as the sole customers. We have concluded that although we do not sell those services independently, all threedeliverables have stand-alone value as others do sell them independently and have value to the customers independently. All non-contingent fees areallocated among these three deliverables. Under the guarantee model, the total fees are allocated based upon the relative selling price of the loan facilitationservices and post origination services. We allocate non-contingent fees to be received in accordance with the guidance in ASC 605-25. We first determine the amount equal to the fairvalue of the stand-ready liability from the quality assurance program. Then the remaining fees are allocated to the loan facilitation services and post-origination services using their relative estimated selling prices. We did not recognize revenue for the quality assurance program, as it considered that netting the changes in the guarantee with the revenue wasmore representative of our obligation. No separate guarantee revenue or guarantee provision expense had been recognized in the Consolidated Statement ofOperations. We do not have vendor specific objective evidence, or VSOE, of selling price for the loan facilitation services and post-origination services becausewe do not provide loan facilitation services or post-origination services separately. 109Table of Contents For cash processing services, collection services and SMS services, all of which are part of the post-origination services, we use third-party evidenceof selling price, or TPE, which is the price charged when sold separately by its service providers, as the basis of revenue allocation. Although other vendors may sell these services separately, TPE of selling price of the loan facilitation services and automated investing tool service(part of post-origination services) do not exist as public information is not available regarding the amount of fees our competitors may charge for thoseservices. As a result, we generally use our best estimate of selling prices of loan facilitation services and automated investing tool service as the basis ofrevenue allocation. In estimating the selling price for the loan facilitation services and automated investing tools service, we consider the cost incurred todeliver such services, profit margin for similar arrangements, customer demand, effect of competition on our services, and other market factors. For each type of services, we recognize revenues when the following four revenue recognition criteria are met: (i) persuasive evidence of anarrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability isreasonably assured. Collectability of fees Historically, we collected the transaction fee primarily on a monthly basis over the term of the loan. Since the fourth quarter of 2014, we haveadopted a new fee collection schedule whereby we either collect the entire amount upfront, or collect a portion of the transaction fee upfront and the rest on amonthly basis over the term of the loan. The service fees charged to investors for automated investing tool or self-directed investing tool are collected on a monthly basis through the loanperiod. All the transaction fees and service fees charged before December 31, 2014 were guaranteed by Tian Da Xin An, a guarantee company. Starting from January 2015, the collection of fees is no longer guaranteed by Tian Da Xin An. We evaluated the factors that are relevant to theuncertainty of collectability, including (i) credit risk of the portfolio, (ii) prepayment risk, (iii) the change in risk profile resulting from launching newproducts, and (iv) macroeconomic cycle, and concluded that the collectability could not be reasonably assured. Revenue from loan facilitation services Prior to the end of 2014, the four criteria for revenue recognition mentioned above were met upon completion of the loan facilitation services. Werecognized 100% of the transaction fees as revenue and recorded no allowance for the uncollectible accounts, as all the transaction fees in relation to loansfacilitated before December 31, 2014 were guaranteed by Tian Da Xin An. Starting from the first quarter of 2015, revenues is recognized upon completion ofthe services. Cash received as upfront fees is allocated first to the stand-ready liabilities associated with quality assurance program and then based on therelative selling prices of loan facilitation services and post-origination services. For fees that are partially refundable to the borrowers, the revenue is notrecognized until the fees become non-refundable. Revenue from post-origination services The fees collected upfront allocated to post-origination services are deferred and recognized over the period of the loan on a straight-line basis. Other revenues Other revenues include penalty fee for late payment or pre-payment, one-time fees for transferring loans over the secondary loan market andcommission fee received from other Fintech companies. The penalty fee, which is the fee paid to the investors and assigned to us by the investors, will bereceived as a certain percentage of past due amounts in case of late payment or a certain percentage of interest over the prepaid principal loan amount in caseof prepayment. We refer potential borrowers to other Fintech companies and charges them commission fee. Commission fee revenue is recognized whensuccessful referral was completed by us. 110Table of Contents Customer incentives To expand market presence, we provide cash incentives to investors from time to time. Each individual incentive program only lasts for a week or afew weeks. During the relevant incentive program period, we set certain thresholds for the investor to qualify to enjoy the cash incentive. When qualifiedinvestment is made, the cash payment is provided to the investor as a percentage of the investment amount. We also distributed interest plus coupons andrenewal reward coupons to investors free of charge. The investors can utilize the interest plus coupons to increase the expected return of Yidingying producton the maturity date. If the investors choose to extend the investment period of the Yidingying product, the renewal reward coupons can be utilized toincrease the expected return of Yidingying product for the extended investment period. The cash incentives, interest plus coupons and renewal rewardcoupons provided are accounted for as reduction of revenue. We also have established a membership reward program in which investors can earn Yiren coins when purchases made on our platforms reach acertain amount. Yiren coins can be used in subsequent purchases. The valid periods of these Yiren coins vary among different individual promotionalprograms, ranging from one and a half years to two and a half years. Given currently we do not have sufficient historical data to reasonably estimate the usagerate of the Yiren coins, the liabilities for the estimated value of the Yiren coins that are expected to be used are accrued based on the total number ofoutstanding Yiren coins related to prior purchases at the end of each reporting period. These liabilities reflect our management’s best estimate of the cost offuture usages. As of December 31, 2015, 2016 and 2017, we recorded accrued expenses related to Yiren coins earned from prior purchases of RMB29.5million, RMB39.3 million and RMB64.0 million(US$9.8 million), respectively, with corresponding entry in sales and marketing expenses. We also pay cash to registered borrowers or investors as reward of successful referring of new borrowers or investors to our platform. We recognizesales expenses when the commission becomes payable based on successful referrals. Liabilities from Quality Assurance Program and Guarantee Starting from January 1, 2015, we launched our new quality assurance program. Under this quality assurance program, if a loan originated on or afterJanuary 1, 2015 defaults, we would cover on a portfolio basis the principal and accrued interest repayment of the defaulted loan using cash set aside in ourquality assurance program up to the balance of the quality assurance program. We set aside in the quality assurance program an amount equal to 6% ~ 7% ofthe loans facilitated through our marketplace during the period. We reserve the right to revise this percentage upwards or downwards from time to time as aresult of our continuing evaluation of factors such as market dynamics as well as of our product lines, profitability and cash position. At the inception of each loan, we recognize a stand-ready liability as the fair value of the quality assurance program in accordance with ASC 460.See “—Fair Value of Quality Assurance Program.” According to ASC 460, the stand-ready liability initially recognized would typically be reduced, by a credit to earnings, as we are released from riskunder the guarantee either through expiry or performance. We also recognize contingent liability under ASC 450 on a portfolio basis, which results in therecognition of expenses in earnings. We track stand-ready liability on a loan-by-loan basis to monitor the expiration. When we release the stand-readyliability through performance of the guarantee (by making payments on defaulted loans), we recognize revenue along with the loss on defaulted loans.Revenue from releasing of stand-ready liability and expenses from recognition of contingent liability related to the quality assurance program are presentedon a net basis in the income statement. On a portfolio basis, when the aggregate contingent liability required to be recognized under ASC 450 exceeds thequality assurance program liability balance, we will record the excess as expense. The fair value of the stand-ready liability associated with the quality assurance program recorded at the inception of the loan was estimated using adiscounted cash flow model based on our expected net payouts from the quality assurance program, and also by incorporating a markup margin. We estimatesour expected future net payouts based on our current product mix as well as our estimates of expected net charge-off rates and expected collection rates and adiscount rate. The expected future net cash payout is capped at the restricted cash balance of the quality assurance program. In order to continue to attractnew and retain existing investors and to remain consistent with the current industry practice in China, we started to set aside more cash in the qualityassurance program from the fourth quarter of 2015, based on our business intention but not legal obligation, so that the balance in the quality assuranceprogram is enough to cover the expected net payouts. 111Table of Contents From August 2017 to December 2017, we cooperated with Zhejiang Chouzhou Commercial Bank to furnish the borrower referral and facilitationservices to the bank. We provided guarantee deposits to the bank to protect it from potential losses due to loan delinquency and undertook to timelyreplenish such deposit from time to time. We also undertake to repay the bank on behalf of defaulting borrowers if any repayment is 80 days overdue andupon such full repayment to the bank, we will obtain the creditor’s rights in respect of the relevant default amount. Under such agreement, the totaloutstanding loan balance and accrued interests which we would be required to repay to fulfill the guarantee was RMB nil and RMB206.8 million (US$31.8million) as of December 31, 2016 and 2017 respectively. During the years ended December 31, 2015 , 2016 and 2017, we made provisions for the quality assurance program and guarantee in an amount ofRMB682.2 million, RMB1,679.5 million (including RMB81.3 million of estimated net payouts in excess of our stand ready obligation related to the fraudincident that we detected in July 2016) and RMB3,195.9 million (US$491.2 million) (including RMB43.0 million (US$6.6 million) contingent liability ona portfolio basis), respectively, which increases the balance of the liability from quality assurance program and guarantee, and made net payments in a totalamount of RMB135.9 million, RMB754.8 million and RMB1,873.0 million (US$287.9 million) out of the quality assurance program and guarantee,respectively, which reduces the balance of the liability from quality assurance program and guarantee. As of December 31, 2015, 2016 and 2017, we had aliability of RMB546.3 million, RMB1,471.0 million and RMB2,794.0 million (US$429.4 million) associated with our quality assurance program andguarantee, respectively. Fair Value of Quality Assurance Program The fair value of the quality assurance program is estimated by applying a discounted cash flow model to our expected net payouts from the qualityassurance program, and also by incorporating a service markup margin. We estimate our expected quality assurance program net payouts based on historicalcharge-offs and the payout ratio we implement according to our agreements with investors, collection rates as well as the balance of the quality assuranceprogram. The expected net payouts are not equal to the expected net charge-offs, as (i) we only pay off the outstanding principal and accrued interest at thetime of default, instead of the outstanding principal and the unpaid interest over the life of the loan that are accounted for in the net charge-offs, and (ii) ourcollection efforts continue and may succeed in collecting some past due amount after the original term of the default loan has expired, and thus reduce thequality assurance program net payouts, which factor is not reflected in the net charge-offs. Expected charge-off rate. We estimated the future overall charge-off rates for the loans facilitated using the weighted average of the expectedcharge-off rates of Grade I, Grade II, Grade III, Grade IV and Grade V. For each loan grade, the expected charge-off rate is estimated using the historicalperformance data of our products. Grade II, III and IV loans have credit risks higher than Grade I but lower than Grade V. For the historical charge-off rates ofour loans, please see charts under “—Loan Performance Data.” Expected collection rate. Expected collection rate of defaulted loans is based on the average historical collection rate of our products and similarproducts of CreditEase. Discount rate. The discount rates for the projected cash flows of the quality assurance program net payouts are our estimates of the rates of equityreturn. As we did not conduct any debt or equity financing historically, the discount rate used is estimated based on public information of cost of equity ofcomparable companies in the U.S., adjusted upward as we operate in the PRC. Key assumptions include that no significant changes in the near term inmacroeconomic factors that will materially impact the charge-off rates of a particular loan grade, such as the unemployment rate and salary levels in the PRC. Service markup margin. ASC 460 establishes the notion of a non-contingent, unconditional obligation in a financial guarantee, namely, the stand-ready liability to perform over the term of the guarantee, and states that this should be recognized at fair value at the inception of the guarantee. When aguarantee is issued in a stand-alone, arm’s-length transaction with an unrelated party, the fair value of the guarantee (and thus the amount to be recognized asthe stand-ready liability) is the premium received by the guarantor. By incorporating a margin, we have effectively estimated the price that is to be charged ifwe were to sell this quality assurance program on a stand-alone basis. 112Table of Contents Given the uniqueness of our quality assurance program operational model and the risk profile of the borrowers on our platform, it is difficult to findthe relevant margin data of comparable service providers offering the same guarantee services. In order to arrive at the service markup margin, we looked atseveral comparable business models, and determined the service markup margin for our stand-ready liability. Fair Value of Loans and Payable to Investors at Fair Value We have elected fair value accounting for loans and related payable to investors. Changes in the fair value of loans for the period are recorded as fairvalue adjustments. We estimate the fair value of loans using a discounted cash flow valuation methodology. The fair valuation methodology considersprojected prepayments and net charge-off to project future losses and net cash flows on loans. We adopted the measurement alternative included in ASU 2014-13, the collateralized financing entity (“CFE”) guidance, pursuant to which wemeasure both the financial assets and financial liabilities of the Consolidated ABFE in our consolidated financial statements using the more observable of thefair value of the financial assets and the fair value of the financial liabilities. We believe the fair value of the loans receivables of the Consolidated ABFE ismore observable than the fair value of the financial liability of the Consolidated ABFE. As a result, the loans of the Consolidated ABFE are measured at fairvalue and the payable to investors is measured in consolidation as: (i)the sum of the fair value of the loans and the carrying value of any non-financial assetsthat are incidental to the operations of the Consolidated ABFE less (ii)the sum of the fair value of loan default loss borne by us through the security deposit.The resulting amount is allocated to the individual financial liabilities (other than the beneficial interest retained by us) using a reasonable and consistentmethodology. Since we hold sole beneficiary of Trust No.3 and Bohai Trust No.1, the beneficial interest retained by us, or the payable to investors of TrustNo.3 and Bohai Trust No.1, are eliminated on the consolidated financial statements. Under the measurement alternative, our consolidated net income reflectsour own economic interests in the Consolidated ABFE including changes in the fair value of our beneficial interests. As our loans and related payable to investors are not traded in an active market with readily observable prices, we use significant unobservableinputs to measure the fair value of these assets and liabilities. Financial instruments are categorized in the Level 3 valuation hierarchy based on thesignificance of unobservable factors in the overall fair value measurement. As of December 31, 2015, 2016 and 2017, the significant unobservable inputs used in the fair value measurement of the loans of the ConsolidatedABFE include the discount rate applied in the valuation models, default and recovery rates applied in the valuation models, and early prepayment rates.These inputs in isolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fairvalue, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount ratecan significantly lower the fair value of loans and decreases in the discount rate can significantly increase the fair value of loans. The discount rate isdetermined based on the market rates. Significant Unobservable Inputs Financial InstrumentUnobservable InputDecember 31, 2015Range of InputsWeighted-Average December 31, 2016Range of InputsWeighted-Average December 31, 2017Range of InputsWeighted-Average Loans and payable to investorsDiscount rates12.0%12.0%12.0%Net cumulativeexpected loss rates7.9%7.6% - 7.9%9.9%-11.1%Cumulativeprepayment rates7.4%13.2%13.6% (1) Expressed as a percentage of the loan volume. 113(1)(2)Table of Contents (2) Expressed as a percentage of the remaining principal of loans. Income Taxes In preparing our consolidated financial statements, we must estimate our income taxes in each of the jurisdictions in which we operate. We estimateour actual tax exposure and assess temporary differences resulting from different treatment of items for tax and accounting purposes. These differences resultin deferred tax assets and liabilities, which we include in our consolidated balance sheet. We must then assess the likelihood that we will recover our deferredtax assets from future taxable income. If we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish avaluation allowance or increase this allowance, we must include an expense within the tax provision in our consolidated statement of operations. Management must exercise significant judgment to determine our provision for income taxes, our deferred tax assets and liabilities and anyvaluation allowance recorded against our net deferred tax assets. We base the valuation allowance on our estimates of taxable income in each jurisdiction inwhich we operate and the period over which our deferred tax assets will be recoverable. If actual results differ from these estimates or we adjust these estimatesin future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations. U.S. GAAP requires that an entity recognize the impact of an uncertain income tax position on the income tax return at the largest amount that ismore likely than not to be sustained upon audit by the relevant tax authority. If we ultimately determine that payment of these liabilities will be unnecessary,we will reverse the liability and recognize a tax benefit during that period. Conversely, we record additional tax charges in a period in which we determinethat a recorded tax liability is less than the expected ultimate assessment. We did not recognize any significant unrecognized tax benefits during the periodspresented in this annual report. Uncertainties exist with respect to the application of the PRC Enterprise Income Tax Law to our operations, specifically with respect to our taxresidency status. The PRC Enterprise Income Tax Law specifies that legal entities organized outside of the PRC will be considered residents for PRC incometax purposes if their “de facto management bodies” are located within the PRC. The PRC Enterprise Income Tax Law’s implementation rules define the term“de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and businessoperations, personnel, accounting, properties, etc. of an enterprise.” Because of the uncertainties resulted from limited PRC tax guidance on the issue, it is uncertain whether our legal entities organized outside of thePRC constitute residents under the PRC Enterprise Income Tax Law. If one or more of our legal entities organized outside of the PRC were characterized asPRC tax residents, the impact would adversely affect our results of operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to DoingBusiness in China.” Recent Accounting Pronouncements The recent accounting pronouncements that are relevant to us are included in note 2 to our audited consolidated financial statements, which areincluded in this annual report. Inflation Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China,the year-over-year percent changes in the consumer price index for December 2015, 2016 and 2017 were increases of 1.4%, 2.0% and 1.6%, respectively.Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation in the future. 114Table of Contents B. Liquidity and Capital Resources Cash Flows and Working Capital Prior to the establishment of Yirendai Ltd., our online consumer finance marketplace business was carried out by various subsidiaries and variableinterest entities of CreditEase as a business unit under CreditEase. We completed our carve-out from CreditEase in the first quarter of 2015. In 2014, ourprincipal sources of liquidity were advances from our parent company, CreditEase, representing operating costs and expenses paid or borne by the variousentities affiliated with CreditEase on our behalf. We will not have such advances from CreditEase going forward. In 2015, 2016 and 2017, our principal sources of liquidity have been cash generated from operating activities and proceeds from the issuance andsale of our shares. We generated positive cash flow from operating activities of RMB861.3 million, RMB 2,113.4 million and RMB2,716.5 million(US$417.5 million) in 2015, 2016 and 2017, respectively. In December 2015, we completed our initial public offering in which we issued and sold anaggregate of 7,500,000 ADSs, representing 15,000,000 ordinary shares, resulting in net proceeds to us of approximately US$64.9 million. Concurrently withour initial public offering, we sold 2,000,000 ordinary shares to Baidu Hong Kong in a private placement, resulting in net proceeds to us of approximatelyUS$9.0 million. As of December 31, 2017, we had cash and cash equivalents of approximately RMB1,857.2 million (US$285.4 million), as compared to cashand cash equivalents of approximately RMB968.2 million as of December 31, 2016. As of December 31, 2017, we had restricted cash of approximately RMB1,805.7 million (US$277.5 million), as compared to RMB1,218.3 million asof December 31, 2016. The restricted cash represented the amount of cash we set aside in the quality assurance program that was launched on January 1,2015, the cash held by the Consolidated ABFE and the cash set aside for guarantee deposit. When we make payouts from the quality assurance program uponoccasions of default, such payouts will reduce the balance of our restricted cash. We monitor the balance of the quality assurance program on a monthly basis,and adjust on a quarterly basis by putting an appropriate additional amount of cash into the quality assurance program as needed to ensure we cansufficiently cover the expected net payouts. Unlike financial institutions, we are not subject to any capital adequacy requirement that is applicable to financial institutions in China. We believethat our anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures inthe ordinary course of business for the next 12 months. We may, however, need additional cash resources in the future if we experience changes in businessconditions or other developments, or if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If wedetermine 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 debtsecurities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence ofindebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure youthat financing will be available in amounts or on terms acceptable to us, if at all. See “Item 3. Key Information—D. Risk Factors—Risks Related to OurBusiness—We may need additional capital, and financing may not be available on terms acceptable to us, or at all.” Our ability to manage our working capital, including accounts receivable, prepaid expenses and other assets and accrued expenses and otherliabilities, may materially affect our financial position and results of operations. See “Item 3. Key Information—D. Risk Factors—Failure to manage ourliquidity and cash flows may materially and adversely affect our financial position and results of operations.” Our accounts receivable primarily include the transaction fees receivable from borrowers. As of December 31, 2015, 2016 and 2017, we had accountsreceivable of RMB83.0 million, RMB28.6 million and RMB 21.4 million(US$3.3 million), respectively. Due to our switch from the third-party guaranteearrangement to the quality assurance program model, starting in the first quarter of 2015, we have adopted a new revenue recognition policy—for the feescollected upfront, we recognize revenue upon completion of the loan facilitation services, while for the fees collected on a monthly basis over the term of aloan, we recognize revenue when the fees are collected. As a result, we did not record additional accounts receivable during 2015, 2016 and 2017, and noallowance for uncollectable accounts receivable was recorded as of December 31, 2015, 2016 and 2017. Accordingly, our accounts receivable decreased overthe past three years, and we expect that our accounts receivable will continue to decrease going forward. 115Table of Contents Our prepaid expenses and other assets include primarily funds receivable from external payment networks, and our accrued expenses and otherliabilities include primarily accrued payroll and welfare, tax payable, accrued IPO related expense, accrued customer incentives and Yiren coins, and accruedadvertisement expense. Prior to August 2015, our accrued expenses and other liabilities include primarily funds payable to investors or borrowers. InAugust 2015, we fully migrated to a new system whereby China Guangfa Bank not only maintains an account for us but also maintains separate in trust for, orITF, accounts for borrowers and investors. With this arrangement, the balance of the funds payable to investors or borrowers on our balance sheet was reducedto zero as of December 31, 2015. Although we consolidate the results of operations of Heng Cheng and Yi Ren Wealth Management, our variable interest entities, we only haveaccess to the cash balances and the future earnings of Heng Cheng and Yi Ren Wealth Management through our contractual arrangements with them. See“Item 4. Information on the Company—A. History and Development of Our Company.” In addition, although we consolidate the cash flow of theConsolidated ABFE into our cash flow, the cash balance of the Consolidated ABFE is not available to fund our general liquidity needs. For more informationabout the Consolidated ABFE, please see “—Critical Accounting Policies, Judgments and Estimates—Basis of Presentation, Combination andConsolidation.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.” In utilizing the cash that we hold offshore, we may (i) make additional capital contributions to our PRC subsidiaries, (ii) establish new PRCsubsidiaries and make capital contributions to these new PRC subsidiaries, (iii) make loans to our PRC subsidiaries, or (iv) acquire offshore entities withbusiness operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example: · capital contributions to our PRC subsidiaries, whether existing or newly established ones, must be approved by the MOC or its local counterparts;and · loans by us to our PRC subsidiaries, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must beregistered with SAFE or its local branches. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment inPRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our initialpublic offering and the concurrent private placement to make loans to or make additional capital contributions to our PRC subsidiaries, which couldmaterially and adversely affect our liquidity and our ability to fund and expand our business.” Substantially all of our future revenues are likely to continue to be in the form of RMB. Under existing PRC foreign exchange regulations, paymentsof current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreigncurrencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to paydividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulationspermit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standardsand regulations. Our PRC subsidiaries are required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses eachyear, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cashdividends. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFEand its local branches. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Governmental control of currencyconversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.” 116Table of Contents The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31,2015 2016 2017 RMB RMB RMB US$(in thousands)Summary Consolidated Cash Flow Data:Net cash generated from operating activities 861,2772,113,4352,716,513417,520Net cash used in from investing activities(282,589)(1,421,663)(374,597)(57,574)Net cash provided by/(used in) financing activities749,918135,298(849,450)(130,558)Effect of foreign exchange rate changes10129,356(16,109)(2,476)Net increase in cash, cash equivalents and restricted cash1,328,707856,4261,476,357226,912Cash, cash equivalents and restricted cash, beginning of year1,3781,330,0852,186,511336,061Cash, cash equivalents and restricted cash, end of year1,330,0852,186,5113,662,868562,973 (1) In the fourth quarter of 2016, we elected to early adopt ASU 2016-18, which requires the inclusion of restricted cash in cash and cash equivalent balancesin the statement of cash flows, on a retrospective basis and have applied the changes to our consolidated statements of cash flows for the years endedDecember 31, 2015 and 2016, respectively. Operating Activities Net cash generated from operating activities was RMB2,716.5 million (US$417.5 million) in 2017. In 2017, the principal items accounting for thedifference between our net cash generated from operating activities and our net income of RMB1,371.8million (US$210.8 million) were changes in certainworking capital accounts, principally an increase in liabilities from quality assurance program and guarantee of RMB 1,322.9 million (US$203.3 million)and an increase in accrued expenses and other liabilities of RMB679.1 million (US$104.4 million), partially offset by an increase in deferred tax assets inRMB353.4 million (US$54.3million) and an increase in prepaid expenses and other assets of RMB595.8 million (US$91.6 million). Quality assuranceprogram liabilities increased primarily due to an increase in the volume of loans facilitated by us. The increase in accrued expenses and other liabilities wasprimarily due to an increase of RMB378.5 million (US$58.2 million) in tax payable, which was mainly due to an increase in our net income and accumulatedeffect of deferred tax assets. The increase of RMB328.5 million (US$50.5 million) in deferred tax assets was primarily due to an increase in liabilities fromquality assurance program. The increase in prepaid expenses and other assets was primarily due to an increase of RMB548.6 million (US$84.3 million) infunds receivable from external payment network providers. Net cash generated from operating activities was RMB2,113.4 million in 2016. In 2016, the principal items accounting for the difference betweenour net cash generated from operating activities and our net income of RMB1,116.4 million were changes in certain working capital accounts, principally anincrease in liabilities from quality assurance program and guarantee of RMB924.7 million and an increase in accrued expenses and other liabilities ofRMB297.8 million, partially offset by an increase in deferred tax assets in RMB260.5 million and an increase in prepaid expenses and other assets ofRMB220.0 million. Quality assurance program liabilities increased primarily due to an increase in the volume of loans facilitated by us. The increase inaccrued expenses and other liabilities was primarily due to an increase of RMB216.3 million in tax payable, which was mainly due to an increase in our netincome and accumulated effect of deferred tax assets. The increase of RMB231.2 million in deferred tax assets was primarily due to an increase in liabilitiesfrom quality assurance program. The increase in prepaid expenses and other assets was primarily due to an increase of RMB108.9 million in funds receivablefrom external payment network providers. Net cash generated from operating activities was RMB861.3 million in 2015. In 2015, the principal items accounting for the difference between ournet cash generated from operating activities and our net income of RMB275.3 million were changes in certain working capital accounts, principally anincrease in quality assurance program liabilities of RMB546.3 million and a decrease in accounts receivable of RMB78.1 million, partially offset by anincrease in deferred tax assets of RMB175.9 million. Quality assurance program liabilities increased primarily because we launched our new qualityassurance program starting from January 1, 2015, under which if a loan originated on or after January 1, 2015 defaults, we would cover on a portfolio basisthe principal and accrued interest repayment of the defaulted loan using cash set aside in our quality assurance program up to the balance of the qualityassurance program. For the first three quarters of 2015, we set aside in the quality assurance program an amount equal to 6% of the loans facilitated throughour marketplace during the period. This amount is not sufficient to cover all expected net payouts for loans facilitated during this period. Starting in thefourth quarter of 2015, we have set aside sufficient cash in the quality assurance program to cover expected net payouts by putting an appropriate additionalamount of cash from other sources into the quality assurance program on a quarterly basis, as needed. The decrease in accounts receivable was due to thechange in our revenue recognition policy in the first quarter of 2015. See “—Cash Flows and Working Capital.” The increase in restricted cash was due to thecash we set aside in the quality assurance program, which was partially offset by net payouts from the quality assurance program upon occasions of default.We recognized deferred tax assets in 2015 mainly due to liabilities from our quality assurance program. 117(1)Table of Contents Investing Activities Net cash used in investing activities was RMB374.6 million (US$57.6 million) in 2017, which was primarily attributable to our investment in loansat fair value and loan to a related party, purchase of property, equipment and software. Net cash used in investing activities was RMB1,421.7 million in 2016, which was attributable to our purchases of held-to-maturity investments,available-for-sale investments, investment in loans at fair value and purchase of property, equipment and software. Net cash used in investing activities was RMB282.6 million in 2015, which was attributable to our purchases of held-to-maturity investments,investment in loans at fair value and property, equipment and software. Financing Activities Net cash used in financing activities was RMB849.5 million (US$130.6 million) in 2017, which was mainly attributable to RMB605.2 million(US$93.0) in dividends distribution in 2017 and RMB270.0 million (US$41.5 million) in principal payments made by Trust No. 2 to its sole beneficiary andRMB221.9 million (US$34.1 million) in principal payments in relation to the asset-backed securities, partially offset by the proceeds of RMB197.7 million(US$30.4 million) from transferring the entire remaining beneficial rights in Trust No. 2 to Zhong Yi Trust. The cash flows of the Consolidated ABFE areconsolidated into our cash flow. However, the cash balance of the Consolidated ABFE is not available to fund our general liquidity needs. For moreinformation about the Consolidated ABFE, please see “—Critical Accounting Policies, Judgments and Estimates—Basis of Presentation, Combination andConsolidation.” Net cash provided by financing activities was RMB135.3 million in 2016, which was mainly attributable to the proceeds of RMB270.0 millionreceived by Trust No. 2 from its settlor and sole beneficiary and the proceeds of RMB202.5 million from issuance of asset-backed securities on the ShenzhenStock Exchange in China with the loans invested by Trust No. 1 through our platform as the underlying assets, partially offset by RMB250.0 million inprincipal payments made by Trust No. 1 to its sole beneficiary and RMB65.4 million in principal payments in relation to the asset-backed securities. Thecash flows of the Consolidated ABFE are consolidated into our cash flow. However, the cash balance of the Consolidated ABFE is not available to fund ourgeneral liquidity needs. Net cash provided by financing activities was RMB749.9 million in 2015, which was mainly attributable to the net proceeds from our initial publicoffering and the concurrent private placement, initial contribution received by the trusts and the cash contribution from our parent company, CreditEase. Capital Expenditures We made capital expenditures of RMB16.4 million, RMB30.0 million and RMB70.6 million(US$10.8 million) in 2015, 2016 and 2017,respectively. In these periods, our capital expenditures were mainly used for purchases of property, equipment and software. We will continue to make capitalexpenditures to meet the expected growth of our business. Holding Company Structure Yirendai Ltd. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries andconsolidated variable interest entities in China. As a result, Yirendai Ltd.’s ability to pay dividends depends upon dividends paid by Heng Ye and Heng YuDa, our PRC subsidiaries, and Heng Cheng and Yi Ren Wealth Management, our consolidated variable interest entities. If our existing PRC subsidiaries orany newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. Inaddition, each of our wholly foreign-owned subsidiaries in China is permitted to pay dividends to us only out of its retained earnings, if any, as determined inaccordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our consolidated variable interest entities in Chinais required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of itsregistered capital. In addition, each of our wholly foreign-owned subsidiaries in China may allocate a portion of its after-tax profits based on PRC accountingstandards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and each of our consolidated variable interest entities may allocatea portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and thediscretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject toexamination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generateaccumulated profits and meet the requirements for statutory reserve funds. 118Table of Contents C. Research and Development We had a dedicated product development team consisting of 75 full-time employees as of December 31, 2017. This team is responsible fordeveloping and implementing new consumer finance products to introduce on to our marketplace. We constantly evaluate the popularity of our existing product offerings and develop new products and services that can cater to the ever-evolvingneeds of our borrowers and investors. From the borrower perspective, we will continue to develop tailored credit products to meet the specific needs of ourtarget prime borrowers. As our marketplace continues to grow, we plan to expand our ability to offer risk-based loan pricing. For example, we plan to enhanceour risk-based pricing capability that optimizes loans based on individual credit criteria so that borrowers will be able to receive personalized loans tailoredto their credit profile. In addition, we intend to introduce market-based pricing of loans based on macroeconomic factors and we believe such ability tocontinually adjust the pricing of the loans on our marketplace will allow us to better meet the needs of our borrowers. From the investor perspective, we continue to develop new investment products, such as diversified term investment products and products withlower investment thresholds, that appeal to different investor appetites and demands. In the future, we plan to segment our loan products into more preciseand specific return categories, and seek to offer investors a more diverse array of investment products that better meet their risk-adjusted return targets. Wealso intend to provide investors with enhanced tools and offer more valued-added services, such as investment portfolio services, enabling them to bettermonitor and manage their investments on our online marketplace. D. Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the yearended December 31, 2017 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capitalresources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition. E. Off-Balance Sheet Arrangements In January 2015, we launched our new quality assurance program to provide a certain level of assurance to investors who invest in loans through ourmarketplace. From August 2017 to December 2017, we cooperated with Zhejiang Chouzhou Commercial Bank to furnish borrower referral and facilitationservices to the bank in certain loans facilitated on our platform. See “—A. Operating Results—Critical Accounting Policies, Judgments and Estimates—Liabilities from Quality Assurance Program and Guarantee” and “Item 4. Information on the Company—B. Business Overview—Risk Management—InvestorProtection.” Other than the quality assurance program and guarantee arrangement, we have not entered into any other commitments to guarantee the paymentobligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or thatare not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to anunconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entitythat provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us. 119Table of Contents F. Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2017: Total Less than 1year 1-3 years 3-5 years More than 5years(in RMB thousands)Operating Lease Obligation20,81519,2181,597—— Our operating lease obligations relate to our leases of office premises. We lease our office premises under a non-cancelable operating lease with anexpiration date in January 2019. Rental expenses under operating leases for 2015, 2016 and 2017 were RMB9.9 million, RMB22.8 million and RMB21.6million(US$3.3 million), respectively. Payables to investors related to the Consolidated ABFE have been excluded from the table above. We will make such payments to the investorsrelated to the Consolidated ABFE if and when we receive the related loan payments from borrowers. We do not have any contractual obligations to makesuch payments out of our own liquidity resources. Under our recent change in the funding policy for our quality assurance program, instead of setting aside the full amount to be contributed to theprogram in a lump sum, we contribute to the program in installments with each instalment equal to 30% of the transaction fee we receive from the borrowereach time until the full amount is contributed. We provided guarantee deposits to Zhejiang Chouzhou Commercial Bank to protect it from potential lossesdue to loan delinquency and undertook to replenish such deposit from time to time so that the amount of guarantee deposits met a certain percentage of therelated outstanding loan. As of December 31, 2017, we recorded liability of RMB2,794.0 million (US$429.4 million) in relation to the quality assuranceprogram and guarantee. The maximum potential future net payments we are required to make out of the quality assurance program was RMB 1,701.5 million(US$261.5 million), which took into account the amount set aside in the quality assurance program. Under the agreement with Zhejiang ChouzhouCommercial Bank, we are obligated to repay the bank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon the full repayment, wewill obtain the creditor’s rights in respect of relevant default amount. See “—A. Operating Results—Critical Accounting Policies, Judgments and Estimates—Liabilities from Quality Assurance Program and Guarantee.” Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as ofDecember 31, 2017. G. Safe Harbor See “Forward-Looking Information.” Item 6. Directors, Senior Management and Employees A. Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report. Directors and Executive Officers* Age Position/TitleNing Tang44Executive ChairmanHuan Chen43DirectorQuan Zhou60DirectorTina Ju53DirectorQing Li41DirectorSam Hanhui Sun45Independent DirectorJingsheng Huang59Independent DirectorChaomei Chen59Independent DirectorYihan Fang45Chief Executive OfficerYu Cong49Chief Financial OfficerYang Cao47Chief Operating Officer and Chief TechnologyOfficerYichuan Pei55Chief Risk Officer and Chief Credit Officer 120Table of Contents * We also have a non-voting observer on our board of directors, Mr. Kwok King Kingsley Chan, a managing director at Morgan Stanley Private EquityAsia. Mr. Ning Tang is our founder and has served as our executive chairman of the board of directors since our inception. He is also the founder of ourparent company, CreditEase, and has served as the chairman of the board of directors and chief executive officer of CreditEase since its inception in 2006. InDecember 2014, Mr. Tang was elected to be the chairman of the Beijing P2P Association, founded by CreditEase together with approximately 30 memberenterprises and the first association in the industry in China that is officially registered and overseen by regulators. In July 2011, Mr. Tang won thenomination of “Leader of the Year” in the “Global Microfinance Achievement Awards 2011,” initiated by the London-based C5 Group to recognize theefforts, innovations and services that ensure maximum business and social returns in the microfinance sector. Mr. Tang is also a member of the advisory boardto the Ministry of Industry and Information Technology with respect to small and medium-sized enterprises related policies, and a director at the ChinaMicrofinance Institution Association. Prior to founding CreditEase, Mr. Tang served as the director of strategic investments and acquisitions at AsiaInfo-Linkage, Inc., a leading provider of telecommunication software solutions and services in China then listed on NASDAQ, since July 2000. Prior to that,Mr. Tang served as an investment banker at Donaldson, Lufkin & Jenrette, a U.S. investment bank now owned by Credit Suisse, since July 1998. Mr. Tang isan active angel investor and has made several successful investments in the education and training, financial services, human resources services, internet,technology and media industries. Mr. Tang studied mathematics at Peking University and received his bachelor’s degree in economics, summa cum laude,from the University of the South in Sewanee, Tennessee. He is also a member of the Phi Beta Kappa Society. Mr. Huan Chen has served as our director since January 2015, and has served as the chief strategy officer of our parent company CreditEase sinceNovember 2007. Prior to joining CreditEase, Mr. Chen served as a product manager at Qihoo 360 Technology Co., Ltd., a leading internet company in China,from July 2006 to November 2007. From March 2003 to July 2006, Mr. Chen served as an investment management manager at 21cn.com, an online portalowned by China Telecom. Prior to that, Mr. Chen worked at Guangzhou Securities Co. Ltd., a securities brokerage service firm, and co-founded Find2FineConsulting Ltd., an online project outsourcing marketplace, successively from July 1998 to March 2003. Mr. Chen received a bachelor’s degree ininternational commerce and a master’s degree in econometrics from Sun Yat-sen University in China. Mr. Quan Zhou has served as our director since January 2015. Mr. Zhou is currently a managing member of the general partner of IDG TechnologyVenture Investments, L.P. and its successor funds. Mr. Zhou serves as a director of the general partner of each of IDG-Accel China Growth Fund L.P. and IDG-Accel China Capital Fund L.P., and their respective successor funds. He also serves as a director of the general partner of each of IDG China Venture CapitalFund IV L.P. and IDG China Capital Fund III L.P. Mr. Zhou has been the president and a board member of IDG VC Management Ltd. since 2012. Mr. Zhoucurrently serves on the board of directors of Fang Holdings Ltd., an NYSE-listed company, Xunlei Limited, a NASDAQ-listed company and CASIPharmaceuticals, Inc., a NASDAQ-listed Company. Mr. Zhou also serves as a director of various private companies. Mr. Zhou received a bachelor’s degree inchemistry from China Science and Technology University, a master’s degree in chemical physics from the Chinese Academy of Sciences and a Ph.D. degreein fiber optics from Rutgers University. Ms. Tina Ju has served as our director since January 2015. Ms. Ju is a founding and managing partner of KPCB China and TDF Capital, andcurrently a managing member of the general partner of both funds. She has more than 25 years of experience in venture capital, investment banking andoperations. Ms. Ju began her venture capital career in 1999. She co-founded VTDF China in 2000 and KPCB China in 2007. Earlier in her career, Ms. Juspent 11 years in investment banking at Deutsche Bank with her last position as the head of TMT and Transport Asia, Merrill Lynch with her last position ashead of Asia Technology and Corporate Finance Team, and Goldman Sachs. Ms. Ju currently serves as a director on the board of various private companies.Ms. Ju received a bachelor’s degree in industrial engineering and operations research from the University of California, Berkeley and an MBA degree fromHarvard Business School. 121Table of Contents Mr. Qing Li has served as our director since December 17, 2015. Mr. Li is the founder and chief executive officer of Sciencast Management L.P., alimited partnership formed in Delaware. Prior to founding Sciencast, Mr. Li was a portfolio manager at SAC Capital Advisors from April 2009 toFebruary 2014, a quantitative researcher at Tykhe Capital LLC from October 2005 to April 2009, a vice president at Fortress Investment Group fromSeptember 2004 to October 2005 and an associate from August 2002 to September 2004 at Lehman Brothers. Mr. Li received a Ph.D. in finance fromColumbia University and a B.S. in mathematics from Peking University. Mr. Sam Hanhui Sun has served as our director since December 17, 2015. From January 2010 to September 2015, Mr. Sun assumed a couple ofpositions at Qunar Cayman Islands Limited, a mobile and online travel platform then listed on NASDAQ, including serving as Qunar’s president fromMay 2015 to September 2015 and its chief financial officer from January 2010 to April 2015. Prior to joining Qunar, Mr. Sun was the chief financial officer ofKongZhong Corporation, an online game developer and operator then listed on NASDAQ-listed company, from 2007 to 2009. Mr. Sun was also anindependent director and audit committee member of KongZhong Corporation from July 2005 through January 2007. From 2004 to 2007, Mr. Sun served inseveral financial controller positions at Microsoft China R&D Group, Maersk China Co. Ltd. and SouFun.com. From 1995 to 2004, Mr. Sun worked inKPMG’s auditing practice group, including eight years at the Beijing office of KPMG, where he was an audit senior manager, and two years at KPMG in LosAngeles, California. Mr. Sun currently serves as an independent director and audit committee chair of Fang Holdings Limited, an NYSE-listed company, anindependent director and audit committee chair of CAR Inc., a company listed on the Hong Kong Stock Exchange, an independent director and auditcommittee chair of iQIYI Inc., a NASDAQ-listed company, and an independent director and audit committee chair of Sunlands Online Education Group, anNYSE-listed company. Mr. Sun received a B.E. in business administration from Beijing Institute of Technology in 1993. He is a Certified Public Accountantin China. Mr. Jingsheng Huang has served as our director since December 17, 2015. Mr. Huang is the managing executive director at Harvard CenterShanghai. Prior to that, he was a partner of TPG Growth and RMB Funds based in Shanghai, China. Before joining TPG, he was a managing director at BainCapital LLC, where he set up and ran its Shanghai operations. Prior to that, Mr. Huang served multiple positions in the investment industry, includingmanaging director in China at SOFTBANK Asia Infrastructure Fund, partner at SUNeVision Ventures and senior manager of strategic investment at IntelCapital. Before starting his investment career, Mr. Huang was the director of research operations at GartnerGroup, a co-founder and vice president ofmarketing at Mtone Wireless and an English lecturer at Communication University of China. Before joining Harvard, Mr. Huang served as a member of theboard of China Venture Capital Association and a deputy chairman of Shanghai Private Equity Association. Mr. Huang currently serves as an independentdirector of Besunyen Holdings Company Limited, a company listed on the Hong Kong Stock Exchange. Mr. Huang received an M.B.A degree from HarvardBusiness School, an M.A. from Stanford University and a B.A. from Beijing Foreign Studies University. Ms. Chaomei Chen has served as our director since December 18, 2016. Ms. Chen had been part of our Advisory Committee from January 2016 toDecember 2016. Previously, Ms. Chen served as chief risk officer of LendingClub from June 2011 to December 2015. Before LendingClub, she served aschief risk officer of WaMu Card Services at JP Morgan Chase from October 2005 to August 2009. Prior to JP Morgan Chase, Ms. Chen was vice chairman andchief credit officer at Providian Financial Services from August 2002 to September 2005. Ms. Chen graduated with a B.S. degree in mathematics from theSouthwestern Jiaotong University in China and earned an M.S.E. degree in mathematical science from Whiting School of Engineering at the Johns HopkinsUniversity. Ms. Yihan Fang has served as our chief executive officer and the general manager in charge of the online lending business unit of CreditEase sinceMarch 2012. Ms. Fang has 15 years of experience in product, technology and marketing in internet and financial services. Prior to joining CreditEase,Ms. Fang served as director of marketing products at Nelnet/CUNet in 2011, a leading provider of digital enrollment marketing solutions. Prior to that,Ms. Fang worked at IAC/Ask.com with multiple positions from February 2002 to February 2010, including Vice President of Global Search and Answersoverseeing strategy and product development of various key search and question/answer products, Senior Director of Product Management responsible forsearch product and relevance, and Director of Search Operations responsible for search engine operations. Ms. Fang received a Master of Philosophy and aMaster of Science in Electrical Engineering and a Master of Arts in Astronomy from Columbia University. She completed her undergraduate study throughthe Program for Gifted Youth at the University of Science and Technology of China. 122Table of Contents Mr. Yu Cong has served as our chief financial officer since September 2014. Prior to joining us, Mr. Cong served as the Chief Representative ofDeutsche Bank AG’s Beijing Representative Office as well as a director and head of China Technology, Media & Telecommunications (TMT), fromOctober 2010 to August 2014, and as a vice president and director successively at the Asia Technology & Media Banking group from May 2008 toOctober 2010. Prior to that, Mr. Cong worked with a few other firms in the U.S., including Needham & Co. as a vice president of investment banking from2006 to 2008, Piper Jaffray & Co. as an equity research analyst covering companies in the technology industry from 2004 to 2006, and Applied Materials, asemiconductor equipment manufacturer, as a marketing manager from 1996 to 2003. Mr. Cong received his bachelor’s degree from the University of Scienceand Technology of China, Ph.D. from the University of Illinois at Urbana-Champaign, and an M.B.A. degree from Walter Haas School of Business, Universityof California at Berkeley. Mr. Yang Cao has served as our chief operating officer and chief technology officer since June 2016. Prior to joining Yirendai, Mr. Cao was thegeneral manager of Asia-Pacific operations at xAd, a leading mobile location advertising technology platform, from April 2014 to June 2016 where he led theefforts to start, build and grow xAd’s technology and business in the region. From September 2012 to August 2013, Mr. Cao served as chief technologyofficer of Zhubajie Network, where he joined through the acquisition of Julu Mobile, a mobile technology company co-founded by Mr. Cao. FromSeptember 2011 to September 2012, Mr. Cao also served as chief technology officer of WhitePages and held technology executive positions at TokBox andStarCite. Mr. Cao received Master of Science degree in Electrical Engineering from Stanford University and Bachelor of Science in Physics from PekingUniversity. Dr. Yichuan Pei has served as our chief credit officer since March 2017 and our chief risk officer since the third quarter of 2017. Prior to joining us,Dr. Pei served as vice general manager of Ping An Bank in Shanghai, China from October 2016 to February 2017 and as chief risk officer of KnowledgeDecision Sciences in San Jose, California from September 2013 to September 2016. Previously, Dr. Pei served as senior or executive vice president at variousbanks in the United States, including Bank of America, JP Morgan Chase, Washington Mutual Bank, Providian Financial Services, and Fleet Boston Bank.Dr. Pei graduated with a bachelor of science degree from the University of Science and Technology of China, received a Ph.D. degree from the Johns HopkinsUniversity in Baltimore, Maryland, and awarded a postdoctoral fellowship from Princeton University in Princeton, New Jersey. B. Compensation For the fiscal year ended December 31, 2017, we paid an aggregate of approximately RMB9.9 million (US$1.5 million) in cash to our directors andofficers. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRCsubsidiaries and consolidated variable interest entity are required by law to make contributions equal to certain percentages of each employee’s salary for hisor her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. For information regardingthe share-based incentive awards that we have granted to our officers and directors, please refer to “—Share Incentive Plan.” Employment Agreements and Indemnification Agreements We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers isemployed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of theexecutive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, ormisconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance writtennotice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of thejurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice. 123Table of Contents Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidenceand not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of ourconfidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietaryinformation of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose inconfidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment withus and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for theseinventions, designs and trade secrets. In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or heremployment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach oursuppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for thepurpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment withor provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our expressconsent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’stermination, or in the year preceding such termination, without our express consent. We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnifyour directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their beinga director or officer of our company. We have entered into director agreements with each of our independent directors. These agreements set forth the services to be provided andcompensation to be received by our independent directors, as well as the independent directors’ obligations in terms of confidentiality, non-competition andnon-solicitation. Pursuant to these agreements, the directorship of our independent directors will last until the earlier of (i) the date on which the directorceases to be a member of our board of directors for any reason or (ii) the date of termination of these agreements. Each party to a director agreement mayterminate the agreement through a 30-day prior written notice or such shorter period as the parties may agree upon. Share Incentive Plan We have adopted two share incentive plans, namely, the 2015 Share Incentive Plan and 2017 Share Incentive Plan, which we refer to as the 2015Plan and the 2017 Plan, respectively, which allow us to offer a variety of share-based incentive awards to employees, officers, directors and individualconsultants who render services to us. Pursuant to the 2015 Plan, the maximum number of shares that may be issued pursuant to all awards under the 2015Plan is 3,939,100 ordinary shares. As of March 31, 2018, 3,889,100 restricted share units were outstanding under the 2015 Plan. Pursuant to the 2017 Plan,the maximum aggregate number of shares which may be issued is 6,060,900. As of March 31, 2018, 3,626,752 restricted share units were outstanding underthe 2017 Plan. The following table summarizes, as of March 31, 2018, the outstanding restricted share units that we granted to our current directors and executiveofficers and to other individuals as a group under our 2015 Plan and 2017 Plan: Name Ordinary SharesUnderlyingRestricted Share Units Grant DateHuan Chen*July 1,2016*July 1,2017Qing Li*July 1,2017Jingsheng Huang*July 1,2016*July 1,2017Sam Hanhui Sun*July 1,2016*July 1,2017Chaomei Chen*July 1,2017Yihan Fang*July 1,2016*July 1,2017Yu Cong*July 1,2016*July 1,2017Yang Cao*July 1,2017Other Individuals as a Group4,075,194July 1,2016 and2017 124Table of Contents * Less than 1% of our total outstanding ordinary shares. The following paragraphs summarize the terms of the 2015 Plan and the 2017 Plan: Plan Administration. Our board of directors, or a committee designated by our board of directors, will administer the plan. The committee or the fullboard of directors, as appropriate, will determine the provisions and terms and conditions of each option grant. Award Agreements. Options and other awards granted under the plan are evidenced by an award agreement that sets forth the terms, conditions andlimitations for each grant, which may include the term of the award and the provisions applicable in the event of the grantee’s employment or serviceterminates. The exercise price of granted options may be amended or adjusted in the absolute discretion of our board of directors, or a committee designatedby our board of directors, without the approval of our shareholders or the recipients of the options. Eligibility. We may grant awards to employees, directors and consultants of our company or any of our affiliates, which include our parent company,subsidiaries and any entities in which our parent company or a subsidiary of our company holds a substantial ownership interest. Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement. Acceleration of Awards upon Change in Control. If a change-of-control corporate transaction occurs, the plan administrator may, in its solediscretion, provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested portionof such awards during a specific period of time, or (ii) the purchase of any award for an amount of cash equal to the amount that could have been attainedupon the exercise of such award, or (iii) the replacement of such award with other rights or property selected by the plan administrator in its sole discretion, or(iv) payment of award in cash based on the value of ordinary shares on the date of the change-of-control corporate transaction plus reasonable interest. Term of the Options. The term of each option grant shall be stated in the award agreement, provided that the term shall not exceed ten years from thedate of the grant. Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of succession, except as otherwiseprovided by the plan administrator. Termination of the Plan. Unless terminated earlier, the plan will terminate automatically in 2025. Our board of directors has the authority to amendor terminate the plan subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may impair the rights ofany award recipient unless agreed by the recipient. C. Board Practices Board of Directors Our board of directors consists of eight directors. A director is not required to hold any shares in our company to qualify to serve as a director. Adirector who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company mustdeclare the nature of his interest at a meeting of the directors. Subject to NYSE rules and disqualification by the chairman of the relevant board meeting, adirector may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if hedoes so his vote shall be counted and he may be counted in the quorum at the relevant board meeting at which such contract or transaction or proposedcontract or transaction is considered. The directors may exercise all the powers of the company to borrow money, to mortgage or charge its undertaking,property and uncalled capital, and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation ofthe company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service. 125Table of Contents Committees of the Board of Directors We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporategovernance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below. Audit Committee. Our audit committee consists of Sam Hanhui Sun, Jingsheng Huang and Chaomei Chen. Sam Hanhui Sun is the chairman of ouraudit committee. We have determined that Sam Hanhui Sun, Jingsheng Huang and Chaomei Chen satisfy the “independence” requirements of Section 303Aof the Corporate Governance Rules of the NYSE and Rule 10A-3 under the Securities Exchange Act of 1934. The audit committee oversees our accountingand financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: · appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independentauditors; · reviewing with the independent auditors any audit problems or difficulties and management’s response; · discussing the annual audited financial statements with management and the independent auditors; · reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and controlmajor financial risk exposures; · reviewing and approving all proposed related party transactions, including any transactions between us and CreditEase; · meeting separately and periodically with management and the independent auditors; and · monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures toensure proper compliance. Compensation Committee. Our compensation committee consists of Sam Hanhui Sun, Jingsheng Huang and Chaomei Chen. Sam Hanhui Sun is thechairman of our compensation committee. We have determined that Sam Hanhui Sun, Jingsheng Huang and Chaomei Chen satisfy the “independence”requirements of Section 303A of the Corporate Governance Rules of the NYSE. The compensation committee assists the board in reviewing and approvingthe compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not bepresent at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things: · reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executiveofficers; · reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; · reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and · selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’sindependence from management. 126Table of Contents Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Jingsheng Huang, SamHanhui Sun and Chaomei Chen. Jingsheng Huang is the chairman of our nominating and corporate governance committee. Jingsheng Huang, Sam HanhuiSun and Chaomei Chen satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE. The nominating andcorporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the compositionof the board and its committees. The nominating and corporate governance committee is responsible for, among other things: · selecting and recommending to the board nominees for election by the shareholders or appointment by the board; · reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills,experience and diversity; · making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and · advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliancewith applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial actionto be taken. Duties of Directors Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act inwhat they consider in good faith to be in our best interests. Our directors also have a duty to exercise the skill they actually possess and such care anddiligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensurecompliance with our memorandum and articles of association, as amended and restated from time to time, and the class rights vested thereunder in the holdersof the shares. Our company has the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain limited exceptionalcircumstances have the right to seek damages in our name if a duty owed by the directors is breached. Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers ofour board of directors include, among others: · convening shareholders’ annual and extraordinary general meetings; · declaring dividends and distributions; · appointing officers and determining the term of office of the officers; · exercising the borrowing powers of our company and mortgaging the property of our company; and · approving the transfer of shares in our company, including the registration of such shares in our share register. Terms of Directors and Executive Officers Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders. Each of our directors willhold office until the expiration of his or her term as provided in the written agreement with our company, if any, and until his or her successor has beenelected or appointed. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or compositionwith his creditors; (ii) dies or is found by our company to be or becomes of unsound mind, (iii) resigns his office by notice in writing to the company, or(iv) without special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his office be vacated. Ourofficers are elected by and serve at the discretion of the board of directors. 127Table of Contents D. Employees As of December 31, 2015, 2016 and 2017, we had a total of 608, 911 and 1037 employees, respectively. The following table sets forth thebreakdown of our employees as of December 31, 2017 by function: Number ofEmployees % of Total FunctionTechnology27126.1Risk Management888.5Operations37336.0Product Development757.2Sales and Marketing17316.7General and Administrative575.5Total1037100.0 As of December 31, 2017, 690 employees were based in Beijing, where our principal executive offices are located, 344 employees were based inChongqing, and 3 employees were based in Hong Kong. The employee numbers for periods through December 31, 2015 in this “Employees” section include employees of CreditEase who worked for ourbusiness prior to our carve-out from CreditEase. We believe we offer our employees competitive compensation packages and a work environment that encourages initiative and is based on merit,and as a result, we have generally been able to attract and retain qualified personnel and maintain a stable core management team. We plan to hire additionalemployees as we expand our business. As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely apension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan,and a housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries,bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. We have not madeadequate employee benefit payments, and may be required to make up the contributions for these plans as well as to pay late fees and fines. See “Item 3. KeyInformation—D. Risk Factors—Risks Related to Doing Business in China—Failure to make adequate contributions to various employee benefit plans asrequired by PRC regulations may subject us to penalties.” We enter into standard labor, confidentiality and non-compete agreements with our employees. The non-compete restricted period typically expiresone year after the termination of employment, and we agree to compensate the employee with a certain percentage of his or her pre-departure salary duringthe restricted period. We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes. E. Share Ownership Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as ofMarch 31, 2018 by: · each of our directors and executive officers; and · each person known to us to own beneficially more than 5% of our total outstanding ordinary shares. The calculations in the table below are based on 121,409,056 ordinary shares outstanding as of March 31, 2018. 128Table of Contents Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially ownedby a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including throughthe exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of thepercentage ownership of any other person. Ordinary Shares BeneficiallyOwned as of March 31, 2018 Number %†Directors and Executive Officers**:Ning Tang43,430,00035.8Huan Chen**Quan Zhou**Tina Ju——Qing Li**Jingsheng Huang**Sam Hanhui Sun**Chaomei Chen**Yihan Fang**Yu Cong**Yang Cao**Yichuan Pei——All Directors and Executive Officers as a Group43,799,87736.1 Principal Shareholders:CreditEase Holdings (Cayman) Limited100,000,00082.4 * Less than 1% of our total outstanding shares. ** Except for Mr. Huan Chen, Mr. Quan Zhou, Ms. Tina Ju, Mr. Qing Li, Mr. Sam Hanhui Sun, Mr. Jingsheng Huang and Ms. Chaomei Chen, the businessaddress of our directors and executive officers is 10/F, Building 9, 91 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China. Thebusiness address of Mr. Huan Chen is 10th Floor, Tower B, SOHO Newtown, 88 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China.The business address of Mr. Quan Zhou is 6th Floor, Tower A, COFCO Plaza, 8 Jianguomennei Avenue, Beijing, People’s Republic of China. Thebusiness address of Ms. Tina Ju is Level 19, Cheung Kong Center, 2 Queens Road, Central, Hong Kong. The business address of Mr. Qing Li is 23Coniston Ct, Princeton, NJ 08540. The business address of Mr. Sam Hanhui Sun is 17 Fen-si-ting Avenue, Apt 3-4-802, Dongcheng District, Beijing100009, China. The business address of Mr. Jingsheng Huang is Harvard Center Shanghai, 5/F Shanghai IFC-HSBC Building, No. 8 Century Avenue,Shanghai 200120, People’s Republic of China. The business address of Ms. Chaomei Chen is 338 Spear Street, 31-D, San Francisco, CA 94105, USA. † For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by suchperson or group by the sum of the total number of shares outstanding and the number of shares such person or group has the right to acquire uponexercise of option, warrant or other right within 60 days after March 31, 2018. The total number of ordinary shares outstanding as of March 31, 2018 is121,409,056. (1) Mr. Ning Tang does not hold any ordinary share in our company directly. Mr. Tang, through a British Virgin Islands company wholly owned by him,owns 43.4% of the total outstanding shares of CreditEase, our parent company, on an as-converted basis. (2) Mr. Quan Zhou does not hold any ordinary share in our company directly. Mr. Zhou beneficially owns these shares indirectly through IDG-Accel ChinaInvestors II L.P., a shareholder of CreditEase. (3) Ms. Tina Ju is a founding and managing partner of KPCB China, which holds certain equity interest in CreditEase through its affiliated funds. (4) CreditEase Holdings (Cayman) Limited is our parent company and is incorporated in the Cayman Islands, and its business address is 16/F, Tower C,SOHO New Town, 88 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China. CreditEase is owned by Mr. Ning Tang, our executivechairman, and a few investors, including IDG, KPCB China and Morgan Stanley Private Equity Asia, through their respective investment vehicles. 129(1)(2)(3)(4)Table of Contents As of March 31, 2018, 20,895,194 of our outstanding ordinary shares were held by one record holder in the United States, which is the depositary ofour ADS program, representing 17.2% of our total issued and outstanding ordinary shares as of such date. None of our existing shareholders has differentvoting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B. Related Party Transactions Carve-out Agreements with CreditEase We are a majority-owned subsidiary of CreditEase. We have entered into a series of agreements with CreditEase with respect to various ongoingrelationships between us. These agreements include a master transaction agreement, a transitional service agreement, a non-competition agreement, acooperation framework agreement and an intellectual property license agreement. The following are summaries of these agreements. Master Transaction Agreement The master transaction agreement contains provisions relating to our carve-out from CreditEase. Pursuant to this agreement, we are responsible forall financial liabilities associated with the current and historical online consumer finance marketplace business and operations that have been conducted byor transferred to us, and CreditEase is responsible for financial liabilities associated with all of CreditEase’s other current and historical businesses andoperations, in each case regardless of the time those liabilities arise. The master transaction agreement also contains indemnification provisions under whichwe and CreditEase agree to indemnify each other with respect to breaches of the master transaction agreement or any related inter-company agreement. In addition, we agree to indemnify CreditEase against liabilities arising from misstatements or omissions in the prospectus for our initial publicoffering or the registration statement of which it is a part, except for misstatements or omissions relating to information that CreditEase provided to usspecifically for inclusion in the prospectus for our initial public offering or the registration statement of which it forms a part. We also agree to indemnifyCreditEase against liabilities arising from any misstatements or omissions in our subsequent SEC filings and from information we provide to CreditEasespecifically for inclusion in CreditEase’s reports and filings, if any, following the initial filing of the registration statement with the SEC of which theprospectus for our initial public offering is a part, but only to the extent that the information pertains to us or our business or to the extent CreditEaseprovides us prior written notice that the information will be included in its reports or other subsequent filings, if any, and the liability does not result from theaction or inaction of CreditEase. Similarly, CreditEase will indemnify us against liabilities arising from misstatements or omissions in its subsequent filings,if any, or with respect to information that CreditEase provided to us specifically for inclusion in the prospectus for our initial public offering, the registrationstatement of which the prospectus for our initial public offering forms a part, or our annual reports or other SEC filings following the initial filing of theregistration statement with the SEC of which the prospectus for our initial public offering is a part, but only to the extent that the information pertains toCreditEase or CreditEase’s business or to the extent we provide CreditEase prior written notice that the information will be included in our annual reports orother SEC filings, and the liability does not result from our action or inaction. The master transaction agreement also contains a general release, under which the parties will release each other from any liabilities arising fromevents occurring on or before the initial filing date of the registration statement of which the prospectus for our initial public offering forms a part, includingin connection with the activities to implement our initial pub offering. The general release does not apply to liabilities allocated between the parties underthe master transaction agreement or the other inter-company agreements. 130Table of Contents Furthermore, under the master transaction agreement, we agree to use our reasonable best efforts to engage the same independent certified publicaccounting firm selected by CreditEase and to maintain the same fiscal year as CreditEase until the first CreditEase fiscal year-end following 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 CreditEaseceases to be the largest beneficial owner of our then outstanding voting securities (without considering holdings by certain institutional investors). We referto this earlier date as the control ending date. We also agree to use our reasonable best efforts to complete our audit and provide CreditEase with all financialand other information on a timely basis so that CreditEase may meet its deadlines for its filing of annual and quarterly financial statements, if applicable. The master transaction agreement will automatically terminate five years after the control ending date. This agreement can be terminated early orextended by mutual written consent of the parties. The termination of this agreement will not affect the validity and effectiveness of the transitional servicesagreement, the non-competition agreement, the cooperation framework agreement and the intellectual property license agreement. Transitional Services Agreement Under the transitional services agreement, CreditEase agrees that, during the service period, as described below, CreditEase will provide us withvarious corporate support services, including but not limited to: · operational management support; · administrative support; · legal support; · human resources support; and · accounting, internal control and internal audit support. CreditEase also may provide us with additional services that we and CreditEase may identify from time to time in the future. The price to be paid for the services provided under the transitional service agreement will be the actual direct and indirect costs of providing suchservices. Direct costs include compensation and travel expenses attributable to employees, temporary workers, and contractors directly engaged inperforming the services, as well as materials and supplies consumed in and agency fees arising from performing the services. Indirect costs includeoccupancy, information technology support and other overhead costs of the department incurring the direct costs of providing the services. The transitional service agreement provides that the performance of a service according to the agreement will not subject the provider of suchservice to any liability whatsoever except as directly caused by the gross negligence or willful misconduct of the service provider. Liability for grossnegligence or willful misconduct is limited to the lower of the price paid for the particular service or the cost of the service’s recipient performing the serviceitself or hiring a third party to perform the service. Under the transitional services agreement, the service provider of each service is indemnified by therecipient against all third-party claims relating to provision of services or the recipient’s material breach of a third-party agreement, except where the claim isdirectly caused by the service provider’s gross negligence or willful misconduct. The service period under the transitional services agreement commenced on the date of signing and will end on the earlier of December 23, 2020, thefifth anniversary of the completion of our initial public offering, or one year after the control ending date. We may terminate the transitional servicesagreement with respect to either all or part of the services by giving a 90-day prior written notice to CreditEase and paying all fees accrued through thetermination and costs actually incurred by CreditEase resulting from the early termination. Upon the control ending date, CreditEase may terminate thisagreement with respect to either all or part of the services by giving us a 90-day prior written notice. 131Table of Contents Non-competition Agreement Our non-competition agreement with CreditEase provides for a non-competition period beginning upon December 23, 2015, the completion of ourinitial public offering, and ending on the earlier of (i) one year after the control ending date or (ii) December 23, 2020, the fifteenth anniversary of thecompletion of our initial public offering. This agreement can be terminated early by mutual written consent of the parties. CreditEase agrees not to compete with us during the non-competition period in any business that is of the same nature as (i) the online consumerfinance marketplace business conducted or contemplated to be conducted by us as of the date of the agreement and (ii) other businesses that we andCreditEase may mutually agree from time to time, except for owning a non-controlling equity interest in any company competing with us. We agree not tocompete with CreditEase during the non-competition period in the businesses conducted by CreditEase, other than (i) the online consumer financemarketplace business currently conducted or contemplated to be conducted by us as of the date of the agreement and (ii) other businesses that we andCreditEase may mutually agree from time to time, except for owning non-controlling equity interest in any company competing with CreditEase. The non-competition agreement also provides for a mutual non-solicitation obligation that neither CreditEase nor we may, during the non-competition period, hire or solicit for hire, any active employees of or individuals providing consulting services to the other party, or any former employeesof or individuals providing consulting services to the other party within six months of the termination of their employment or consulting services, withoutthe other party’s consent, except for solicitation activities through generalized non-targeted advertisement not directed to such employees or individuals thatdo not result in a hiring within the non-competition period. Cooperation Framework Agreement Under the cooperation framework agreement, CreditEase agrees to provide us long-term services and support in terms of offline user acquisition,collection and technical support. In terms of borrower acquisition, we will submit our request for borrower leads to CreditEase on a monthly basis andCreditEase will direct borrowers who fall within our target borrower group to our online marketplace. As for investor acquisition, CreditEase will, at itsdiscretion, direct to us or share information on any investors it learns may be interested in our online marketplace. The rate of fees, if any, charged by oneparty to the other party under the cooperation contemplated by this agreement shall not be higher than the fee rate charged by or to any unrelated third party.The current fee rate charged to us by CreditEase for offline borrower acquisition services is 5% of the loans facilitated to borrowers referred by CreditEase.Pursuant to our discussion with CreditEase, this fee rate increases to 6% for the three years starting 2016. After that, the fee rate may be adjusted on a yearlybasis based on commercial negotiation, and after taking into consideration the costs to CreditEase for providing such services and with reference to marketrates. This agreement became effective on December 23, 2015, the date of completion of our initial public offering, and will expire on the earlier of (i) thefifteenth anniversary of the commencement of the cooperation period or (ii) one year after the control ending date. Intellectual Property License Agreement Under the intellectual property license agreement, CreditEase and we grant to each other and each party’s respective subsidiaries and variableinterest entities a worldwide, royalty-free, fully paid-up, non-sublicensable, non-transferable, limited, non-exclusive license of intellectual property owned bythe licensing party to use, reproduce, modify, prepare derivative works of, perform, display, or otherwise exploit, except for certain trademarks with regard towhich CreditEase agrees to grant us a worldwide, royalty-free, fully paid-up, sublicensable, transferable, unlimited and exclusive license to use, reproduce,modify, prepare derivative works of, perform, display, sublicense, transfer or otherwise exploit, until and unless such trademarks are transferred to ourcompany or any of our subsidiaries or consolidated variable interest entities. As of the date of this annual report, a total of 44 trademarks have beentransferred to us by CreditEase. CreditEase and we also agree, to the extent permitted under applicable laws and regulations, to cooperate in sharing information and data collectedfrom each party’s business operation, including without limitation borrower and investor information and credit and loan data, as reasonably requested by therequesting party. This information sharing is free of charge unless otherwise mutually agreed in writing. 132Table of Contents This agreement became effective on December 23, 2015, the date of completion of our initial offering, and will expire on the earlier of (i) thefifteenth anniversary of the commencement of the cooperation period or (ii) one year after the control ending date. Transactions with CreditEase Affiliated Entities Prior to the establishment of Yirendai Ltd., our online consumer finance marketplace business was carried out by various subsidiaries and variableinterest entities of CreditEase, which provided us with origination and servicing, sales and marketing and general and administrative services. Since wecompleted our carve-out from CreditEase and became a stand-alone company in March 2015, affiliates of CreditEase have continued to provide certainsupporting services to us. Expenses of services provided by CreditEase’s affiliates were recorded as service expenses charged by related parties in 2015, 2016and 2017 based on various agreements that we entered into with relevant affiliates of CreditEase. Total cost and expense from CreditEase for such serviceswere approximately RMB441.9 million, RMB911.7 million and RMB 1,325.9 million(US$203.8 million) for 2015, 2016 and 2017, respectively. Amongthese, allocation for provision of borrower and investor acquisition and referral services were RMB405.1 million, RMB818.7 million and RMB1,080.7million(US$166.1 million), for system support were RMB26.1 million, RMB72.0 million and RMB 133.2 million(US$20.5 million) and for collectionservices were RMB3.4 million, RMB11.9 million and RMB 96.3 million (US$14.8 million), for 2015, 2016 and 2017, respectively. As of December 31,2017, the total amount due to affiliates of CreditEase for such services was RMB117.2 million (US$18.0 million). CreditEase Huimin Investment Management (Beijing) Co., Ltd., or CreditEase Huimin, is an affiliate of CreditEase. From February 1, 2017, weprovides borrower acquisition and referral services to CreditEase Huimin. As of December 31, 2017, we had RMB16.9 million (US$2.6 million) due fromCreditEase Huimin. Pucheng Credit Assessment and Management (Beijing) Co., Ltd., or Pucheng Credit, and CreditEase Puhui Information Consulting (Beijing)Co., Ltd., or CreditEase Puhui, are affiliates of CreditEase. From August 2017 to December 2017, we cooperated with Zhejiang Chouzhou Commercial Bankto furnish the borrower referral and facilitation services to the bank. We undertake to repay the bank on behalf of defaulting borrowers if any repayment is 80days overdue and upon such full repayment to the bank, we will obtain the creditor’s rights in respect of the relevant default amount. Under the arrangement,Pucheng Credit and CreditEase Puhui provide a joint guarantee with us. Guarantee Arrangement with Tian Da Xin An Tian Da Xin An (Beijing) Guarantee Co., Ltd., or Tian Da Xin An, is a guarantee company affiliated with CreditEase. From August 2013 toDecember 2014, we had a guarantee arrangement with Tian Da Xin An to provide investors with the option of purchasing the assurance that their principaland interest would be repaid in the event that their loans default. Tian Da Xin An was responsible for repaying the principal and accrued interest of thedefault loan and it charged the investor 10% of the monthly loan interest for the guarantee service. In practice, we reimbursed the loan principal and accruedinterest to the investor in the first place in the case of default, and then collected the amount from Tian Da Xin An, and we collected from the investor theguarantee service fee charged by Tian Da Xin An on its behalf, and then remit the amount to Tian Da Xin An. The amount due from Tian Da Xin An as ofDecember 31, 2015 and 2016 were RMB20.8 million and RMB1.7 million, respectively, and the amount due to Tian Da Xin An as of December 31, 2017were RMB2.7 million (US$0.4 million), which represent the net amount of services fee receivable arising from guarantee fee, default loan principal andaccrued interest due to borrowers as well as uncollectible transaction fee. The guarantee arrangement has been replaced by our new quality assurance programsince January 2015. All loans originated on or after January 1, 2015 are covered under the quality assurance program, and the outstanding balance of theloans guaranteed under the previous guarantee arrangement will continue to be covered under the guarantee arrangement until the loans reach maturity. InFebruary 2018, Tian Da Xin An has ceased to be an affiliate with CreditEase. 133Table of Contents Business Relationships in relation to Trusts As part of our strategy to expand our investor base from individual investors to institutional investors, in October 2015 we established a businessrelationship with Trust No. 1, under which Trust No. 1 invested in loans with an aggregate principal amount of RMB250.0 million through our platformusing funds received from its investor. Trust No. 1 is administered by an independent third-party state-owned trust company, which acts as the trustee. Thesettlor and sole beneficiary of Trust No. 1 is a fund managed by Zhe Hao, an affiliate of CreditEase. Fund No. 1’s investors are PRC individuals who are notaffiliated with our company. In April 2016, Zhe Hao, on behalf of Fund No. 1, transferred Fund No. 1’s entire beneficiary rights in Trust No. 1 to ChinaInternational Capital Corporation Limited, a special purpose vehicle, which subsequently issued and listed RMB250.0 million (US$38.4 million) asset-backed securities on the Shenzhen Stock Exchange in China, with the loans invested by Trust No. 1 through our platform as the underlying assets. Heng Ye,one of our PRC subsidiaries, purchased RMB47.5 million (US$7.3 million) asset-backed securities through the Shenzhen Stock Exchange. Puxin HengyeTechnology Development (Beijing) Co., Ltd., a subsidiary of CreditEase, and two funds managed by Zhe Hao purchased RMB25.0 million (US$3.8 million)and RMB67.5 million (US$10.4 million) asset-backed securities, respectively. In July 2016, we established a business relationship with another trust, Huijin No. 28 Single Capital Trust E2, or Trust No. 2, which is of the similarstructure to Trust No. 1 described above—Trust No. 2 is administered by an independent third-party state-owned trust company and has a fund, CreditEaseWealth Consumer Credit Investment Fund managed by Zhe Hao, or Fund No. 2, as its settlor and sole beneficiary. Trust No. 2 invested an aggregate ofRMB300.0 million in loans to borrowers recommended by our platform using the funds raised by its sole beneficiary from ultimate investors, includingRMB30.0 million invested by Heng Cheng, one of our variable interest entities in the PRC. In April 2017, Zhe Hao, on behalf of Fund No. 2, transferred FundNo. 2’s beneficiary rights in Trust No. 2 to Bohai International Trust Co., Ltd., an independent third party, which created Bohai Trust • Zhong Yi PropertyTrust No.1, or Zhong Yi Trust, to host the beneficial rights. Zhong Yi Trust has subsequently completed an issuance of RMB300.0 million (US$46.1 million)asset-backed securities through private placements. On the date of transfer, Heng Ye purchased all subordinated beneficiary rights amounted to RMB102.3million (US$15.7 million) representing 34% of the asset-backed securities upon their issuance. In June 2017 and October 2017, we established similar business relationship with other trusts, Trust No. 3 and Bohai Trust No. 1, respectively. TrustNo. 3 and Bohai Trust No. 1 are administered by the independent third-party trust company to invest in loans to borrowers recommended by our platform,with Heng Ye as their sole settlor and sole beneficiary. Heng Ye invested in an aggregate of RMB500.0 million (US$76.8 million) and RMB200.0million(US$30.7 million) in the Trust No. 3 and Bohai Trust No. 1, respectively. We treat Trust No. 1, the asset-backed securities plan, Trust No. 2, Zhong Yi Trust, Trust No. 3 and Bohai Trust No. 1 as our variable interest entitiesunder U.S. GAAP for the reasons detailed in “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies,Judgments and Estimates—Basis of Presentation, Combination and Consolidation,” and consolidate the financial results of the Consolidated ABFE in ourconsolidated financial statements in accordance with U.S. GAAP. Contractual Arrangements with Heng Cheng, Yi Ren Wealth Management and Their Respective Shareholders PRC laws and regulations currently restrict foreign ownership and investment in value-added telecommunications services in China. As a result, weoperate our relevant business through contractual arrangements among Heng Ye and Heng Yu Da, our PRC subsidiaries, Heng Cheng and Yi Ren WealthManagement, our variable interest entities, and the shareholders of Heng Cheng and Yi Ren Wealth Management. For a description of these contractualarrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Heng Cheng and Yi Ren WealthManagement.” Employment Agreements and Indemnification Agreements See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment Agreements and Indemnification Agreements.” C. Interests of Experts and Counsel Not applicable. 134Table of Contents Item 8. Financial Information A. Consolidated Statements and Other Financial Information We have appended consolidated financial statements filed as part of this annual report. Legal Proceedings We may from time to time be subject to various legal or administrative claims and proceedings incidental to the conduct of our business. We and certain of our officers were named as defendants in two putative securities class actions filed in the United States District Court for theCentral District of California that were subsequently dismissed: Lefter v. Yirendai Ltd. et al., Civil Action No. 2:16-cv-06437-MFW-AGR (C.D. Cal.) and Rohv. Yirendai Ltd. et al., Civil Action No. 2:16-cv-06506-MFW-AGR (C.D. Cal.). The action—purportedly brought on behalf of a class of persons whoallegedly suffered damages as a result of their trading in our ADSs between May 11, 2016 and August 24, 2016—alleges that our public press releases datedMay 11, 2016 and August 9, 2016 contained misstatements or omissions relating to our experiencing an increasing amount of fraud related to customerapplication for loans and the potential negative impact that the Chinese government’s implementation of new anti-fraud regulations could have on ourbusiness. On November 29, 2016, the Court entered an order consolidating the cases and appointing lead plaintiffs and lead counsel for the consolidated case.On January 27, 2017, the lead plaintiffs filed their first amended complaint. On March 28, 2017, we filed a motion to dismiss the first amended complaint. OnJuly 12, 2017, the United States District Court for the Central District of California dismissed the class action lawsuits and concluded that the plaintiff’saction, which was not certified as a class action, shall be dismissed with prejudice. For risks and uncertainties relating to the future cases against us, please see“Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs— We were previously subject to two shareholder class action lawsuits that weresubsequently dismissed. However, we cannot assure you that we will not be subject to other shareholder class action lawsuits in the future.” Dividend Policy Our board of directors has discretion on whether to distribute dividends, subject to our memorandum and articles of association and certainrestrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in nocircumstances 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. Inaddition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors.Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capitalrequirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. On July 29, 2017, our board of directors approved a semi-annual dividend policy. Under this policy, semi-annual dividends will be set at an amountequivalent to approximately 15% of our anticipated net income after tax in each half year commencing from the second half of 2017. The determination todeclare 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 andwill be based upon our operations and earnings, cash flow, financial condition and other relevant factors that the board may deem appropriate. On July 29, 2017, our board of directors also approved a special cash dividend of US$0.75 per ordinary share of our company (or US$1.50 per ADS),which was already paid on October 16, 2017 to holders of our company’s ordinary shares of record as of the close of business on September 29, 2017. OnMarch 11, 2018, our board of directors approved another special cash dividend of US$0.14 per ordinary share of our company (or US$0.28 per ADS), whichwas expected to be paid on May 15, 2018 to holders of our company’s ordinary shares of record as of the close of business on April 30, 2018. We are aholding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including anypayment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item 4. Informationon the Company—B. Business Overview—Regulation—Regulations on Dividend Distribution” and “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.” 135Table of Contents If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the depositagreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other than Equity Securities—D. AmericanDepositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars. B. Significant Changes Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidatedfinancial statements included in this annual report. Item 9. The Offer and Listing A. Offering and Listing Details Our ADSs, each representing two of our ordinary shares, have been listed on the NYSE since December 18, 2015. Our ADSs trade under the symbol“YRD.” The following table provides the high and low trading prices for our ADSs on the NYSE since the date of our initial public offering. Trading Price High LowAnnual Highs and Lows2015 (Since December 18, 2015)10.398.35201642.343.35201753.519.85Quarterly Highs and LowsFourth Quarter 2015 (Since December 18, 2015)10.398.35First Quarter 201611.983.35Second Quarter 201617.4010.02Third Quarter 201642.3413.73Fourth Quarter 201633.6220.5First Quarter 201731.6419.85Second Quarter 201726.6222.76Third Quarter 201745.9124.77Fourth Quarter 201753.532.53Monthly Highs and LowsSeptember 201745.9139.15October 201753.540.3November 201745.337.2December 20174532.53January 201847.9337.37February 201842.3534.78March 201844.137.32April 2018 (through April 23, 2018)40.6234.51 B. Plan of Distribution Not applicable. C. Markets Our ADSs have been listed on the NYSE since December 18, 2015 under the symbol “YRD.” 136Table of Contents D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. Item 10. Additional Information A. Share Capital Not applicable. B. Memorandum and Articles of Association We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association, asamended and restated from time to time, and the Companies Law (2016 Revision) of the Cayman Islands, which is referred to as the Companies Law below,and the common law of the Cayman Islands. The following are summaries of material provisions of our memorandum and articles of association, insofar as they relate to the material terms of ourordinary shares. Ordinary Shares. Our ordinary shares are issued in registered form and are issued when registered in our register of members. Our shareholders whoare not residents of the Cayman Islands may freely hold and vote their shares. Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, ourshareholders may by an ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under CaymanIslands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or our share premium account,provided that a dividend may not 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. Voting Rights. In respect of all matters subject to a shareholders’ vote, each ordinary share is entitled to one vote. Voting at any shareholders’meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders whotogether hold not less than 10% of the votes attaching to the total ordinary shares present in person or by proxy. Each shareholder is entitled to one vote foreach ordinary share registered in his or her name on our register of members. A quorum required for a meeting of shareholders consists of one or more shareholders present and holding shares which represent, in aggregate, notless than one-third of the votes attaching to all issued and outstanding shares in our company entitled to vote at shareholders’ meeting. Shareholders may bepresent in person or by proxy or, if the shareholder is a legal entity, by its duly authorized representative. Shareholders’ meetings may be convened by ourboard of directors on its own initiative or by the chairman of our board of directors or upon a request to the directors by shareholders holding shares whichrepresent, in aggregate, no less than one-third of the votes attaching to our voting share capital in issue. Advance notice of at least seven days is required forthe convening of our annual general shareholders’ meeting and any other general shareholders’ meeting. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes cast by thoseshareholders entitled to vote who are present in person or by proxy at a general meeting, while a special resolution requires the affirmative vote of no lessthan two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a generalmeeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of ourcompany, as permitted by the Companies Law and our memorandum and articles of association. A special resolution will be required for important matterssuch as a change of name or making changes to our memorandum or articles of association. Holders of the ordinary shares may, among other things, divide orconsolidate their shares by ordinary resolution. 137Table of Contents Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares byan instrument of transfer in the usual or common form or any other form approved by our board of directors. Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which wehave a lien. Our board of directors may also decline to register any transfer of any ordinary share unless: · the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as ourboard of directors may reasonably require to show the right of the transferor to make the transfer; · the instrument of transfer is in respect of only one class of shares; · the instrument of transfer is properly stamped, if required; · in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and · a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to usin respect thereof. If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to eachof the transferor and the transferee notice of such refusal. The registration of transfers may, after compliance with any notice requirements of the NYSE, be suspended and the register closed at such times andfor such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor theregister closed for more than 30 days in any year. Liquidation. On a winding up of our company, if the assets available for distribution among our shareholders shall be more than sufficient to repaythe whole of the share capital at the commencement of the winding up, the surplus will be distributed among our shareholders in proportion to the par valueof the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of allmonies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, theassets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them. We are a “limited liability”company incorporated under the Companies Law, and under the Companies Law, the liability of our members is limited to the amount, if any, unpaid on theshares respectively held by them. Our memorandum of association contains a declaration that the liability of our members is so limited. Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid ontheir shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called uponand remain unpaid are subject to forfeiture. Redemption, Repurchase and Surrender of Ordinary Shares. We may issue shares on terms that such shares are subject to redemption, at our optionor at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or bya special resolution of our shareholders. Our company may also repurchase any of our shares provided that the manner and terms of such purchase have beenapproved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our memorandum and articles of association.Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue ofshares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if thecompany can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Lawno such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no sharesoutstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for noconsideration. 138Table of Contents Variations of Rights of Shares. The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares ofthat class or series) may be varied with the consent in writing of the holders of a majority of the issued shares of that class or series or with the sanction of aspecial resolution passed at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of anyclass issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue offurther shares ranking pari passu with such existing class of shares. Issuance of Additional Shares. Our memorandum and articles of association authorizes our board of directors to issue additional ordinary sharesfrom time to time as our board of directors shall determine, to the extent of available authorized but unissued shares. Our memorandum and articles of association also authorizes our board of directors to establish from time to time one or more series of preferredshares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including: · the designation of the series; · the number of shares of the series; · the dividend rights, dividend rates, conversion rights, voting rights; and · the rights and terms of redemption and liquidation preferences. Our board of directors may issue preferred shares without action by our shareholders to the extent of available authorized but unissued shares.Issuance of these shares may dilute the voting power of holders of ordinary shares. Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies ofour list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control ofour company or management that shareholders may consider favorable, including provisions that: · authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges andrestrictions of such preferred shares without any further vote or action by our shareholders; and · limit the ability of shareholders to requisition and convene general meetings of shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles ofassociation for a proper purpose and for what they believe in good faith to be in the best interests of our company. General Meetings of Shareholders and Shareholder Proposals. Our shareholders’ general meetings may be held in such place within or outside theCayman Islands as our board of directors considers appropriate. 139Table of Contents As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual general meetings. Ourmemorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting. Shareholders’ annual general meetings and any other general meetings of our shareholders may be convened by a majority of our board of directorsor our chairman. Our board of directors shall give not less than seven days’ written notice of a shareholders’ meeting to those persons whose names appear asmembers in our register of members on the date the notice is given (or on any other date determined by our directors to be the record date for such meeting)and who are entitled to vote at the meeting. Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with anyright to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our memorandum andarticles of association allow our shareholders holding shares representing in aggregate not less than one-third of our voting share capital in issue, torequisition an extraordinary general meeting of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions sorequisitioned to a vote at such meeting; however, our memorandum and articles of association do not provide our shareholders with any right to put anyproposals before annual general meetings or extraordinary general meetings not called by such shareholders. Election and Removal of Directors Unless otherwise determined by our company in general meeting, our memorandum and articles of association provide that our board will consist ofnot less than three directors. There are no provisions relating to retirement of directors upon reaching any age limit. The directors have the power to appoint any person as a director either to fill a casual vacancy on the board or as an addition to the existing board.Our shareholders may also appoint any person to be a director by way of ordinary resolution. A director may be removed with or without cause by ordinary resolution. In addition, the office of any director shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with hiscreditors, (ii) dies or is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing to our company, or (iv) without special leave ofabsence from our board, is absent from three consecutive board meetings and our board resolves that his office be vacated. Proceedings of Board of Directors Our memorandum and articles of association provide that our business is to be managed and conducted by our board of directors. The quorumnecessary for board meetings may be fixed by the board and, unless so fixed at another number, will be a majority of the directors. Our memorandum and articles of association provide that the board may from time to time at its discretion exercise all powers of our company toraise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets and uncalled capital of our company and issue debenturesand other securities of our company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party. Changes in Capital Our shareholders may from time to time by ordinary resolution: · increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; · consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares; 140Table of Contents · sub-divide our existing shares, or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amountpaid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; or · cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish theamount of our share capital by the amount of the shares so cancelled. Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by our company foran order confirming such reduction, reduce our share capital or any capital redemption reserve in any manner permitted by law. Exempted Company. We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes betweenordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of theCayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinarycompany except that an exempted company: · does not have to file an annual return of its shareholders with the Registrar of Companies; · is not required to open its register of members for inspection; · does not have to hold an annual general meeting; · may issue negotiable or bearer shares or shares with no par value; · may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); · may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; · may register as a limited duration company; and · may register as a segregated portfolio company. “Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company(except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or othercircumstances in which a court may be prepared to pierce or lift the corporate veil). Register of Members. Under Cayman Islands law, we must keep a register of members and there should be entered therein: · the names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid,on the shares of each member; · the date on which the name of any person was entered on the register as a member; and · the date on which any person ceased to be a member. Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of memberswill raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter ofCayman Islands law to have legal title to the shares as set against its name in the register of members. If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in enteringon the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or ourcompany itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse suchapplication or it may, if satisfied of the justice of the case, make an order for the rectification of the register. 141Table of Contents C. Material Contracts We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Informationon the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” or elsewhere in this annual report onForm 20-F. D. Exchange Controls See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.” E. Taxation The following summary of the principal Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinaryshares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summarydoes not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state andlocal tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States. Cayman Islands Taxation The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is notaxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islandsexcept for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. TheCayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange controlregulations or currency restrictions in the Cayman Islands. Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be requiredon the payment of a dividend or capital to any holder of the shares, nor will gains derived from the disposal of the shares be subject to Cayman Islandsincome or corporation tax. No stamp duty is payable in respect of the issue of the shares or on an instrument of transfer in respect of a share. People’s Republic of China Taxation Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto managementbody” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. Theimplementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of thebusiness, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known asCircular 82 and amended in December 2017, 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 PRCenterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the StateAdministration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of alloffshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regardedas a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location ofthe 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 subjectto approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board andshareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in thePRC. 142Table of Contents The State Administration of Taxation issued the Notice on Promulgating the Administrative Measures for Special Tax Investigation Adjustmentsand Mutual Agreement Procedures, or Notice 6, on March 17, 2017. Notice 6 further regulates and strengthens the transfer pricing administration onoutbound payments by a PRC enterprise to its overseas related parties. In addition to emphasizing that outbound payments by a PRC enterprise to itsoverseas related parties must comply with arm’s-length principles, Notice 6 specifies certain circumstances whereby such payments that do not comply witharm’s-length principles may be subject to the special tax adjustments by the tax authority, including payments to an overseas related party which does notundertake any function, bear any risk or has no substantial operation or activities, payments for services which do not enable the PRC enterprise to obtaindirect or indirect economic benefits, royalties paid to an overseas related party which only owns the legal rights of the intangible assets but has nocontribution to the value of such intangible assets, royalties paid to an overseas related party for the transfer of the right to use of the intangible assets with noeconomic benefits, and royalties paid to an overseas related party for the incidental benefits generated from the listing activities. Although we believe all ourrelated party transactions, including all payments by our PRC subsidiaries and consolidated variable interest entities to our non-PRC entities, are made on anarm’s-length basis and our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in ourfinancial statements and may materially affect our financial results in the period or periods for which such determination is made. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. We do not believe that Yirendai Ltd. meetsall of the conditions above. Yirendai Ltd. is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in itssubsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) aremaintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the taxresident 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.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us. However, if the PRC tax authorities determine that Yirendai Ltd. is a PRC resident enterprise for enterprise income tax purposes, we may be subjectto the special tax adjustments conducted by the PRC tax authority and be further required to withhold a 10% withholding tax from dividends we pay to ourshareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADSholders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourcedfrom within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividendsor gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply tosuch dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclearwhether non-PRC shareholders of Yirendai Ltd. would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC inthe event that Yirendai Ltd. is treated as a PRC resident enterprise. Provided that our Cayman Islands holding company, Yirendai Ltd., is not deemed to be a PRC resident enterprise, holders of our ADSs and ordinaryshares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition ofour shares or ADSs. However, under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, inparticular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-residententerprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority suchindirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks areasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirecttransfer 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 theapplicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be atrisk of being required to file a return and being taxed under Circular 7, and we may be required to expend valuable resources to comply with Circular 7, or toestablish that we should not be taxed under these circulars. See “3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in thefuture.” 143Table of Contents United States Federal Income Tax Considerations The following discussion is a summary of United States federal income tax considerations relating to the ownership and disposition of our ADSs orordinary shares by a U.S. holder (as defined below) that holds our ADSs or ordinary shares as “capital assets” (generally, property held for investment) underthe United States Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing United States federal income tax law,which is subject to differing interpretations and may be changed, possibly with retroactive effect. No ruling has been sought from the Internal RevenueService (the “IRS”) with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a courtwill not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particularinvestors in light of their individual circumstances, including investors subject to special tax rules (for example, certain financial institutions, insurancecompanies, broker-dealers, traders in securities that have elected the mark-to-market method of accounting for their securities, United States expatriates,partnerships and their partners, regulated investment companies, real estate investment trusts, and tax-exempt organizations (including private foundations)),investors who are not U.S. holders, holders who own (directly, indirectly, or constructively) 10% or more of our stock, investors that will hold their ADSs orordinary shares as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for United States federal income tax purposes, orinvestors that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from thosesummarized below. In addition, this discussion does not discuss any non-United States, alternative minimum tax, state, or local tax considerations, or theMedicare tax on net investment income. Each U.S. holder is urged to consult its tax advisors regarding the United States federal, state, local, and non-UnitedStates income and other tax considerations of an investment in our ADSs or ordinary shares. General For purposes of this discussion, a “U.S. holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income taxpurposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federalincome tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income ofwhich is subject to United States federal income taxation regardless of its source, or (iv) a trust (A) the administration of which is subject to the primarysupervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or(B) that has otherwise elected to be treated as a United States person under applicable United States Treasury regulations. If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinaryshares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnershipsholding our ADSs or ordinary shares and partners in such partnerships are urged to consult their tax advisors as to the particular United States federal incometax consequences of an investment in our ADSs or ordinary shares. For United States federal income tax purposes, a U.S. holder of ADSs will generally be treated as the beneficial owner of the underlying sharesrepresented by the ADSs. The remainder of this discussion assumes that a U.S. holder of our ADSs will be treated in this manner. Accordingly, deposits orwithdrawals of ordinary shares for ADSs will generally not be subject to United States federal income tax. Passive Foreign Investment Company Considerations A non-United States corporation, such as our company, will be a “passive foreign investment company,” or “PFIC,” for United States federal incometax purposes, if, in any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or(ii) 50% or more of the average quarterly value of its assets (as determined on the basis of fair market value) during such year produce or are held for theproduction of passive income. Cash is categorized as a passive asset and the company’s unbooked intangibles associated with active business activities maygenerally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from thedisposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any othercorporation in which we own, directly or indirectly, at least 25% (by value) of the stock. 144Table of Contents Although the law in this regard is unclear, we intend to treat Heng Cheng and Yi Ren Wealth Management as being owned by us for United Statesfederal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled tosubstantially all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated financial statements. Assuming thatwe are the owner of Heng Cheng and Yi Ren Wealth Management for United States federal income tax purposes, and based upon our current and projectedincome and assets, including goodwill, and the current and projected value of our ADSs, we do not believe that we were a PFIC for the taxable year endedDecember 31, 2017 and do not anticipate becoming a PFIC in the foreseeable future. Assuming that we are the owner of Heng Cheng and Yi Ren WealthManagement for United States federal income tax purposes, although we do not believe that we were a PFIC for the taxable year ended December 31, 2017and do not anticipate becoming a PFIC in the foreseeable future, the determination of whether we are or will become a PFIC will depend in part upon thevalue of our goodwill and other unbooked intangibles (which will depend upon the market value of our ADSs or ordinary shares from time-to-time, whichmay be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our market capitalization. Amongother matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for the current or future taxableyears. It is also possible that the IRS may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in ourcompany being or becoming a PFIC for the current or one or more future taxable years. In addition, if we were treated as not owning Heng Cheng and Yi Ren Wealth Management for United States federal income tax purposes, our risk ofbeing classified as a PFIC may substantially increase. Because our PFIC status for any taxable year is a factual determination that can be made only after theclose of a taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. If we are a PFIC for anyyear during which a U.S. holder holds our ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during whichsuch U.S. holder holds our ADSs or ordinary shares. The discussion below under “Dividends” and “Sale or Other Disposition of ADSs or Ordinary Shares” is written on the basis that we will not be orbecome a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are a PFIC for the current taxableyear or any subsequent taxable year are generally discussed below under “Passive Foreign Investment Company Rules.” Dividends Subject to the PFIC rules discussed below, any cash distributions (including the amount of any tax withheld) paid on our ADSs or ordinary sharesout of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in thegross income of a U.S. holder as dividend income on the day actually or constructively received by the U.S. holder, in the case of ordinary shares, or by thedepositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles,any distribution paid will generally be reported as a “dividend” for United States federal income tax purposes. A non-corporate recipient of dividend incomewill generally be subject to tax on dividend income from a “qualified foreign corporation” at a reduced United States federal tax rate rather than the marginaltax rates generally applicable to ordinary income provided that certain holding period requirements are met. A non-United States corporation (other than a corporation that is a PFIC for the taxable year in which the dividend is paid or the preceding taxableyear) will generally be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United Stateswhich the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of informationprogram, or (b) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market inthe United States. Our ADSs are listed on the NYSE, and thus we believe that we are a qualified foreign corporation with respect to dividends paid on theADSs. Since we do not expect that our ordinary shares will be listed on established securities markets, we do not believe that dividends that we pay on ourordinary shares that are not represented by ADSs currently meet the conditions required for the reduced tax rate. There can be no assurance that our ADSs willcontinue to be considered readily tradable on an established securities market in the United States in later years. In the event we are deemed to be a residententerprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the United States-PRC income tax treaty (which the U.S. TreasuryDepartment has determined is satisfactory for this purpose) and in that case we would be treated as a qualified foreign corporation with respect to dividendspaid on our ordinary shares or ADSs. Each non-corporate U.S. holder is advised to consult its tax advisors regarding the availability of the reduced tax rateapplicable to qualified dividend income for any dividends we pay with respect to our ADSs or ordinary shares. Dividends received on the ADSs or ordinaryshares will not be eligible for the dividends received deduction allowed to corporations. 145Table of Contents Dividends will generally be treated as income from foreign sources for United States foreign tax credit purposes and will generally constitute passivecategory income. In the event that we are deemed to be a PRC “resident enterprise” under the Enterprise Income Tax Law, a U.S. holder may be subject toPRC withholding taxes on dividends paid on our ADSs or ordinary shares. (See “Taxation—People’s Republic of China Taxation”) In that case, a U.S. holdermay be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any non-refundable foreign withholding taxes imposedon dividends received on ADSs or ordinary shares. A U.S. holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim adeduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which such U.S. holder elects to do so for allcreditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. holders are advised to consult their tax advisors regarding theavailability of the foreign tax credit under their particular circumstances. Sale or Other Disposition of ADSs or Ordinary Shares Subject to the PFIC rules discussed below, a U.S. holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs orordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. holder’s adjusted tax basis in such ADSsor ordinary shares. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than one year and will generally beUnited States source gain or loss for United States foreign tax credit purposes. Long-term capital gain of non-corporate U.S. holders is generally eligible for areduced rate of taxation. The deductibility of a capital loss may be subject to limitations. In the event that we are treated as a PRC “resident enterprise” underthe Enterprise Income Tax Law and gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, a U.S. holder that is eligible for thebenefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC source income. If such gain is not treated as PRCsource income, however, a U.S. holder generally will not be able to obtain a U.S. foreign tax credit for any PRC tax withheld or imposed unless such U.S.holder has other foreign source income in the appropriate category for the applicable tax year. U.S. holders are advised to consult their tax advisors regardingthe tax consequences if a foreign tax is imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit undertheir particular circumstances and the election to treat any gain as PRC source. Passive Foreign Investment Company Rules If we are a PFIC for any taxable year during which a U.S. holder holds our ADSs or ordinary shares, and unless the U.S. holder makes a mark-to-market election (as described below), the U.S. holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether weremain a PFIC, for subsequent taxable years, on (i) any excess distribution that we make to the U.S. holder (which generally means any distribution paidduring a taxable year to a U.S. holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, theU.S. holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certaincircumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules: · such excess distribution and/or gain will be allocated ratably over the U.S. holder’s holding period for the ADSs or ordinary shares; · such amount allocated to the current taxable year and any taxable years in the U.S. holder’s holding period prior to the first taxable year in which weare a PFIC, or pre-PFIC year, will be taxable as ordinary income; 146Table of Contents · such amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for that year; and · an interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year. If we are a PFIC for any taxable year during which a U.S. holder holds our ADSs or ordinary shares and any of our non-United States subsidiaries isalso a PFIC, such U.S. holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of theapplication of these rules. U.S. holders are advised to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries. As an alternative to the foregoing rules, a U.S. holder of “marketable stock” in a PFIC may make a mark-to-market election for such stock to elect outof the tax treatment described above. “Marketable stock” is stock that is traded in other than de minimis quantities on at least 15 days during each calendarquarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable Treasury regulations. Our ADSs are listed on the NYSE, whichis a qualified exchange for these purposes. Therefore, if we are or were to become a PFIC, a U.S. holder generally will be eligible to make a mark-to-marketelection with respect to our ADSs, provided that the ADSs are regularly traded. If a mark-to-market election is made, the U.S. holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess,if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss theexcess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of thenet amount previously included in income as a result of the mark-to-market election. The U.S. holder’s adjusted tax basis in the ADSs would be adjusted toreflect any income or loss resulting from the mark-to-market election. If a U.S. holder makes an effective mark-to-market election, in each year that we are aPFIC any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and loss will be treated as ordinary loss, but onlyto the extent of the net amount previously included in income as a result of the mark-to-market election. If a U.S. holder makes a mark-to-market election itwill be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no longer treated as marketable stockor the IRS consents to the revocation of the election. It should also be noted that it is intended that only the ADSs and not the ordinary shares will be listedon the NYSE. Consequently, if a U.S. holder holds ordinary shares that are not represented by ADSs, such holder generally will not be eligible to make amark-to-market election if we are or were to become a PFIC. If a U.S. holder makes a mark-to-market election in respect of a PFIC and such corporation ceasesto be a PFIC, the U.S. holder will not be required to take into account the mark-to-market gain or loss described above during any period that suchcorporation is not a PFIC. Because a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, a U.S. holder who makes a mark-to-market electionwith respect to our ADSs may continue to be subject to the general PFIC rules with respect to such U.S. holder’s indirect interest in any of our non-UnitedStates subsidiaries if any of them is a PFIC. We do not intend to provide information necessary for U.S. holders to make qualified electing fund elections, which, if available, would result in taxtreatment different from the general tax treatment for PFICs described above. As discussed above under “Dividends,” dividends that we pay on our ADSs or ordinary shares will not be eligible for the reduced tax rate thatapplies to qualified dividend income if we are a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. In addition, if a U.S.holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, such holder would generally be required to file an annual IRSForm 8621. Each U.S. holder is advised to consult its tax advisors regarding the potential tax consequences to such holder if we are or become a PFIC,including the possibility of making a mark-to-market election. 147Table of Contents Information Reporting Certain U.S. holders may be required to report information to the IRS relating to an interest in “specified foreign financial assets,” including sharesissued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000 (or a higherdollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a UnitedStates financial institution). These rules also impose penalties if a U.S. holder is required to submit such information to the IRS and fails to do so. In addition, U.S. holders may be subject to information reporting to the IRS with respect to dividends on and proceeds from the sale or otherdisposition of our ADSs or ordinary shares. Each U.S. holder is advised to consult with its tax advisor regarding the application of the United Statesinformation reporting rules to their particular circumstances. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-208056), as amended, including the annual reportcontained therein, to register the issuance and sale of our ordinary shares represented by ADSs in relation to our initial public offering. We have also filedwith the SEC the registration statement on Form F-6 (Registration No. 333-208437) to register our ADSs. We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and arerequired to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four monthsafter the end of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at the SEC’s website atwww.sec.gov or inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can requestcopies of documents, upon payment of a duplicating fee, by writing to the SEC. As a foreign private issuer, we are exempt from the rules under the ExchangeAct prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from thereporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will include a review ofoperations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and otherreports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communicationsavailable to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meetingreceived by the depositary from us. I. Subsidiary Information Not applicable. Item 11. Quantitative and Qualitative Disclosures about Market Risk Foreign Exchange Risk All of our revenues and substantially all of our expenses are denominated in RMB. Our reporting currency was the U.S. dollar prior to April 1, 2016.In our consolidated financial statements prepared before April 1, 2016, our financial information that used RMB as the functional currency had beentranslated into U.S. dollars. Effective from April 1, 2016, we changed our reporting currency from U.S. dollar to RMB. Due to foreign currency translationadjustments, we had a foreign currency translation adjustment of RMB0.1 million, RMB29.4 million and RMB18.0 million (US$2.8 million) in 2015, 2016and 2017, respectively. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S.dollar terms without giving effect to any underlying change in our business or results of operations. 148Table of Contents We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments tohedge exposure to such risk. Although in general our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will beaffected by the exchange rate between U.S. dollar and RMB because the value of our business is effectively denominated in RMB, while our ADSs will betraded in U.S. dollars. The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. The PRC government allowed the RMB toappreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, the exchange rate between theRMB and the U.S. dollar had been stable and traded within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at timessignificantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-yearreview of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from 1 October 2016, Renminbi isdetermined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yenand the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capitaloutflows of China. It is difficult to predict how long the current situation may last and when and how the relationship between the RMB and the U.S. dollarmay change again. To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have anadverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of makingpayments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negativeeffect on the U.S. dollar amounts available to us. Interest Rate Risk We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments tomanage our interest risk exposure. However, we cannot provide assurance that we will not be exposed to material risks due to changes in market interest ratein the future. We currently invest our cash in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry adegree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securitiesmay produce less income than expected if interest rates fall. Item 12. Description of Securities Other than Equity Securities A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. C. Other Securities Not applicable. 149Table of Contents D. American Depositary Shares Fees and Charges Our ADS holders May Have to Pay As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (inaddition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs): Service Fees · To any person to which ADSs are issued or to any person to which adistribution is made in respect of ADS distributions pursuant to stockdividends or other free distributions of stock, bonus distributions, stocksplits or other distributions (except where converted to cash) Up to US$0.05 per ADS issued · Cancellation of ADSs, including the case of termination of the depositagreement Up to US$0.05 per ADS cancelled · Distribution of cash dividends Up to US$0.05 per ADS held · Distribution of cash entitlements (other than cash dividends) and/or cashproceeds from the sale of rights, securities and other entitlements Up to US$0.05 per ADS held · Distribution of ADSs pursuant to exercise of rights. Up to US$0.05 per ADS held · Distribution of securities other than ADSs or rights to purchaseadditional ADSs Up to US$0.05 per ADS held · Depositary services Up to US$0.05 per ADS held on the applicable record date(s) established bythe depositary bank As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmentalcharges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of yourADSs) such as: · Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in Cayman Islands (i.e.,upon deposit and withdrawal of ordinary shares). · Expenses incurred for converting foreign currency into U.S. dollars. · Expenses for cable, telex and fax transmissions and for delivery of securities. · Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., whenordinary shares are deposited or withdrawn from deposit). · Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit. · Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable toordinary shares, deposited securities, ADSs and ADRs. · Any applicable fees and penalties thereon. The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of theirclients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bankfor cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADSholders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date. 150Table of Contents The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributableproperty to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADSrecord date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in directregistration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts(via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held inDTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts inturn charge their clients’ accounts the amount of the fees paid to the depositary banks. In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested serviceuntil payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Fees and Other Payments Made by the Depositary to Us The depositary has agreed to pay certain amounts to us in exchange for its appointment as depositary. We may use these funds towards our expensesrelating to the establishment and maintenance of the ADR program, including investor relations expenses, or otherwise as we see fit. The depositary may payus a fixed amount, it may pay us a portion of the fees collected by the depositary from holders of ADSs, and it may pay specific expenses incurred by us inconnection with the ADR program. Neither the depositary nor we may be able to determine the aggregate amount to be paid to us because (i) the number ofADSs that will be issued and outstanding and the level of dividend and/or servicing fees to be charged may vary, and (ii) our expenses related to the programmay not be known at this time. For the year of 2017, we did not receive reimbursement from the depositary. PART II Item 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of securitiesholders, which remain unchanged. The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File No. 333-208056), as amended, in relation to ourinitial public offering, which was declared effective by the SEC on December 17, 2015. In December 2015, we completed our initial public offering in whichwe issued and sold an aggregate of 7,500,000 ADSs, representing 15,000,000 ordinary shares, resulting in net proceeds to us of approximately US$64.9million. Morgan Stanley & Co. International plc, Credit Suisse Securities (USA) LLC and China Renaissance Securities (Hong Kong) Limited were therepresentatives of the underwriters for our initial public offering. The total underwriting discounts and commissions relating to the initial public offeringamounted to approximately US$5.9 million. For the period from December 17, 2015, the date that the F-1 Registration Statement was declared effective by the SEC, to December 31, 2017, wedid not use any of the net proceeds from our initial public offering. We intend to use the proceeds from our initial public offering, as disclosed in our registration statements on Form F-1, for (i) general corporatepurposes, including investments in product development, sales and marketing activities, technology infrastructure, capital expenditure, improvement ofcorporate facilities and other general and administrative matters, and (ii) acquisition of, or investment in, technologies, solutions or business that complementour business. 151Table of Contents Item 15. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness ofour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as requiredby Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management has concluded that, as of December 31, 2017, our disclosure controls and procedures were effective inensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed,summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reportsthat we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chieffinancial officer, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management evaluated the effectiveness of our internal control over financial reporting, as required by Rule 13a-15(c) ofthe Exchange Act, based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting waseffective as of December 31, 2017. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of anyevaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Changes in Internal Control over Financial Reporting There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-Fthat have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 16A. Audit Committee Financial Expert Our board of directors has determined that Mr. Sam Hanhui Sun, an independent director (under the standards set forth under Section 303A of theCorporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act) and member of our audit committee, is an auditcommittee financial expert. Item 16B. Code of Ethics Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in September 2015. Wehave posted a copy of our code of business conduct and ethics on our website at http://yirendai.investorroom.com/. Item 16C. Principal Accountant Fees and Services The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by DeloitteTouche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated. 152Table of Contents 2015 2016 2017RMB RMB RMB(in thousands)Audit fees13,7656,3279,419Tax fees3031,0701,021 (1) “Audit fees” represents the aggregate fees billed and expected to be billed for each of the fiscal years listed for professional services rendered by ourprincipal accounting firm for the audit of our annual financial statements and/or services that are normally provided by the auditors in connection withstatutory and regulatory filings or engagements. (2) “Tax fees” represents the aggregate fees billed for professional services rendered by our principal accounting firm for tax compliance, tax advice and taxplanning. The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified PublicAccountants LLP, including audit services, audit-related services, tax services and other services as described above, other than those for de minimis serviceswhich are approved by the audit committee prior to the completion of the audit. Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 16F. Change in Registrant’s Certifying Accountant Not applicable. Item 16G. Corporate Governance As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. As of March 31, 2018,CreditEase held more than 50% of our total voting power. As a result, we are a “controlled company” under Section 303A of the NYSE Listed CompanyManual. As a controlled company, we rely on certain exemptions that are available to controlled companies from the NYSE corporate governancerequirements, including the requirement that a majority of our board of directors consist of independent directors. In addition, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporategovernance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards.Currently, we do not plan to rely on home country practice with respect to our corporate governance. However, if we choose to follow home country practicein the future, our shareholders may be afforded less protection than they otherwise would enjoy under the NYSE corporate governance listing standardsapplicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our American Depositary Shares—As a companyincorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differsignificantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if wecomplied fully with the NYSE corporate governance listing standards.” Item 16H. Mine Safety Disclosure Not applicable. PART III Item 17. Financial Statements We have elected to provide financial statements pursuant to Item 18. 153(1)(2)Table of Contents Item 18. Financial Statements The consolidated financial statements of Yirendai Ltd., its subsidiaries and its consolidated variable interest entities are included at the end of thisannual report. Item 19. Exhibits ExhibitNumber Description of Document1.1Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to the registration statementon Form F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commission on November 16, 2015) 2.1Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to Exhibit 4.3 to the registration statement onForm F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commission on November 16, 2015) 2.2Registrant’s Specimen Certificate for Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the registration statement onForm F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commission on November 16, 2015) 2.3Form of Deposit Agreement, among the Registrant, the depositary and holder of the American Depositary Receipts (incorporated hereinby reference to Exhibit (a) to the registration statement on Form F-6 (File No. 333-208437), filed with the Securities and ExchangeCommission on December 10, 2015) 4.12015 Share Incentive Plan (incorporated herein by reference to Exhibit 10.13 to the registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commission on November 16, 2015) 4.22017 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form S-8 (File No. 333-219404), filed with the Securities and Exchange Commission on July 21, 2017) 4.3Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.1 tothe registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commissionon November 16, 2015) 4.4Form of Director Agreement between the Registrant and its independent directors (incorporated herein by reference to Exhibit 10.14 tothe registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commissionon November 16, 2015) 4.5Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference toExhibit 10.2 to the registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with the Securities andExchange Commission on November 16, 2015) 4.6Master Transaction Agreement between CreditEase Holdings (Cayman) Limited and Yirendai Ltd. dated November 9, 2015(incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-208056), as amended, initiallyfiled with the Securities and Exchange Commission on November 16, 2015) 154Table of Contents 4.7Transitional Services Agreement between CreditEase Holdings (Cayman) Limited and Yirendai Ltd. dated November 9, 2015(incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-208056), as amended, initiallyfiled with the Securities and Exchange Commission on November 16, 2015) 4.8Non-Competition Agreement between CreditEase Holdings (Cayman) Limited and Yirendai Ltd. dated November 9, 2015 (incorporatedherein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with theSecurities and Exchange Commission on November 16, 2015) 4.9Cooperation Framework Agreement between CreditEase Holdings (Cayman) Limited and Yirendai Ltd. dated November 9, 2015(incorporated herein by reference to Exhibit 10.6 to the registration statement on Form F-1 (File No. 333-208056), as amended, initiallyfiled with the Securities and Exchange Commission on November 16, 2015) 4.10Intellectual Property License Agreement between CreditEase Holdings (Cayman) Limited and Yirendai Ltd. dated November 9, 2015(incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-208056), as amended, initiallyfiled with the Securities and Exchange Commission on November 16, 2015) 4.11English translation of Loan Agreements between Heng Ye and the shareholders of Heng Cheng dated February 22, 2015 (incorporatedherein by reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with theSecurities and Exchange Commission on November 16, 2015) 4.12English translation of Equity Interest Pledge Agreements among Heng Ye, Heng Cheng and the shareholders of Heng Cheng datedFebruary 22, 2015 (incorporated herein by reference to Exhibit 10.9 to the registration statement on Form F-1 (File No. 333-208056), asamended, initially filed with the Securities and Exchange Commission on November 16, 2015) 4.13English translation of Powers of Attorney granted to Heng Ye by the shareholders of Heng Cheng dated February 22, 2015 (incorporatedherein by reference to Exhibit 10.10 to the registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with theSecurities and Exchange Commission on November 16, 2015) 4.14English translation of Exclusive Business Cooperation Agreement between Heng Ye and Heng Cheng dated February 22, 2015(incorporated herein by reference to Exhibit 10.11 to the registration statement on Form F-1 (File No. 333-208056), as amended, initiallyfiled with the Securities and Exchange Commission on November 16, 2015) 4.15English translation of Exclusive Option Agreement among Heng Ye, Heng Cheng and the shareholders of Heng Cheng datedFebruary 22, 2015 (incorporated herein by reference to Exhibit 10.12 to the registration statement on Form F-1 (File No. 333-208056), asamended, initially filed with the Securities and Exchange Commission on November 16, 2015) 4.16Subscription Agreement between the Registrant and Baidu (Hong Kong) Limited dated as of December 14, 2015 (incorporated herein byreference to Exhibit 10.15 to the registration statement on Form F-1 (File No. 333-208056), as amended, initially filed with the Securitiesand Exchange Commission on November 16, 2015) 4.17Loan Agreements between Heng Yu Da and the shareholders of Yi Ren Wealth Management dated October 13, 2016 (incorporatedherein by reference to Exhibit 4.16 to the Company’s Report on Form 20-F (File No. 001-37657), filed with the Securities and ExchangeCommission on April 24, 2017) 4.18*Amended and Restated Equity Interest Pledge Agreements among Heng Yu Da, Yi Ren Wealth Management and the shareholders of YiRen Wealth Management dated April 27, 2018 155Table of Contents 4.19Powers of Attorney granted to Heng Yu Da by the shareholders of Yi Ren Wealth Management dated October 13, 2016 (incorporatedherein by reference to Exhibit 4.18 to the Company’s Report on Form 20-F (File No. 001-37657), filed with the Securities and ExchangeCommission on April 24, 2017) 4.20Exclusive Business Cooperation Agreement between Heng Yu Da and Yi Ren Wealth Management dated October 13, 2016(incorporated herein by reference to Exhibit 4.19 to the Company’s Report on Form 20-F (File No. 001-37657), filed with the Securitiesand Exchange Commission on April 24, 2017) 4.21*Amended and Restated Exclusive Option Agreement among Heng Yu Da, Yi Ren Wealth Management and the shareholders of Yi RenWealth Management dated April 27, 2018 8.1*List of Subsidiaries and Consolidated Variable Interest Entities 11.1Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement onForm F-1 (File No. 333-208056), as amended, initially filed with the Securities and Exchange Commission on November 16, 2015) 12.1*Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12.2*Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1**Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13.2**Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1*Consent of Han Kun Law Offices 15.2*Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP 101.INS*XBRL Instance Document 101.SCH*XBRL Taxonomy Extension Schema Document 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*XBRL Taxonomy Extension Label Linkbase Document 101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith ** Furnished herewith 156Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf. Yirendai Ltd. By:/s/Ning TangName:Ning TangTitle:Executive Chairman of the Board of Directors Date: April 30, 2018 157Table of Contents YIRENDAI LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTSPAGE(S) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-2 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2016 AND 2017F-3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017F-4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017F-5 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017F-7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017F-8 ADDITIONAL INFORMATION — FINANCIAL STATEMENTS SCHEDULE 1F-43 F-1Table of Contents YIRENDAI LTD. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Yirendai Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Yirendai Ltd. (the “Company” and its subsidiaries and variable interest entities,collectively referred to as the “Group”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income,changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and schedule 1 listed in the Index(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position ofthe Group as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31,2017, in conformity with accounting principles generally accepted in the United States of America. Convenience translation As discussed in Note 2, the Company changed its reporting currency from United States dollar to Renminbi effective April 1, 2016. Our audits alsocomprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity withthe basis stated in Note 2. Such United States dollar amounts are presented solely for the convenience of readers in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPBeijing, the People’s Republic of ChinaApril 30, 2018We have served as the Company’s auditor since 2015. F-2Table of Contents YIRENDAI LTD.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data) December 31,2016 December 31,2017 December 31,2017RMB RMB US$Assets:Cash and cash equivalents968,2251,857,175285,443Restricted cash (including RMB103,481 and RMB82,990 from Consolidated AssetsBacked Financing Entities (“ABFE”) as of December 31, 2016 and 2017,respectively)1,218,2861,805,693277,530Accounts receivable28,58121,3683,284Prepaid expenses and other assets (including RMB1,056 and RMB3,535 fromConsolidated ABFE as of December 31, 2016 and 2017, respectively)466,7631,068,990164,301Loans at fair value (including RMB371,033 and RMB791,681 from Consolidated ABFEas of December 31, 2016 and 2017, respectively)371,033791,681121,679Amounts due from related parties1,678117,22218,017Held-to-maturity investments (including RMB4,896 and RMB9,944 from ConsolidatedABFE as of December 31, 2016 and 2017, respectively)98,9179,9441,528Available-for-sale investments1,158,000963,253148,049Property, equipment and software, net35,50382,24912,641Deferred tax assets436,402801,089123,125Total assets4,783,3887,518,6641,155,597Liabilities:Accounts payable (including accounts payable of VIE Companies, without recourse tothe Company of RMB13,544 and RMB33,444 as of December 31, 2016 and 2017,respectively; including accounts payable of Consolidated ABFE, without recourse tothe Company of RMB147 and RMB380 as of December 31, 2016 and 2017,respectively)13,69133,8415,201Amounts due to related parties (including amounts due to related parties of VIECompanies, without recourse to the Company of RMB6,907 and RMB53,149 as ofDecember 31, 2016 and 2017, respectively)11,60976,54411,765Liabilities from quality assurance program and guarantee (including liabilities fromquality assurance program of VIE Companies, without recourse to the Company ofRMB1,471,000 and RMB2,775,949 as of December 31, 2016 and 2017, respectively)1,471,0002,793,948429,422Deferred revenue (including deferred revenue of VIE Companies, without recourse to theCompany of RMB164,318 and RMB222,906 as of December 31, 2016 and 2017,respectively)164,318222,90634,260Payable to investors at fair value (including payable to investors at fair value ofConsolidated ABFE, without recourse to the Company of RMB418,686 andRMB113,445 from as of December 31, 2016 and 2017, respectively)418,686113,44517,436Accrued expenses and other liabilities (including accrued expenses and other liabilitiesof VIE Companies, without recourse to the Company of RMB507,890 andRMB1,063,631 as of December 31, 2016 and 2017, respectively; including accruedexpenses and other liabilities of Consolidated ABFE, without recourse to theCompany of RMB2,895 and RMB7,131 as of December 31, 2016 and 2017,respectively)564,1651,296,650199,291Deferred tax liabilities—11,2771,733Total liabilities2,643,4694,548,611699,108 Commitments and Contingencies (Note 15) Equity:Ordinary shares ($0.0001 par value; 500,000,000 shares authorized, 119,512,300 and121,343,424 shares issued and outstanding as of December 31, 2016 and 2017,respectively)757612Additional paid-in capital933,2721,123,854172,733Accumulated other comprehensive income29,45711,0671,701Retained earnings1,177,1151,835,056282,043Total equity2,139,9192,970,053456,489Total liabilities and equity4,783,3887,518,6641,155,597 (i) The Company consolidated Huijin No. 28 Single Capital Trust E1, Yiren Elite Loan Trust Beneficial Right Asset Backed Special Plan,Huijin No. 28 Single Capital Trust E2, CreditEase Wealth Consumer Credit Investment Fund, Bohai Trust • Zhong Yi Property Trust No.1,Huijin No. 28 Single Capital Trust E3 and Bohai Trust • Yirendai Single Capital Trust, which are named “Assets Backed FinancingEntities” or the “ABFE”, see Note 2.(ii) VIE companies refers to Heng Cheng Technology Development (Beijing) Co., Ltd. and Yiren Financial Information Services (Beijing)Co., Ltd., see Note 2. The accompanying notes are an integral part of these consolidated financial statements.(i)(ii) F-3Table of Contents YIRENDAI LTD. CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year ended December 31,2015 2016 2017 2017RMB RMB RMB US$Net revenue:Loan facilitation service1,278,5393,133,4235,226,691803,328Post-origination service27,08684,154187,21628,775Others8,01420,414129,44319,895 Total net revenue1,313,6393,237,9915,543,350851,998 Operating costs and expenses:Sales and marketing679,7711,571,0382,921,236448,986Origination and servicing86,360180,076417,88264,227General and administrative137,114402,111526,84580,976 Total operating costs and expenses(903,245)(2,153,225)(3,865,963)(594,189) Interest income4,79936,843114,85117,652Fair value adjustments related to Consolidated ABFE(11,333)(19,735)(40,124)(6,167)Non-operating income, net—575876135 Income before provision for income taxes403,8601,102,4491,752,990269,429Income taxes (expense)/benefit(128,521)13,949(381,207)(58,590) Net income275,3391,116,3981,371,783210,839 Basic net income per share2.73569.441811.38811.7503 Weighted average number of ordinary shares outstanding, basic100,652,055118,240,414120,457,573120,457,573 Diluted net income per share2.73569.386511.22051.7246 Weighted average number of ordinary shares outstanding,diluted100,652,055118,937,082122,256,838122,256,838 The accompanying notes are an integral part of these consolidated financial statements. F-4Table of Contents YIRENDAI LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands, except share and per share data) Year ended December 31,2015 2016 2017 2017RMB RMB RMB US$Net income275,3391,116,3981,371,783210,839 Other comprehensive income/(loss), net of tax of nil:Foreign currency translation adjustment10129,356(17,979)(2,763)Unrealized losses on available-for-sale investments——(411)(63) Comprehensive income275,4401,145,7541,353,393208,013 The accompanying notes are an integral part of these consolidated financial statements. F-5Table of Contents YIRENDAI LTD. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(in thousands, except share and per share data) Ordinaryshares Ordinarysharesamount Additionalpaid-incapital Accumulatedothercomprehensiveincome Retained(deficit)/earnings Totalequity RMB RMB RMB RMB RMBBalance as of December 31, 2014100,000,000—313,820—(90,412)223,408Issuance of shares on June 25, 2015—62———62Issuance of ordinary shares upon initialpublic offering (“IPO”), net of offeringcosts of RMB31,71815,000,00010419,765——419,775Issuance of ordinary shares forconcurrent private placement, net ofcosts of RMB6,4732,000,000158,256——58,257Foreign currency translation adjustment———101—101Net income————275,339275,339 Balance as of December 31, 2015117,000,00073791,841101184,927976,942Share-based awards provided toemployees291,400117,222——17,223Share-based awards provided toemployees of consolidated group ofCreditEase2,220,9001124,209—(124,210)—Foreign currency translation adjustment———29,356—29,356Net income————1,116,3981,116,398 Balance as of December 31, 2016119,512,30075933,27229,4571,177,1152,139,919Share-based awards provided toemployees560,734—81,979——81,979Share-based awards provided toemployees of consolidated group ofCreditEase1,270,3901108,603—(108,604)—Dividends to shareholders————(605,238)(605,238)Foreign currency translation adjustment———(17,979)—(17,979)Unrealized losses on available-for-saleinvestments———(411)—(411)Net income————1,371,7831,371,783 Balance as of December 31, 2017121,343,424761,123,85411,0671,835,0562,970,053 The accompanying notes are an integral part of these consolidated financial statements. F-6Table of Contents YIRENDAI LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year ended December 31,2015 2016 2017 2017RMB RMB RMB US$Cash Flows from Operating Activities:Net income275,3391,116,3981,371,783210,839Adjustments to reconcile net income to net cash used in operatingactivities:Depreciation and amortization3,63510,60923,7293,647Disposal of property, equipment and software—34(55)(8)Interest income(846)———Fair value adjustments related to Consolidated ABFE11,33319,73540,1246,167Share-based compensation—17,22381,97912,600Changes in operating assets and liabilitiesAccounts receivable78,12054,4127,1831,104Change in Consolidated ABFE related asset/liability7,3153,94110,7241,648Prepaid expenses and other assets(44,512)(220,040)(595,763)(91,567)Amounts due from/to related parties(49,171)93,15249,3917,591Accrued expenses and other liabilities87,611297,817679,142104,382Accounts payable4,4999,19220,1503,097Liabilities from quality assurance program and guarantee546,332924,6681,322,948203,333Deferred tax assets/liabilities(175,862)(260,540)(353,410)(54,318)Deferred revenue117,48446,83458,5889,005 Net cash provided by operating activities861,2772,113,4352,716,513417,520 Cash Flows from Investing Activities:Purchase of property, equipment and software(16,397)(29,973)(70,551)(10,844)Disposal of property, equipment and software—1114022Purchase of held-to-maturity investments(110,000)(238,917)(943,212)(144,969)Redemption of held-to-maturity investments80,817170,0001,031,273158,504Purchase of available-for-sale investments—(1,238,500)(2,988,777)(459,367)Redemption of available-for-sale investments—80,5003,181,763489,028Investment in preferred shares——(2,710)(416)Investment in loans at fair value(247,434)(299,956)(752,801)(115,703)Principal payment of loans at fair value10,425135,172270,27841,541Loan to a related party——(100,000)(15,370) Net cash used in investing activities(282,589)(1,421,663)(374,597)(57,574) Cash Flows from Financing Activities:Cash contribution from owner62———Proceeds from issuances of ABFE250,000472,500197,73030,390Principal Payments to ABFE—(315,378)(491,942)(75,610)Proceeds from initial public offering, net of offering cost441,600———Proceeds from concurrent private placement, net of offering cost58,256———Payments of initial public offering cost—(21,824)——Proceeds from transfer of beneficiary rights under repurchase agreement——50,0007,685Dividends paid to shareholders——(605,238)(93,023) Net cash provided by /(used in) financing activities749,918135,298(849,450)(130,558) Effect of foreign exchange rate changes10129,356(16,109)(2,476) Net increase in cash, cash equivalents and restricted cash1,328,707856,4261,476,357226,912Cash, cash equivalents and restricted cash, beginning of year1,3781,330,0852,186,511336,061 Cash, cash equivalents and restricted cash, end of year1,330,0852,186,5113,662,868562,973Supplemental disclosures of cash flow information:Income taxes paid, net98,94165,890302,18846,455Reconciliation to amounts on consolidated balance sheets:Cash and cash equivalents846,120968,2251,857,175285,443Restricted cash483,9651,218,2861,805,693277,530Total cash, cash equivalents, and restricted cash1,330,0852,186,5113,662,868562,973 The accompanying notes are an integral part of these consolidated financial statements. F-7Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Yirendai Ltd. (the “Company” or “Yirendai”) was incorporated under the laws of the Cayman Islands on September 24, 2014. Upon incorporation, theCompany had 50,000 shares authorized, 1 share issued and outstanding with a par value of US$1.00 per share, which was held by CreditEase Holdings(Cayman) Limited (“CreditEase”). Pursuant to a written resolutions of CreditEase dated January 5, 2015, the Company’s every issued and unissuedshare of par value of US$1.00 each in the capital of the Company is subdivided into 10,000 shares of par value US$0.0001 each, such that the Companyhas an authorized capital of US$50 divided into 500,000,000 shares of par value US$0.0001 each and 10,000 issued capital of par value US$0.0001each amounted to US$1.00. On June 25, 2015, the Company issued 99,990,000 ordinary shares at par value US$0.0001 per share, to CreditEase, atUS$0.0001 per share for an aggregate cash consideration of $10. Such issuance was accounted for as a stock split and, accordingly, all references tonumbers of common shares and per-share data in the accompanying consolidated financial statements have been adjusted to reflect the stock split andissuance of shares on a retroactive basis. On December 18, 2015, the Company completed its initial public offering (“IPO”) and issued 7,500,000 American Depositary Shares (“ADS”, eachrepresenting two ordinary shares) at US$10 per ADS for an aggregate offering price of RMB485.5 million (US$75 million). During the IPO, theCompany issued and sold 2,000,000 ordinary shares in a concurrent placement, to Baidu (Hong Kong) Limited, at US$5 per share for an aggregatedcash consideration of RMB64.7 million (US$10 million). CreditEase is engaged in providing services for both online and offline marketplace connecting borrowers and investors as well as wealth managementservices in People’s Republic of China (“PRC”) through its subsidiaries and consolidated variable interest entities. The Company, its subsidiaries andconsolidated variable interest entities (“VIEs”) (the Company, its subsidiaries and its VIEs collectively referred to as the “Group”) provide services foronline marketplace connecting borrowers and investors in the PRC. In 2012, Puxin Hengye Technology Development (Beijing) Co., Ltd. (“Puxin Hengye”), a subsidiary of CreditEase began providing services through anonline marketplace connecting borrowers and investors (the “Yirendai Business”), with supporting services provided by other subsidiaries and VIEs ofCreditEase. In order to raise capital for this business through an initial public offering, in the first quarter of 2015, CreditEase undertook the followingreorganization through which CreditEase transferred the Yirendai Business to the Group. Heng Cheng Technology Development (Beijing) Co., Ltd. (“Heng Cheng”) was established on September 15, 2014 as the operating entity in PRC ofthe Yirendai Business in contemplating raising capital for this business through an initial public offering. CreditEase designated Mr. Ning Tang,Mr. Fanshun Kong and Ms. Yan Tian, three PRC citizens, as the shareholders of Heng Cheng (collectively the “three designated shareholders”) onbehalf of CreditEase. The capital injected into Heng Cheng by the three designated shareholders was provided by CreditEase through loans extendedby Puxin Hengye. As a result, Mr. Ning Tang, Mr. Fanshun Kong and Ms. Yan Tian were considered de facto agent of CreditEase, and CreditEaseshould consolidate Heng Cheng as a VIE. In February 2015, the Company through Yi Ren Heng Ye Technology Development (Beijing) Co., Ltd. (“Heng Ye”), a wholly owned subsidiaryestablished in January 2015 entered into an agreement with Puxin Hengye. Based on the agreement, the title of the loans of capital injection wastransferred from Puxin Hengye to Heng Ye. The control over Heng Cheng was transferred to Heng Ye as well through new VIE arrangements signedbetween Heng Ye and Heng Cheng, which is considered a contribution to the Yirendai Business. As a result, Heng Cheng is a VIE that should beconsolidated by the CreditEase before and after signing the VIE arrangements in February 2015, and this transaction is accounted for as a transactionunder common control. Such reorganization was approved by the Board of Directors of CreditEase, with the VIE structure being in place onFebruary 22, 2015 and completed on March 31, 2015. F-8Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 1. ORGANIZATION AND PRINCIPAL ACTIVITIES — continued As a result of the reorganization, the Yirendai Business was transferred to the Group, the accompanying consolidated financial statements have beenprepared as if the current corporate structure has been in existence throughout the periods presented. The assets and liabilities and the related results ofoperation and cash flows of Yirendai Business reflect financial positions and operating results of the online marketplace service business connectingborrowers and investors. However, such presentation may not necessarily reflect the results of operations, financial position and cash flows if the Grouphad actually existed on a stand-alone basis during the periods presented. Transactions between the Group and CreditEase are herein referred to asrelated party transactions. The Company entered into non-competition arrangement with CreditEase, under which they agreed not to compete with each other’s core business.CreditEase agreed not to compete with the Group in a business that is of the same nature as (i) the online consumer finance marketplace businesscurrently conducted or contemplated to be conducted by the Group as of the date of the agreement and (ii) other businesses that the Group andCreditEase may mutually agree from time to time. The Group agreed not to compete with CreditEase in the business conducted by CreditEase, otherthan (i) the online consumer finance marketplace business operated by the Group as of the date of the agreement and (ii) other businesses that the Groupand CreditEase may mutually agree from time to time. The Yirendai Business has operated within CreditEase’s corporate cash management program before the completion of the reorganization. For purposesof presentation in the consolidated statements of cash flows, the cash flow from CreditEase to support the Yirendai Business is presented as cashcontribution from owner, which is included in cash flows from financing activities. Cash contribution from owner as disclosed under cash flows from financing activities have also been reflected as changes to the balances in total equityas presented in the consolidated statements of changes in equity. To execute the Group’s strategy of offering more value-added services to investors, Yiren Financial Information Services (Beijing) Co., Ltd. or Yi RenWealth Management, was established in China on October 13, 2016 to mainly conduct its wealth management business, aiming to provide investorswith an expanded array of investment options, including fund and insurance products offered by third parties. In August 2017, the Group further established Yi Ren Information Consulting (Beijing) Co., Ltd. or Yi Ren Information, its wholly owned subsidiary inChina, which engages in providing of borrower acquisition and referral services to institutional funding providers. Yirendai designated aforementioned three designated shareholders as the shareholders of Yi Ren Wealth Management on behalf of the Group. Thecapital injected into Yi Ren Wealth Management by the three designated shareholders was provided by Yirendai through loans extended byChongqing Heng Yu Da Technology Co., Ltd. or Heng Yu Da, a wholly own subsidiary of the Company. As a result, Mr. Ning Tang, Mr. Fanshun Kongand Ms. Yan Tian were considered de facto agent of Yirendai, and Yirendai consolidates Yi Ren Wealth Management as a VIE. Starting from 2015, the Company began to expand its investor base from individual investors to institutional investors, who invest in the loans from theCompany’s platform through a series of arrangements among assets backed financial entities. The Company consolidated such assets backed financialentities if the Company is considered as their primary beneficiary. F-9Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 1. ORGANIZATION AND PRINCIPAL ACTIVITIES — continued As of December 31, 2017, the Company’s subsidiaries and consolidated VIEs are as follows: Date ofincorporation/establishment Place ofincorporation/establishment Percentageof legalownership Principal activitiesWholly owned subsidiaries Yirendai Hong Kong Limited (“YirendaiHK”)October 8, 2014Hong Kong100%Investment holding Yi Ren Heng Ye TechnologyDevelopment (Beijing) Co., Ltd. (“HengYe”)January 8, 2015PRC100%Provision of consultancy informationtechnology support Chongqing Heng Yu Da TechnologyCo., Ltd. (“Heng Yu Da”)March 21, 2016PRC100%Provision of services relating to IT, systemmaintenance and customer support Yi Ren Information Consulting (Beijing)Co., Ltd. (“Yi Ren Information”)August 10, 2017PRC100%Provision of borrower acquisition andreferral services to institutional fundingproviders Variable interest entities Heng Cheng Technology Development(Beijing) Co., Ltd. (“Heng Cheng”)September 15, 2014PRCConsolidatedVIEServices for online marketplace connectingborrowers and investors Huijin No.28 Single Capital Trust E1(“Trust No.1”)October 16, 2015PRCConsolidatedVIEInvestment in loans through the Company’splatform Yiren Elite Loan Trust Beneficial RightAsset Backed Special Plan (“ABSplan”)April 22, 2016PRCConsolidatedVIEHost of Beneficial Right Asset Huijin No.28 Single Capital Trust E2(“Trust No.2”)July 8, 2016PRCConsolidatedVIEInvestment in loans through the Company’splatform Yiren Financial Information Services(Beijing) Co., Ltd. (“Yi Ren WealthManagement”)October 13, 2016PRCConsolidatedVIEWealth Management Consulting Service Bohai Trust · Zhong Yi Property TrustNo.1 (“Zhong Yi Trust”)April 5, 2017PRCConsolidatedVIEHost of Beneficial Right Asset Huijin No.28 Single Capital Trust E3(“Trust No.3”)June 27, 2017PRCConsolidatedVIEInvestment in loans through the Company’splatform Bohai Trust · Yirendai Single CapitalTrust (“Bohai Trust No.1”)October 25, 2017PRCConsolidatedVIEInvestment in loans through the Company’splatform F-10Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the UnitedStates of America (GAAP). Basis of consolidation The accompanying consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries, and consolidatedVIEs. All inter-company transactions and balances have been eliminated upon consolidation. VIE Companies The VIE arrangements Foreign ownership of internet-based businesses, including distribution of online information (such as an online marketplace connecting borrowers andinvestors), is subject to restrictions under current PRC laws and regulations. For example, foreign investors are not allowed to own more than 50% of theequity interests in internet-based businesses (except E-Commerce) and any such foreign investor must have experience in providing internet-basedbusinesses services overseas and maintain a good track record in accordance with the Guidance Catalog of Industries for Foreign Investmentpromulgated in 2007, as amended in 2011 and 2015, respectively, and other applicable laws and regulations. The Company is a Cayman Islandscompany and Heng Ye and Heng Yu Da (its PRC subsidiaries) are considered foreign invested enterprises. To comply with these regulations, theCompany conducts the majority of its activities in PRC through Heng Cheng and Yi Ren Wealth Management (its consolidated VIEs). The VIEs hold the requisite licenses and permits necessary to conduct the Company’s online marketplace business connecting borrowers and investors.Heng Ye and Heng Yu Da (collectively, the “Foreign Owned Subsidiaries” or “FOS”) have entered into the following contractual arrangement withHeng Cheng and Yi Ren Wealth Management (collectively the “VIE Companies”), that enable the Company to (1) have power to direct the activitiesthat most significantly affects the economic performance of VIEs, and (2) receive the economic benefits of VIEs that could be significant to VIEs.Accordingly, the Company is considered the primary beneficiary of VIEs and has consolidated VIEs’ assets, liabilities, results of operations, and cashflows in the accompanying consolidated financial statements. Name of Foreign Owned SubsidiariesName of VIE CompaniesHeng YeHeng ChengHeng Yu DaYi Ren Wealth Management In concluding that the Company is the primary beneficiary of the VIE Companies, the Company believes that the FOS’s rights under the terms of theexclusive option agreements provide it with a substantive kick out right. More specifically, the Company believes the terms of the exclusive optionagreements are valid, binding and enforceable under PRC laws and regulations currently in effect. A simple majority vote of the Company’s board ofdirectors is required to pass a resolution to exercise the FOS’s rights under the exclusive option agreements, for which consent of the shareholders ofVIE Companies is not required. The FOS’s rights under the exclusive option agreements give the Company the power to control the shareholders of VIECompanies and thus the power to direct the activities that most significantly impact the VIE Companies’ economic performance. In addition, the FOS’srights under the powers of attorney also reinforce the Company’s abilities to direct the activities that most significantly impact the VIE Companies’economic performance. The Company also believes that this ability to exercise control ensures that the VIE Companies will continue to execute andrenew services agreements and pay service fees to the Company. The exclusive business cooperation agreement will be terminated upon the expirationof the operation term of either party if the application for renewal of its operation term is not approved by the relevant government authorities. As aresult, the Company believes that it has the rights to receive substantially all of the economic benefits from the VIE Companies. F-11Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Basis of consolidation — continued The VIE arrangements — continued · Agreements that provide the Foreign Owned Subsidiaries effective control over the VIE Companies Power of Attorney The shareholders of the VIE Companies have executed an irrevocable power of attorney in favor of the Foreign Owned Subsidiaries,or entity or individual designated by the Foreign Owned Subsidiaries. Pursuant to this powers of attorney, the Foreign Owned Subsidiaries or theirdesignees have full power and authority to exercise all of such shareholder’s rights with respect to his equity interest in the VIE Companies. The powerof attorney will remain in force for so long as the shareholder remains a shareholder of the VIE Companies. Exclusive Option Agreement The VIE Companies and their shareholders have also entered into an exclusive share option agreement with the ForeignOwned Subsidiaries. Pursuant to this agreement, the shareholders of VIE Companies have granted an exclusive option to the Foreign OwnedSubsidiaries or their designees to purchase all or part of such shareholders’ equity interest, at a purchase price equal to the higher of the amount of loanextended by the Foreign Owned Subsidiaries to each shareholder of the VIE Companies under the respective loan agreement or the minimum pricerequired by PRC law at the time of such purchase. Equity Interest Pledge Agreement The shareholders of the VIE Companies have also entered into an equity pledge agreement with the Foreign OwnedSubsidiaries, pursuant to which each shareholder pledged his/her interest in the VIE Companies to guarantee the performance of obligations of the VIECompanies and their shareholders under the exclusive business cooperation agreement, loan agreements, exclusive option agreements and powers ofattorney. · Agreements that transfer economic benefits to the Foreign Owned Subsidiaries Exclusive Business Cooperation Agreement The Foreign Owned Subsidiaries have entered into an exclusive business cooperation agreement with theVIE Companies. Pursuant to this exclusive business cooperation agreement, the Foreign Owned Subsidiaries provide comprehensive technical support,consulting services and other services to the VIE Companies in exchange for service fees. The Foreign Owned Subsidiaries have the sole discretion todetermine the amounts of the service fees. During the term of exclusive business cooperation agreement, both the Foreign Owned Subsidiaries and the VIE Companies shall renew their operationterms prior to the expiration thereof so as to enable the exclusive business cooperation agreement to remain effective. The exclusive businesscooperation agreement shall be terminated upon the expiration of the operation term of either the Foreign Owned Subsidiaries or the VIE Companies, ifthe application for renewal of their operation terms is not approved by relevant government authorities. In addition, the shareholders of VIE Companieshave granted an irrevocable and exclusive option to the Foreign Owned Subsidiaries to purchase any or all of the assets and businesses of the VIECompanies at the lowest price permitted under PRC law. The agreement may be terminated only at the option of the Foreign Owned Subsidiaries and the VIE Companies have no authority to terminate theexclusive business cooperation agreement. · Agreements that provide the Foreign Owned Subsidiaries with the option to purchase the Equity Interest in the VIE Companies Loan Agreements Under loan agreements between FOS and each of the shareholders of the respective VIE companies, FOS made interest-free loans tothe shareholders for the exclusive purpose of the initial capitalization and the subsequent financial needs of the VIE companies. The loans can only berepaid with the proceeds derived from the sale of all of the equity interests in VIE companies to FOS or its designated representatives pursuant to theequity option agreements. The shareholders must pay all of the proceeds from sale of such equity interests to FOS. The loan must be repaid immediatelyunder certain circumstances, including, among others, if a foreign investor is permitted to hold majority or 100% equity interest in VIE companies andFOS elects to exercise its exclusive equity purchase option. The term of the loans is ten years and can be extended upon mutual written consent of theparties. F-12Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Basis of consolidation — continued Risks in relation to the VIE structure The Company believes that the contractual arrangements with the VIE Companies and their current shareholders are in compliance with the PRC lawsand regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce thecontractual arrangements. If the legal structure and contractual arrangements were found to be in violation of the PRC laws and regulations, the PRCgovernment could: · Revoke the business and operating licenses of the Foreign Owned Subsidiaries and the VIE Companies; · Discontinue or restrict the operations of any related-party transactions among the Foreign Owned Subsidiaries and the VIE Companies; · Impose fines or other requirements on the Foreign Owned Subsidiaries and the VIE Companies; · Require the Company or the Foreign Owned Subsidiaries and the VIE Companies to revise the relevant ownership structure or restructureoperations; and/or · Restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance the Company’s business and operations inChina. · Shut down the Company’s servers or block the Company’s online platform; · Discontinue or place restrictions or onerous conditions on the Company’s operations; and/or · Require the Company to undergo a costly and disruptive restructuring. The Company’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions.As a result, the Company may not be able to consolidate VIE Companies in its consolidated financial statements as it may lose the ability to exerteffective control over VIE Companies and their shareholders, and it may lose the ability to receive economic benefits from VIE Companies. The interests of the shareholders of VIE Companies may diverge from that of the Company and that may potentially increase the risk that they wouldseek to act contrary to the contractual terms, for example by influencing the VIE Companies not to pay the service fees when required to do so. TheCompany cannot assure that when conflicts of interest arise, shareholders of the VIE Companies will act in the best interests of the Company or thatconflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing arrangements to address potentialconflicts of interest the shareholders of VIE Companies may encounter in its capacity as beneficial owners and directors of the VIE Companies, on theone hand, and as beneficial owners and directors of the Company, on the other hand. The Company believes the shareholders of VIE Companies willnot act contrary to any of the contractual arrangements and the exclusive option agreements provide the Company with a mechanism to remove thecurrent shareholders of VIE Companies should they act to the detriment of the Company. The Company relies on certain current shareholders of the VIECompanies to fulfill their fiduciary duties and abide by laws of the PRC and act in the best interest of the Company. If the Company cannot resolve anyconflicts of interest or disputes between the Company and the shareholders of VIE Companies, the Company would have to rely on legal proceedings,which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings. F-13Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Basis of consolidation — continued Risks in relation to the VIE structure — continued The following financial statement amounts and balances of the VIE Companies were included in the accompanying consolidated financial statementsafter elimination of intercompany transactions and balances: December 31,2016 December 31,2017 December 31,2017RMB RMB USDAssetsCash and cash equivalents433,5101,148,818176,570Restricted cash1,114,8051,701,454261,509Accounts receivable23,838783120Prepaid expenses and other assets398,6751,025,160157,564Amounts due from related parties1,678117,22218,017Available-for-sale investments498,000618,50095,062Property, equipment and software, net4,4272,078319Deferred tax assets436,402798,345122,703 Total assets2,911,3355,412,360831,864 LiabilitiesAccounts payable13,54433,4445,140Amounts due to related parties6,90753,1498,169Liabilities from quality assurance program1,471,0002,775,949426,655Deferred revenue164,318222,90634,260Accrued expenses and other liabilities507,8901,063,631163,477 Total liabilities2,163,6594,149,079637,701 Year ended December 31, 2015 2016 2017 2017 RMB RMB RMB USDNet revenue1,316,7613,237,7685,414,978832,267Net income465,6791,445,0812,237,924343,963 Year ended December 31,2015 2016 2017 2017RMB RMB RMB USDNet cash provided by operating activities812,4962,415,2043,244,633498,691Net cash used in investing activities(35,486)(471,321)(220,359)(33,869) In accordance with the VIE contractual arrangements, the Foreign Owned Subsidiaries have the power to direct activities of the VIE Companies, and canhave assets transferred out of the VIE Companies. There are no consolidated VIE’s assets that are collateral for the VIE’s obligations and can only beused to settle the VIE’s obligations. There are no creditors (or beneficial interest holders) of the VIEs that have recourse to the general credit of theCompany. There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests, which require the Companyor its subsidiaries to provide financial support to the VIEs. However, if the VIEs ever need financial support, the Company or its subsidiaries may, at itsoption and subject to statutory limits and restrictions, provide financial support to its VIEs through loans to the shareholders of the VIEs or entrustmentloans to the VIEs. Relevant PRC laws and regulations restrict the VIE from transferring a portion of its net assets, equivalent to the balance of its paid-incapital, capital reserve and statutory reserves, to the Company in the form of loans and advances or cash dividends. Please refer to Note 14 for disclosureof restricted net assets. F-14Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Basis of consolidation — continued Consolidated Assets Backed Financing Entities As part of the Group’s strategy to expand its investor base from individual investors to institutional investors, in October 2015, the Companyestablished a business relationship with a trust, or Trust No.1, under which the Trust No.1 invested in loans through the Company’s online marketplaceusing funds received from its investors. The Trust No.1 is administered by a third-party state-owned trust company (“the trust company”), which acts asthe trustee, for the purposes of providing returns to its sole beneficiary through extending loans up to an aggregate principal amount of RMB250.0million to borrowers recommended by the Company. The Trust No.1’s settlor and sole beneficiary is Fengsheng Private Investment Fund No.1 (“FundNo.1”), which is managed by Zhe Hao Shanghai Asset Management Company, or Zhe Hao, an affiliate of CreditEase. In April 2016, Zhe Hao, on behalf of the Fund No.1, transferred Fund No.1’s entire beneficial rights in the Trust No.1 (“the Beneficial Right Asset”) toChina International Capital Corporation Limited (the “SPV Manager”), who created a Yiren Elite Loan Trust Beneficial Right Asset Backed SpecialPlan (the “ABS plan”) to host the Beneficial Right Asset. Such ABS plan was issued and listed on the Shenzhen Stock Exchange in April 2016. TheGroup purchased RMB47.5 million Senior A Tranche securities, representing 19% of total securities issued by the ABS plan. Puxin Hengye purchasedall subordinated securities amounted to RMB25.0 million and two funds which were set up and managed by Zhe Hao purchased various tranches ofsecurities amounted to RMB67.5 million, representing 10% and 27% of the total price of securities issued, respectively. In July 2016, the Company established a business relationship with another trust, or Trust No.2, which is of the similar structure to Trust No.1 describedabove. Trust No.2 is administered by the trust company, with CreditEase Wealth Consumer Credit Investment Fund (“Fund No.2”) managed by Zhe Haoas its settlor and sole beneficiary. The Trust No.2 invested in an aggregate of RMB300.0 million in loans through the Company’s online marketplaceusing the funds raised by its sole beneficiary from ultimate investors, including RMB30.0 million invested by Heng Cheng, one of the VIE companies,and RMB33.4 million invested by Shenzhen CreditEase Commercial Factoring Co., Ltd., an affiliate of CreditEase. In April 2017, Zhe Hao, on behalf of Fund No.2, entered into arrangements with Bohai International Trust Co.,Ltd (“Bohai Trust Company”), anindependent third-party trust company to transfer the entire remaining beneficial rights in Trust No.2 (the “Beneficial Right Asset”) to Bohai Trust ·Zhong Yi Property Trust No.1 (“Zhong Yi Trust”) which was set up and served by Bohai Trust Company as trustee. On the date of transfer, the Grouppurchased all subordinated beneficiary rights in Zhong Yi Trust amounted to RMB102.3 million (US$15.7million) representing 34% of the total facevalue of securities issued by Zhong Yi Trust. Fund No.2 were subsequently liquidated, and proceeds were distributed to its investors, including theGroup, on April 18, 2017. In July 2017, the Group transferred a portion of the subordinated beneficiary rights held in Zhong Yi Trust to a third party investor with an obligation torepurchase the beneficiary rights at the original transfer price plus a pre-determined interest. This transfer is not considered a true sale and is recorded asa secured borrowing under ASC 860. The Group continues to consolidate the Zhong Yi Trust after the transfer. The proceeds received from the transferis recorded in accrued expenses and other liabilities as payable to investor of beneficiary rights under repurchase agreement on the Company’sconsolidated balance sheets. In June 2017 and October 2017, the Company established similar business relationship with other trusts, Trust No.3 and Bohai Trust No.1, respectively.Trust No.3 and Bohai Trust No.1 are administered by the trust company, with Heng Ye as their sole settlor and sole beneficiary. The Trust No.3 andBohai Trust No.1 investing on a revolving basis an aggregate of RMB556.8 million (US$85.6 million) and RMB196.0 million (US$30.1 million) inloans through the Company’s online marketplace as of December 31, 2017, respectively. As part of the above arrangements, the Company provides loan facilitation and post-origination services to Trust No.1, Trust No2, Trust No3, and BohaiTrust No.1 (or the “Trusts”), and also provides certain level of guarantee in the form of a security fund set up for the Trust No.1. The Company pays asecurity deposit in the amount of 6% of the total loan principal to the Trust No.1 to protect the Trust No.1 from potential losses from loan default. TheCompany’s liability is capped at the initial cash set in the fund. When a default occurs, the Trust No.1 will use cash from the security fund to cover thedefaulted amount. When the Trust is dissolved, if the amount of payouts is within 20% of the cash set aside in the security fund, the remainder of thesecurity fund will be returned to the Company. Otherwise, the remainder of the security fund will become part of the Trust’s assets subject todistribution. The Company holds significant variable interest in Trust No.1 through the transaction fee charged and guarantee provided in the form of securitydeposit, and holds significant variable interest in Trust No.2 through the transaction fee charged. The Company also holds significant variable interestin the ABS plan, the Zhong Yi Trust, Trust No.3 and Bohai Trust No.1 through direct investment. Through the transaction fees, deposit, and directinvestment, the Company has the right to receive benefits from the ABFE that could potentially be significant to the ABFE. The Company also has power to direct the activities that have most significant impact on the economic performance of the ABFE by providing the loanservicing and default loan collection services of the four trusts. Accordingly, the Company is considered the primary beneficiary of the ABFE and has consolidated the ABFE’s assets, liabilities, results of operations,and cash flows in the accompanying consolidated financial statements. The assets of the ABFE are not available to creditors of the Company. In addition, the investors of the ABFE have no recourse against the assets of theCompany. F-15Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Basis of consolidation — continued Consolidated Assets Backed Financing Entities — continued The following financial statement amounts and balances of the Consolidated ABFE were included in the accompanying consolidated financialstatements after elimination of intercompany transactions and balances: December 31,2016 December 31,2017 December 31,2017RMB RMB USDAssetsRestricted cash103,48182,99012,755Prepaid expenses and other assets1,0563,535543Loans at fair value371,033791,681121,679Held-to-maturity investments4,8969,9441,528 Total assets480,466888,150136,505 LiabilitiesAccounts payable14738058Payable to investors at fair value418,686113,44517,436Accrued expenses and other liabilities2,8957,1311,096 Total liabilities421,728120,95618,590 Year ended December 31,2016 2017 2017RMB RMB USDNet revenue———Net loss19,73540,1246,167 Year ended December 31,2016 2017 2017RMB RMB USDNet cash provided by operating activities6,59112,7131,954Net cash used in investing activities(169,680)(487,572)(74,938)Net cash provided by/(used in) financing activities157,121(294,213)(45,220) All assets of Consolidated ABFE are collateral for ABFE’s obligations and can only be used to settle the ABFE’s obligations. F-16Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from such estimates. Significant accounting estimates reflected in theGroup’s financial statements are estimates and judgments applied in multiple-element revenue recognition, contingent liabilities of quality assuranceprogram, fair value measurement of quality assurance program, loans at fair value, payable to investors at fair value, available-for-sale investments,share-based compensation and income tax. Revenue recognition The Group provides services as an online marketplace connecting borrowers and investors. The three major deliverables provided are loan facilitationservices, quality assurance program and post-origination services (e.g. automated investing tool, cash processing, collection and SMS services). The Group charges fees for facilitating loan originations, for the automated investing tool to investors opting for that service, and for monthly service(covering cash processing services, collection services and SMS services), while for those who do not opt for automated investing tool, the Groupcharges fees for facilitating loan originations and for monthly service (covering cash processing services, collection services and SMS services)(collectively as “non-contingent fees”). The Group also receives fees contingent on future events (e.g., penalty fee for loan prepayment and latepayment, fee for transferring loans over the secondary loan market, and other service fees, etc.). In order to be more competitive by providing a certain level of assurance to the investors, the Group reimburses the loan principal and interest to theinvestor in case of borrower’s default and then collects the amounts either from borrowers through its collection team or a guarantee company. After August 2013, the Group introduced a guarantee arrangement with a guarantee company, under which the guarantee company provided guaranteeservice to the investors (“guarantee model”). The guarantee company charged the investors at a rate of 10% based on monthly interest on loans asservicing fee, which was collected by the Group on behalf of the guarantee company and not recorded as revenue of the Group. Starting from January 1, 2015, the Group terminated the relationship with the guarantee company, and launched a new investor protection service in theform of a financial guarantee called the quality assurance program. If a loan originated on or after January 1, 2015 defaults, the Group guarantees theprincipal and accrued interest repayment of the defaulted loan up to the balance of the quality assurance program on a portfolio basis. The qualityassurance program being set aside equals 6%-7% of the total loan facilitation amount. The Group reserves the right to revise the percentage upwards ordownwards as a result of the Group’s continuing evaluation of factors such as market dynamics as well as its product lines, profitability and cashposition. In October 2016, the Group launched a new program named “Top-up Program” to facilitate a new loan for a qualified borrower to payback his or herexisting loan. This arrangement is accounted for as an extinguishment of the existing loan with a simultaneous facilitation of a new loan. Top-upProgram is a service provided to qualified borrowers to enhance customer experience and serve their lifelong credit needs. The fee structure of loansfacilitated under the Top-up program is the same as other loan products except that the Group offers a credit of upfront fee of the existing loan toencourage the acceptance of the new loan, which is considered as a cash incentive provided to the borrower and recorded as a reduction to revenue. From August 2017 to December 2017, the Group cooperated with Zhejiang Chouzhou Commercial Bank (“Chouzhou Bank”) tofurnish the borrower referral and facilitation services to Chouzhou Bank. The Group provided guarantee deposits to Chouzhou Bank to protect it frompotential losses due to loan delinquency and undertook to timely replenish such deposit from time to time. The Group also undertakes to repayChouzhou Bank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon such full repayment to Chouzhou Bank, the Groupwill obtain the creditor's rights in respect of the relevant default amount. Multiple element revenue recognition The Group considers the loan facilitation services, the quality assurance program and post-origination services as a multiple deliverable revenuearrangement and the lenders are regarded as the sole customer. The Group has concluded that although it does not sell those services independently, allthree deliverables have standalone value as others do sell them independently in the market and they have value to the customer independently. Thus,all non-contingent fees are allocated among these three deliverables. Under the guarantee model, the total fees are allocated based upon the relativeselling price of the loan facilitation services and post origination services. The Group allocates non-contingent fees to be received consistent with the guidance in ASC 605-25. It first allocates the amount equal to the fair valueof the stand-ready liability from the quality assurance program. Then the remaining fees are allocated to the loan facilitation services and post-origination services using their relative estimated selling prices. F-17Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Revenue recognition — continued Multiple element revenue recognition — continued The Group did not recognize revenue for the quality assurance program, as it considered that netting the changes in the guarantee with the revenue wasmore representative of the Group’s obligation. No separate guarantee revenue or guarantee provision expense had been recognized in the ConsolidatedStatement of Operations. The Group does not have vendor specific objective evidence (“VSOE”) of selling price for the loan facilitation services or post-origination servicesbecause it does not provide loan facilitation services or post-origination services separately. For cash processing services, collection services and SMS services (all of which are part of the post-origination services), the Group uses third-partyevidence (“TPE”, which is the prices charged when sold separately by its service providers) as the basis of revenue allocation. Although other vendors may sell these services separately, TPE of selling price of the loan facilitation services and automated investing tool services(part of post-origination services) does not exist as public information is not available regarding what our competitors may charge for those services. Asa result, the Group generally uses its best estimate of selling prices (“BESP”) of loan facilitation services and automated investing tool services as thebasis of revenue allocation. In estimating its selling price for the loan facilitation services and automated investing tools services, the Group considersthe cost incurred to deliver such services, profit margin for similar arrangements, customer demand, effect of competitors on the Group’s services, andother market factors. For each type of service, the Group recognizes revenues when the following four revenue recognition criteria are met for each revenue type:(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable,and (iv) collectability is reasonably assured. Collectability of fees The Group either collects the entire amount of the loan facilitation fee upfront, or collects a portion upfront and the rest on a monthly basis over theterm of the loan. The management fee charged to self-directed investors and the automated investing tool investors are collected on a monthly basisthrough the loan period. All the transaction fees charged before December 31, 2014 were guaranteed by Tian Da Xin An (Beijing) Guarantee Co., Ltd.(“Tian Da Xin An”), a guarantee company. Starting from January 2015, the collection of transaction fee is no longer guaranteed by Tian Da Xin An. The Group evaluated the following factors foruncertainty of the collectability: (i) credit risk of the portfolio; (ii) prepayment risk; (iii) risk profile change from launching new products and(iv) macroeconomic cycle, etc. and concluded that the collectability could not be reasonably assured. Thus fees charged on a monthly basis are notrecognized until collectability could be reasonably assured. F-18Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Revenue recognition — continued Revenue from loan facilitation services Prior to the end of 2014, the aforementioned four criteria for revenue recognition were met upon completion of the loan facilitation services. The Grouprecognized 100% of the transaction fee as revenue and recorded no allowance for the uncollectible accounts, as all the transaction fees in relation toloans facilitated before December 31, 2014 were guaranteed by Tian Da Xin An . Starting from first quarter of 2015, the Group recognizes the cashreceived that is allocated to loan facilitation services as revenue upon completion of the related service. Cash received as upfront fees is allocated firstto the quality assurance program and then to loan facilitation services and post-origination services based on their relative selling prices. For fees thatare partially refundable to the borrowers, the revenue is not recognized until the fees become non-refundable. Revenue from post-origination services The fees collected upfront allocated to post-origination services are deferred and recognized over the period of the loan on a straight line basis. Other revenue Other revenue includes penalty fee for loan prepayment (for loans originated before December 31, 2014) and late payment, one-time fees for transferringloans over the secondary loan market, and commission fee received from other Fintech companies. The penalty fee, which are fees paid to the investorsthat are assigned to us by the investors, will be received as a certain percentage of past due amounts in case of late payment or a certain percentage ofinterest over the prepaid principal loan amount in case of prepayment. The Company refers potential borrowers to other Fintech companies and chargesthem commission fee. Commission fee revenue is recognized when successful referral was completed by the Company. Customer incentives To expand its market presence, the Group provides cash incentives to investors from time to time. Each individual incentive program only lasts for aweek or a few weeks. During the relevant incentive program period, the Group sets certain thresholds for the investor to qualify to enjoy the cashincentive. When qualified investment is made, the cash payment is provided to the investor as a percentage of the investment amount. The Group alsodistributed interest plus coupons and renewal reward coupons to investors free of charge. The investors can utilize the interest plus coupons to increasethe expected return of Yidingying product on the maturity date. If the investors choose to extend the investment period of the Yidingying product, therenewal reward coupons can be utilized to increase the expected return of Yidingying product for the extended investment period. The cash incentives,interest plus coupons and renewal reward coupons provided are accounted for as reduction of revenue in accordance with ASC subtopic 605-50. The Group has established a membership reward program wherein investors can earn Yiren coins when purchase made on the Group’s platforms reacheda certain amount. Yiren coins can be used in connection with subsequent purchases. The expiry dates of these Yiren coins vary based on differentindividual promotional programs, which are generally ranged from one and a half years to two and a half years period. The Group accrues liabilities forthe estimated value of the Yiren coins that are expected to be used, which are based on all outstanding Yiren coins related to prior purchases at the endof each reporting period, as it does not currently have sufficient historical data to reasonably estimate the usage rate of these Yiren coins. Theseliabilities reflect management’s best estimate of the cost of future usages. As of December 31, 2016 and 2017, the Group recorded accrued expensesrelated to Yiren coins earned from prior purchases of RMB39,273 and RMB64,021, respectively, with corresponding entry in sales and marketingexpenses. The Group also pays cash to registered borrowers or investors as reward of successful referring of new borrowers or investors to the Croup’s platform.The Group recognizes sales expenses when the commission becomes payable based on successful referrals. F-19Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Liabilities from quality assurance program and guarantee Under the quality assurance program model, at the inception of each loan, the Group recognizes a stand-ready liability as the fair value of the qualityassurance program in accordance with ASC 460. Subsequent to the inception of the loan, the stand-ready liability initially recognized would typically be reduced (by a credit to earnings) as the Groupis released from risk under the guarantee either through expiry or performance. The Group also recognizes contingent liability under ASC 450 on aportfolio basis, which results in the recognition of expenses in earnings. The Group tracks its stand-ready liability on a loan-by-loan basis to monitorthe expiration. When the Group releases the stand-ready liability through performance of the guarantee (by making payments on defaulted loans), itrecognizes revenue along with the loss on defaulted loans. Revenue from releasing of stand-ready liability and expenses from recognition of contingentliability related to the quality assurance program are presented on a net basis in the income statement. On a portfolio basis, when the aggregatecontingent liability required to be recognized under ASC 450 exceeds the quality assurance program liability balance, the Group will record the excessas expense. The fair value of the stand-ready liability associated with the quality assurance program recorded at the inception of the loan was estimated using adiscounted cash flow model to its expected net payouts from the quality assurance program, and also by incorporating a markup margin. The Groupestimates its expected future net payouts based on its current product mix as well as its estimates of expected net charge-off rates and expectedcollection rates and a discount rate. The expected future cash net payout is capped at the restricted cash balance of the quality assurance program. In thefourth quarter of 2015, in order to continue to attract new and retain existing investors and to remain consistent with the current industry practice inChina, the Group set aside more cash in the quality assurance program based on its current business intention but not legal obligation, so that thebalance in the quality assurance program is enough to cover the expected net payouts. The Group estimated the expected net charge-off rates of the loan facilitated as the weighted average of the expected net charge-off rates of loan withdifferent risk grids. The Group developed the expected net charge-off rates based on the Group’s historical experience. In the second quarter of 2017,the Company launched its new credit scoring system and upgraded its original four risk grids system of Grade A, B, C and D to a five risk grids systemof Grade I, Grade II, Grade III, Grade IV and Grade V. In the fourth quarter of 2017, after reviewing the sufficiency of the liability as of December 31, 2017, the Company recognized an additional contingentliability of RMB 43 million. As of December 31, 2016 and 2017, the maximum potential undiscounted future net payment the Group would be required to make was RMB1,114,805and RMB1,701,454, respectively, which took into account of the amount set aside by the Group in the restricted cash balance of the quality assuranceprogram. The Company cooperated with Chouzhou Bank from August 2017 to December 2017. The Company provided guarantee deposits to the bank to protectit from potential losses due to loan delinquency and undertook to timely replenish such deposit from time to time. The Company also undertakes torepay the bank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon the full repayment, the Company will obtain thecreditor’s rights in respect of relevant default amount. Under such agreement, the total outstanding loan balance and accrued interests which theCompany would be required to make were nil and RMB206,842 as of December 31, 2016 and 2017 respectively. The movement of liability from quality assurance program and liability related to guarantee provided to Chouzhou Bank during the year endedDecember 31, 2016 and 2017 is as follows: As of January 1, 2016546,332Provision at the inception of new loans (Note)1,598,238Provision for fraud incident81,263Net payment(754,833) As of December 31, 20161,471,000Provision at the inception of new loans (Note)3,152,899Recognition of contingent liability43,049Net payment(1,873,000) As of December 31, 20172,793,948 Note: Amount represents cash received on non-contingent fees allocated to the stand-ready liability for loans generated during the year. F-20Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Fair value Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, theGroup considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would usewhen pricing the asset or liability. Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broadlevels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significantto the fair value measurement as follows: · Level 1-inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets. · Level 2-inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets andliabilities in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the marketor can be corroborated by observable market data for substantially the full term of the assets or liabilities. · Level 3-inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use inpricing the asset or liability. The fair value are therefore determined using model-based techniques that include option pricing models, discountedcash flow models, and similar techniques. F-21Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Fair value option The Company has elected the fair value option for the assets and liabilities of the Consolidated ABFE that otherwise would not have been carried at fairvalue. Such election is irrevocable and is applied to financial instruments on an individual basis at initial recognition. See Note 4 for further disclosureon financial instruments of the Consolidated ABFE for which the fair value option has been elected. Fair value of financial instruments Fair value of loans and payable to investors at fair value The Company has elected fair value accounting for loans and related payable to investors. Changes in the fair value of loans for the period are recordedas fair value adjustments. The Company estimates the fair value of loans using a discounted cash flow valuation methodology. The fair valuationmethodology considers projected prepayments and net charge off to project future losses and net cash flows on loans. The Company has adopted the measurement alternative included in ASU 2014-13 - the collateralized financing entity (“CFE”) guidance, pursuant towhich, the Company measures both the financial assets and financial liabilities of the Consolidated ABFE in its consolidated financial statements usingthe more observable of the fair value of the financial assets and the fair value of the financial liabilities. The Company believes the fair value of thefinancial assets of the Consolidated ABFE is more observable than the fair value of the financial liability of the Consolidated ABFE. As a result, theloans of the Consolidated ABFE are measured at fair value and the payable to investors is measured in consolidation as: (i) the sum of the fair value ofthe loans and the carrying value of any non-financial assets that are incidental to the operations of the Consolidated ABFE less (ii) the sum of the fairvalue of loan default loss borne by the Company through the security deposit. The resulting amount is allocated to the individual financial liabilities(other than the beneficial interest retained by the Company) using a reasonable and consistent methodology. Since the Company holds sole beneficiaryof Trust No.3 and Bohai Trust, the beneficial interest retained by the Company, or the payable to investors of Trust No.3 and Bohai Trust, are eliminatedon the consolidated financial statements. Under the measurement alternative, the Company’s consolidated net income reflects the Company’s owneconomic interests in the Consolidated ABFE including changes in the fair value of the beneficial interests retained by the Company. Cash and cash equivalents Cash and cash equivalents include the Company’s unrestricted deposits with financial institutions in checking, money market and short-term certificateof deposit accounts. The Company considers all highly liquid investments with stated maturity dates of three months or less from the date of purchaseto be cash equivalents. F-22Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Restricted cash Restricted cash represents: (i) cash in quality assurance program and guarantee which is managed by the Group through restricted bank accounts; (ii)cash held by the Consolidated ABFE through segregated bank accounts which is not available to fund the general liquidity needs of the Company. Accounts receivable and allowance for uncollectible accounts receivable Accounts receivable are stated at the historical carrying amount net of write-offs and allowance for uncollectible accounts. The Group establishes anallowance for uncollectible accounts receivable based on estimates, historical experience and other factors surrounding the credit risk of specificclients. Uncollectible accounts receivable are written off when a settlement is reached for an amount that is less than the outstanding historical balanceor when the Group has determined the balance will not be collected. With the termination of the guarantee contract in relation to loan facilitated on or after January 1, 2015 with Tian Da Xin An, the Group does not recordadditional accounts receivable associated with uncollected transaction and service fees from borrowers and investors during the years endedDecember 31, 2016 and 2017, and no allowance is recorded on the balance sheet as of December 31, 2016 and 2017. Investment Investments are classified as trading, held-to-maturity or available-for-sale. Investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported atfair value with changes in fair value recognized in earnings. Investments are classified as held-to-maturity when the Group has the positive intent and ability to hold the security to maturity, and are recorded atamortized cost. Investments that do not meet the criteria of held-to-maturity or trading securities are classified as available-for-sale, and are reported at fair value withunrealized gains and losses recorded in accumulated other comprehensive income (loss) . Realized gains or losses are included in earnings during theperiod in which the gain or loss is realized. The Group reviews its held-to-maturity and available-for-sale investments for other-than-temporary impairment (“OTTI”) based on the specificidentification method. The Group considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If thecost of an investment exceeds the investment’s fair value, the Group considers, among other factors, general market conditions, government economicplans, the duration and the extent to which the fair value of the investment is less than the cost, the Group’s intent and ability to hold the investment,and the financial condition and near term prospects of the issuers. If there is OTTI on debt securities, the Group separates the amount of the OTTI into the amount that is credit related (credit loss component) and theamount due to all other factors. The credit loss component is recognized in earnings, which represents the difference between a security’s amortized costbasis and the discounted present value of expected future cash flows. The amount due to other factors is recognized in other comprehensive income ifthe entity neither intends to sell and will not more likely than not be required to sell the security before recovery. The difference between the amortizedcost basis and the cash flows expected to be collected is accreted as interest income. Property, equipment and software, net Property, equipment and software consists of computer and transmission equipment, furniture and office equipment, software, and leaseholdimprovements, which are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives: Computer and transmission equipment3 yearsFurniture and office equipment5 yearsSoftware5 yearsLeasehold improvementsOver the shorter of the lease term or expected useful lives Gains and losses from the disposal of property, equipment and software are included in non-operating income, net. F-23Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Origination and servicing expense Origination and servicing expense consists primarily of variable expenses and vendor costs, including costs related to credit assessment, customer andsystem support, payment processing services and collection associated with facilitating and servicing loan. Share-based compensation All share-based awards to employees and directors, such as stock options and restricted share units, are measured at the grant date based on the fair valueof the awards. Share-based compensation, net of forfeitures, is recognized as expenses on an accelerated basis during the vesting period with acorresponding impact reflected in additional paid-in capital. Share-based compensation expense is classified in the consolidated statement ofoperations based upon the job functions of the grantees. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ, or are expected to differ, from those estimates.Changes in estimated forfeiture rate will be recognized through a cumulative catch-up adjustment in the period of change and will also impact theamount of share-based compensation expense to be recognized in future periods. The Group uses historical data to estimate pre-vesting option andrecords share-based compensation expense only for those awards that are expected to vest. According to Issue 21 of EITF Issue 00-23, the awards granted to employees of CreditEase, the parent company and other subsidiaries in theconsolidated group of the parent company should be recognized as a deemed dividend from the Group to the parent company at the fair value as of thegrant date. Share-based compensation, net of forfeitures, is recognized as a deemed dividend to parent company on an accelerated basis during thevesting period with a corresponding impact reflected in additional paid-in capital. Share-based awards to non-employees are measured based on the fair value at the earlier of the performance commitment date or the date at which thenon-employee’s performance is complete (hereafter referred to as the measurement date). The Group recognizes the compensation cost using the gradedvesting attribution method. Share-based compensation awards which require the issuance of a variable number of shares to settle a fixed monetary amount are accounted for asliabilities. Income taxes Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are provided using assets and liabilities method, which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities aredetermined on the basis of the differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the yearin which the differences are expected to reverse. Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized.In making such a determination, the management consider all positive and negative evidence, including future reversals of projected future taxableincome and results of recent operation. The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more likely than not to be sustainedupon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of beingsustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize anyincome tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the years endedDecember 31, 2015, 2016 and 2017, respectively. Value added taxes (“VAT”) The Group is subject to VAT at the rate of 6% and related surcharges on revenue generated from providing services. VAT is reported as a deduction torevenue when incurred and amounted to RMB121,673, RMB314,727 and RMB619,474 for the years ended December 31, 2015, 2016 and 2017,respectively. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. NetVAT balance between input VAT and output VAT is recorded in the line item of accrued expense and other liabilities on the face of balance sheet. Although Issue 00-23 has also been nullified, the guidance in Issue 21 of EITF Issue 00-23 remains applicable by analogy since it is the only availableguidance on accounting for these awards. F-2411 Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Net income per share Basic net income per share is computed by dividing net income attributable to holders of ordinary shares by the weighted average number of ordinaryshares outstanding during the period. Diluted net income per share is calculated by dividing net income attributable to ordinary shareholders, by theweighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares include sharesissuable upon the vesting of restricted share units using the treasury stock method. Ordinary equivalent shares are not included in the denominator ofthe diluted earnings per share calculation when inclusion of such shares would be antidilutive. Foreign Currency Translation and change in reporting currency The reporting currency of the Company is Renminbi (“RMB”). The functional currency of the Company is the US dollar (“US$”). The Company’soperations are principally conducted through the subsidiaries and VIEs located in the PRC where the local currency is the functional currency. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates.Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheetdate. Exchange gains and losses are included in earnings as a component of other income. The financial statements of the Group are translated from the functional currency into reporting currency. Assets and liabilities denominated in foreigncurrencies are translated using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current periodare translated at the appropriate historical rates. Revenues, expenses, gains and losses are translated using the periodic average exchange rates. Theresulting foreign currency translation adjustment are recorded in other comprehensive income (loss). Starting from the second quarter of 2016, the Company changed its reporting currency from US$ to RMB. The change in reporting currency wasundertaken to better report the Company’s performance given the location of its operations are principally in China and to improve the comparabilityof the Company’s financial results with other publicly traded companies in the industry in China. The related financial statements prior to April 1, 2016have been recast to RMB as if the financial statements originally had been presented in RMB since the earliest periods presented. The change inreporting currency resulted in cumulative foreign currency translation adjustment to the Group’s comprehensive income were a gain of RMB101 andRMB29,356 for the years ended December 31, 2015 and 2016 respectively. Translations of amounts from RMB into US$ are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.5063 onDecember 30, 2017, the last business day in fiscal year 2016, representing the certificated exchange rate published by the Federal Reserve Board. Norepresentation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at such rate, or at anyother rate. Significant risks and uncertainties Foreign currency risk RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controlsthe conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government policies and to international economicand political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cashequivalents denominated in RMB amounted to RMB564,240 and RMB1,546,094 at December 31, 2016 and 2017, respectively. Concentration of credit risk Financial instrument that potentially expose the Group to significant concentration of credit risk primarily included in the financial lines of cash andcash equivalents, restricted cash, accounts receivable, prepaid expenses and other assets, loans at fair value, amounts due from related parties, held-to-maturity investments, and available-for-sale investments. As of December 31, 2017, substantially all of the Group’s cash and cash equivalents weredeposited in financial institutions located in the PRC. According to the China Bank Deposit Insurance Ordinance, the deposits at each bank is coveredby insurance with an upper limit of 500 thousands RMB at each bank. Accounts receivable are typically unsecured and are derived from revenue earnedfrom customers in the PRC. The risk with respect to accounts receivable is mitigated by credit evaluations the Group performs on its customers and itsongoing monitoring process of outstanding balances. There are no revenues from customers which individually represent greater than 10% of the total net revenues for any year of the three years periodended December 31, 2017. There are no customers of the Group that accounted for greater than 10% of the Group’s carrying amount of accounts receivable as of December 31,2016 and 2017. F-25Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Significant risks and uncertainties — continued Recent accounting pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, whichsupersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of the guidance is that an entity shouldrecognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entityexpects to be entitled in exchange for those goods or services. The accounting guidance also requires additional disclosure regarding the nature,amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgmentsand assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be adopted using one of two retrospective applicationmethods. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date”, whichdefers the effective date of ASU 2014-09 by one year, to fiscal years beginning after December 15, 2017, and interim periods therein. Additionally, the FASB issued the following various updates affecting the guidance in ASU 2014-09. The effective dates and transition requirementsare the same as those in ASC Topic 606 above. In March 2016, FASB issued an amendment to the standard, ASU 2016-08, “Revenue from Contractswith Customers (Topic 606): Principal versus Agent Considerations” Under the amendment, an entity is required to determine whether the nature of itspromise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by theother party (as an agent). In April 2016, FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying PerformanceObligations and Licensing”, to clarify identifying performance obligations and the licensing implementation guidance, which retaining the relatedprinciples for those areas. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-ScopeImprovements and Practical Expedients”. This update addresses narrow-scope improvements to the guidance on collectability, noncash considerationand completed contracts at transition. The update provides a practical expedient for contract modifications at transition and an accounting policyelection related to the presentation of sales taxes and other similar taxes collected from customers. Then, in December 2016, the FASB issued ASU2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The updates in ASU 2016-20 affect narrowaspects of the guidance issued in ASU 2014-09. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. The Company recognized the cumulativeeffect of applying the new revenue standard as an adjustment to the beginning balance of retained earnings. The comparative information will not berestated and continues to be reported under the accounting standards in effect for the period presented. The adoption of the new revenue standard is expected to affect the Company’s consolidated financial statements primarily in the following aspects: (1) For those transactions that portion of the service fees is collected on monthly bases, revenue from facilitation services was recognized at the time ofbilling instead of upon collection. Under the new revenue standard, the collection risk of the borrowers credit risk is considered as a form ofimplicit price concession in determining the transaction price. Other variable consideration includes early repayment loss on service fees (as a priceconcession) and significant financing components of monthly services fees payable for more than 12 months. The Company’s estimates of variableconsideration are included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur. (2) Through December 31, 2017, the Company used the incremental cost method to account for the membership reward program liability related toYiren coins earned by investors through consumption. The new revenue standard requires the membership reward program to be considered aseparate performance obligation whereby a portion of service fee allocated to the membership reward program is deferred and recognized inrevenue upon redemption. (3) Certain acquisition costs include commissions paid to CreditEase and others for successful referral that are currently expensed as incurred arerequired by the new revenue standard to be capitalized and amortized over the term of the loans facilitated. Certain additional financial statement disclosure requirements are mandated by the new standard including disclosure of contract assets and contractliabilities as well as a disaggregated view of revenue. The cumulative impact of adopting the standard on January 1, 2018 is an increase in stockholders’ equity, which at December 31, 2017 wasapproximately RMB2 billion (US$0.3billion). F-26Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Significant risks and uncertainties — continued Recent accounting pronouncements— continued In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of FinancialAssets and Financial Liabilities” This guidance revises the accounting related to the classification and measurement of investments in equity securitiesas well as the presentation for certain fair value changes in financial liabilities measured at fair value, and amends certain disclosure requirements. Theguidance requires that all equity investments, except those accounted for under the equity method of accounting or those resulting in the consolidationof the investee, be accounted for at fair value with all fair value changes recognized in income. For financial liabilities measured using the fair valueoption, the guidance requires that any change in fair value caused by a change in instrument-specific credit risk be presented separately in othercomprehensive income until the liability is settled or reaches maturity. The guidance is effective for interim and annual reporting periods in fiscal yearsbeginning after December 15, 2017, with early adoption permitted for certain provisions. A reporting entity would generally record a cumulative-effectadjustment to beginning retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Group does not expectthe adoption of this guidance will have a significant effect on the Group’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance supersedes existing guidance on accounting for leases with themain difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities, initiallymeasured at the present value of the lease payments. For operating leases with a term of 12 months or less, a lessee is permitted to make an accountingpolicy election not to recognize lease assets and liabilities. For public business entities, the guidance is effective for fiscal years beginning afterDecember 15, 2018, including interim periods within those fiscal years. Early application of the guidance is permitted. In transition, entities arerequired to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Group iscurrently evaluating the impact of the adoption of ASU No. 2016-02 will have on its consolidated financial statements, but the Group expects that mostexisting operating lease commitments will be recognized as operating lease obligations and right-of-use assets as a result of adoption. F-27Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Significant risks and uncertainties — continued Recent accounting pronouncements— continued In June, 2016, the FASB issued a new pronouncement ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losseson Financial Instruments, which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financialinstruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assetsheld at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and otherorganizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques appliedtoday will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations willcontinue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures tohelp investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as thecredit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements thatprovide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses onavailable-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for SEC filers for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, andinterim periods within those fiscal years, beginning after December 15, 2018. The Group is in the process of evaluating the impact that this guidancewill have on its consolidated financial statements. In August, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The update is intended to improve financial reporting in regardsto how certain transactions are classified in the statement of cash flows. This update requires that debt extinguishment costs be classified as cashoutflows for financing activities and provides additional classification guidance for the statement of cash flows. The update also requires that theclassification of cash receipts and payments that have aspects of more than one class of cash flows to be determined by applying specific guidanceunder generally accepted accounting principles. The update also requires that each separately identifiable source or use within the cash receipts andpayments be classified on the basis of their nature in financing, investing or operating activities. The update is effective for public companies for fiscalyears beginning after December 15, 2017, including interim periods within those fiscal years. The Group expects no material impact of adoption of thisguidance on the consolidated financial statements. In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740). Current GAAP prohibits the recognition of current and deferred income taxesfor an intra-entity asset transfer until the asset has been sold to an outside party. Under the new standard, an entity is to recognize the income taxconsequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard does not include new disclosurerequirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The new standard is effective for annual periods beginning after December 15, 2017, including interimreporting periods within those annual periods. The Group expects no material impact of adoption of this guidance on the consolidated financialstatements. F-28Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 3. PREPAID EXPENSE AND OTHER ASSETS December 31,2016 December 31,2017RMB RMBFunds receivable from external payment network providers (i)306,758855,363Prepaid VAT and surcharge tax86,767162,996Tax refund receivable47,338—Prepaid expense10,54023,447Others15,36027,184Total466,7631,068,990 (i) The Company opened accounts with external online payment service providers to collect and transfer loan funds and interest to investors orborrowers, repay and collect the default loan principal and interest. The Company also uses such accounts to collect the transaction fee and servicefee. The balance of funds receivable from external payment network providers mainly includes accumulated amounts of transaction fee, service feereceived at the balance sheet date. 4. FAIR VALUE OF ASSETS AND LIABILITIES For a description of the fair value hierarchy and the Company’s fair value methodologies, see “Note 2 — Summary of Significant Accounting Policies.”The Company did not transfer any assets or liabilities in or out of level 3 during the years ended December 31, 2016, and 2017. Assets and Liabilities Recorded at Fair Value The Group does not have assets or liabilities measured at fair value on a non-recurring basis. The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis subsequent to initialrecognition: December 31, 2016Level 1 Inputs Level 2 Inputs Level 3 Inputs Balance at Fair ValueRMB RMB RMB RMBAssetsCash and cash equivalents968,225——968,225Restricted cash1,218,286——1,218,286Loans at fair value——371,033371,033Available-for-sale investments—1,158,000—1,158,000Total Assets2,186,5111,158,000371,0333,715,544LiabilitiesPayable to investors at fair value——418,686418,686Total Liabilities——418,686418,686 December 31, 2017Level 1 Inputs Level 2 Inputs Level 3 Inputs Balance at Fair ValueRMB RMB RMB RMBAssetsCash and cash equivalents1,857,175——1,857,175Restricted cash1,805,693——1,805,693Loans at fair value——791,681791,681Available-for-sale investments34,753928,500963,253Total Assets3,697,621928,500791,6815,417,802LiabilitiesPayable to investors at fair value——113,445113,445Total Liabilities——113,445113,445 F-29Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 4 FAIR VALUE OF ASSETS AND LIABILITIES— continued Assets and Liabilities Recorded at Fair Value — continued In accordance with ASC 820, the Company measures available-for-sale investments at fair value on a recurring basis. The fair values of the Company’savailable-for-sale investments are determined based on the discounted cash flow model using the discount curve of market interest rates. As the Company’s loans and related payable to investors do not trade in an active market with readily observable prices, the Company uses discountedcash flow methodology involving significant unobservable inputs to measure the fair value of these assets and liabilities, including discount rate,default and recovery rates, and prepayment rates. Financial instruments are categorized in the Level 3 valuation hierarchy based on the significance ofunobservable factors in the overall fair value measurement. As of December 31, 2015 and 2016, due to the adoption of ASU 2014-13 (see Note 2), thepayable to investors of the Consolidated ABFE was measured on the basis of the fair value of the loans of the Consolidated ABFE as the loans weredetermined to be more observable. Significant Unobservable Inputs December 31, 2016 December 31, 2017 Range of Inputs Range of Inputs Financial Instrument Unobservable Input Weighted- Average Weighted- Average Loans and payable to investorsDiscount rates12.0%12.0%Net cumulative expected loss rates (1)7.6-7.9%9.9-11.1%Cumulative prepayment rates (2)13.2%13.6% (1) Expressed as a percentage of the loan volume.(2) Expressed as a percentage of remaining principal of loans. The above inputs in isolation can cause significant increases or decreases in fair value. Specifically, increases in the discount rate can significantlylower the fair value of loans; conversely a decrease in the discount rate can significantly increase the fair value of loans. The discount rate is determinedbased on the market rates. F-30Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 4. FAIR VALUE OF ASSETS AND LIABILITIES— continued Significant Unobservable Inputs— continued The following table presents additional information about Level 3 loans, payable to investors measured at fair value on a recurring basis for the yearsended December 31, 2016 and 2017. Loans Payable to investorsRMB RMBBalance at December 31, 2015221,268252,907Purchases of loans299,956—Contribution from investors of Consolidated ABFE—472,500Collection of principal(135,172)—Interest and penalties received—30,342Deductible expenses associated with the Consolidated ABFE operating—(5,518)Principal and interest payments to investors of Consolidated ABFE—(332,749)Change in fair value(15,019)1,204 Balance at December 31, 2016371,033418,686 Changes in fair value related to balance outstanding at December 31, 2016(16,889)2,516 Loans Payable to investorsRMB RMBBalance at December 31, 2016371,033418,686Purchases of loans752,801—Contribution from investors of Consolidated ABFE—197,730Collection of principal(270,278)—Interest and penalties received—50,294Deductible expenses associated with the Consolidated ABFE operating—(8,691)Principal and interest payments to investors of Consolidated ABFE—(522,823)Change in fair value(61,875)(21,751) Balance at December 31, 2017791,681113,445 Changes in fair value related to balance outstanding at December 31, 2017(66,678)(13,394) Financial Instruments Not Recorded at Fair Value Financial instruments, including restricted cash, accounts receivable, accounts payable, held-to-maturity investments and amounts due from/to relatedparties are not recorded at fair value. The fair values of these financial instruments are approximate their carrying value reported in the consolidatedbalance sheets due to the short-term nature of these assets and liabilities. F-31Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 5. INVESTMENTS As of December 31, 2017, the Company’s held-to-maturity investments consisted of fixed income products and wealth management product that havestated maturity within one year. The Company measured the held-to maturity investments at amortized cost which approximate to its fair value, with nogross unrecognized holding gain or loss. As of December 31, 2017, majority of the Company’s available-for-sale investments consisted of investments in debt securities. The Company measuredthe available-for-sale investments at fair value, with changes in fair value deferred in other comprehensive income. Changes in fair value of theavailable-for-sale investments, net of tax, for the year ended December 31, 2016 and 2017 were nil and RMB411, respectively, recorded in othercomprehensive income. No other-than-temporary impairment recognized during the year of 2016 and 2017. Interest income of investments of RMB7,593 and RMB72,649 were recognized in the consolidated statements of operations for the years endedDecember 31, 2016 and 2017, respectively. The following table presents additional information about cost and fair value of available-for-sale investments as of December 31, 2016 and 2017: December 31, 2016 CostGross unrecognizedholding gains / (losses)Unrealized gain inaccumulated othercomprehensive incomeImpact ofexchange rateFair value Available-for-sale investments:Debt securities1,158,000———1,158,000 December 31, 2017CostGross unrecognizedholding gains / (losses)Unrealized gain inaccumulated othercomprehensive incomeImpact ofexchange rateFair valueAvailable-for-sale investments:Debt securities963,660—(411)4963,253 F-32Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 6. PROPERTY, EQUIPMENT AND SOFTWARE, NET December 31,2016 December 31,2017RMB RMBComputer and transmission equipment37,58284,194Furniture and office equipment2,4102,767Leasehold improvements6,3126,999Software3,54725,106Total property, equipment and software49,851119,066Accumulated depreciation and amortization14,34836,817Property, equipment and software, net35,50382,249 Depreciation and amortization expense on property, equipment and software for the years ended December 31, 2015, 2016 and 2017 were RMB3,635,RMB10,609 and RMB23,729, respectively. 7. ACCRUED EXPENSES AND OTHER LIABILITIES December 31,2016 December 31,2017RMB RMBAccrued payroll and welfare35,47056,730Tax payable406,698785,217Accrued customer incentives and Yiren coins54,731197,816Accrued advertisement expense55,463169,827Payable to investor of beneficiary rights under repurchase agreement (Note 2)—50,000Other accrued expenses11,80337,060Total accrued expenses and other current liabilities564,1651,296,650 F-33Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 8. RELATED PARTY BALANCES AND TRANSACTIONS The Group accounts for related party transactions based on various services agreements and reflects for all periods presented herein. Below summarizesthe major related parties and their relationships with the Group, and the nature of their services provided to the Yirendai Business: Company nameRelationship with theGroupMajor transaction with theGroupCreditEase Huimin Investment Management(Beijing) Co., Ltd. (“CreditEase Huimin”)Consolidated VIE of CreditEaseBorrower acquisition and referral services fromthe Group Tian Da Xin AnSubsidiary of consolidated VIE of CreditEaseGuarantee services Pucheng Credit Assessment and Management(Beijing) Co., Ltd. (“Pucheng Credit”)Consolidated VIE of CreditEaseCredit assessment and collection services andguarantee services CreditEase PuhuiConsolidated VIE of CreditEaseBorrower acquisition and referral servicesto/from the Group and guarantee services Puxin Hengye Technology Development (Beijing)Co., Ltd. (“Puxin Hengye”)Subsidiary of CreditEaseSystem support services CreditEase Zhuoyue Wealth Investment &Management (Beijing) Co., Ltd. (“CreditEaseZhuoyue”)Consolidated VIE of CreditEaseInvestor acquisition and referral services Beijing Zhicheng Credit Service Co., Ltd.(“Beijing Zhicheng”)Consolidated VIE of CreditEaseIdentity verification services CreditEaseParent CompanyPaid in capital and loan Hainan CreditEase Puhui Small Loan Co., Ltd.(“Hainan CreditEase”)Consolidated VIE of CreditEaseCollection of fee from customer on behalf ofthe Group CreditEase Bocheng Insurance Sales and ServiceCo., Ltd. (“CreditEase Bocheng”)Consolidated VIE of CreditEaseCustomer referral services from the Group F-34Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 8. RELATED PARTY BALANCES AND TRANSACTIONS — continued The following table presents information about cost and expense from CreditEase for such services for the years ended December 31, 2015, 2016 and2017, which will be continuously provided by CreditEase: Years ended December 31,2015 2016 2017RMB RMB RMBCollection service3,37711,89596,276Acquisition and referral service405,085818,6781,080,731System support service26,10272,023133,184Credit assessment service7,3669,14015,359Cash process service——377 Total cost and expense441,930911,7361,325,927 The Group also provides borrower/customer acquisition and referral services to CreditEase Puhui from April 1, 2015, CreditEase Huimin fromFebruary 1, 2017, and CreditEase Bocheng from May 1, 2017. The borrowers’ acquisition and referral revenue amounted to RMB2,962, RMB1,931 andRMB19,945 for the years ended December 31, 2015,2016 and 2017, respectively. From August 2013 to December 2014, Yirendai Business worked with Tian Da Xin An, a subsidiary of consolidated VIEs of CreditEase, by introducingTian Da Xin An as the guarantor in the loan facilitation agreements. Under such agreements, Tian Da Xin An guaranteed for the principal and interestpaid to investors and for transaction fees paid to the Group in case of borrower default. Because Yirendai and Tian Da Xin An are under common controlof CreditEase, Yirendai did not charge commission for referral business to Tian Da Xin An. Meanwhile, Tian Da Xin An did not charge guarantee fee forthe guarantee service on transaction fee. As a result, no commission of referral or guarantee expense on the transaction fee was reflected in theaccompanying financial statements. Starting from January 2015, the Group terminated the relationship with Tian Da Xin An and launched a newinvestor protection services to investors in the form of quality assurance program as discussed in Note 2. In addition, the Group obtained a worldwide and royalty-free license from CreditEase to use its trademarks and used the proprietary systems developedby CreditEase free of charge. From August 2017 to December 2017, the Company cooperated with Chouzhou Bank. Under the arrangement, the Company is obligated to repay thebank on behalf of defaulting borrowers if any repayment is 80 days overdue and upon the full repayment, the Company will obtain the creditor’s rightsin respect of relevant default amount. The Company’s affiliates, Pucheng Credit and CreditEase Puhui, provide joint-guarantee with the Company. Details of related party balances as of December 31, 2016 and 2017 are as follows: (i) Amounts due from related parties December 31,2016 December 31,2017 RMB RMB Tian Da Xin An (Note a)1,677—CreditEase Huimin(Note b)—16,875Hainan CreditEase1—CreditEase Bocheng—13Pucheng Credit (Note c)—100,334 Total1,678117,222 F-35Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 8. RELATED PARTY BALANCES AND TRANSACTIONS — continued (ii) Amounts due to related parties December 31,2016 December 31,2017RMB RMBCreditEase Puhui (Notes d and e)5,35153,536Puxin Hengye (Note d)3,2649,273Pucheng Credit (Note d)1,1496,738Beijing Zhicheng (Note d)1,4381,390CreditEase Zhuoyue (Note d)407682Tian Da Xin An (Note a)—2,657Hainan CreditEase (Note f)—2,268Total11,60976,544 (a) Under the guarantee model, for providing the guarantee service to the investors on the principal and interest, Tian Da Xin An chargesthe investors at a rate of 10% based on monthly interest on loans as servicing fee, which is to be collected by the Group on behalf of theguarantee company. The Group pays the investors the principal and interest on loans that default, and collects the associated unpaidtransaction fee in accordance with the guarantee arrangement from Tian Da Xin An. The balance of amount due from Tian Da Xin An asof December 31, 2016 and 2017 represents the net amount of service fee payable and the receivable amount arising from guaranteeservice, including default principal and interest on loans as well as the associated default uncollectible transaction fee. (b) Amounts due from CreditEase Huimin relate to borrowers referral service provided by the Company. (c) Amounts due from CreditEase Pucheng relate to the loan provided by the Company. This is a one-year loan with an annual interest rateof 4.35%. The principal and accrued interests of which will be paid at maturity. (d) Amounts relate to the provision of credit assessment, collection, system support, identity verification, borrowers and investorsacquisition and referral services by the related parties to Heng Cheng and Heng Ye. (e) Since April 2015, the Group also provides borrower acquisition and referral service to CreditEase Puhui, receivables from CreditEasePuhui in relation to such service is netted off with amount due to CreditEase Puhui. (f) Amounts due to Hainan CreditEase mainly represents the collection of fee from customer on behalf of Heng Cheng. 9. INCOME TAXES Yirendai is a company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, Yirendai is not subject to tax on eitherincome or capital gain. Under the current Hong Kong Inland Revenue Ordinance, Yirendai HK is subject to 16.5% income tax on its taxable income generated from operationsin Hong Kong. Under the PRC Enterprise Income Tax Law (the “EIT Law”), the standard enterprise income tax rate for domestic enterprises and foreign investedenterprises is 25%. Heng Ye was recognized as a Software Enterprise and thereby entitled to full exemption from EIT for two years beginning with itsfirst profitable year, i.e., 2015 and 2016, and a 50% reduction for the subsequent three years. In addition, Heng Yu Da has been recognized as withinencouraged industries in the Western Regions of China and enjoyed a preferential income tax rate of 15%. Yirendai’s other subsidiaries andconsolidated VIEs established in the PRC are subject to income tax rate of 25%, according to the EIT Law. The Consolidated ABFE are not subject toincome tax. Under the EIT Law and its implementation rules which became effective on January 1, 2008, dividends generated after January 1, 2008 and payable byforeign-invested enterprise in PRC to its foreign investors who are non-resident enterprises are subject to a 10% withholding tax, unless any suchforeign investor’s jurisdiction of incorporation has a tax treaty with PRC that provides for a different withholding arrangement. Under the taxationarrangement between the PRC and Hong Kong, a qualified Hong Kong tax resident which is the “beneficial owner” and directly holds 25% or more ofthe equity interest in a PRC resident enterprise is entitled to a reduced withholding tax rate of 5%. The Cayman Islands, where the Company isincorporated, does not have a tax treaty with PRC. Since January 1, 2014, the relevant tax authorities of the Group’s subsidiaries have not conducted a tax examination on the Group’s PRC entities. Inaccordance with relevant PRC tax administration laws, tax years from 2014 of the Group’s PRC subsidiaries and VIEs, remain subject to tax audits as ofDecember 31, 2017, at the tax authority’s discretion. Uncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overall operations, and more specifically, withregard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residentsfor Chinese income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the EIT Law providethat non-resident legal entities will be considered China residents if substantial and overall management and control over the manufacturing andbusiness operations, personnel, accounting, properties, etc., occurs within the PRC. Despite the present uncertainties resulting from the limited PRC taxguidance on the issue, the Group does not believe that the legal entities organized outside of the PRC within the Group should be treated as residentsfor EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should bedeemed resident enterprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income taxes, at a rate of 25%. F-36Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 9. INCOME TAXES — continued Income tax expense/ (benefit) is comprised of the following: December 31,2015 December 31,2016 December 31,2017 RMB RMB RMBCurrent tax304,383246,591734,617Deferred tax(175,862)(260,540)(353,410)Total128,521(13,949)381,207 Reconciliation between the income tax at PRC statutory tax rate and income tax expense is as follows: Year ended December 31, 2015 2016 2017 RMB RMB RMB Income before provision for income taxes403,8601,102,4491,752,990Statutory tax rate in the PRC25%25%25%Income tax at statutory tax rate100,965275,612438,248Non-deductible expenses32,7912,10115,968Research and Development Tax Credit(5,309)——Effect of tax holiday and preferential tax rate—(265,545)(167,870)Effect of tax losses not recognized—165299Adjustment on current income tax of the previous periods (i)—(33,633)(44)Effect of different tax rates of subsidiaries operating in other jurisdictions747,35123,329Effect of withholding income tax——71,277Income tax expense/ (benefit)128,521(13,949)381,207 The aggregate amount and per share effect of the tax holiday and preferential tax rate are as follows: Year ended December 31,2015 2016 2017RMB RMB RMBThe aggregate amount of tax holiday and preferential tax rate—265,545167,870The aggregate effect on basic and diluted net income per share:- Basic—2.24581.3936- Diluted—2.23261.3731 (i) Adjustment on current income tax of the previous periods represented the adjustment according to final annual income tax filing with thePRC tax authorities. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. The components of the deferred tax assets are as follows: December 31,2016 December 31,2017RMB RMBDeferred tax assets:Liabilities from quality assurance program and guarantee367,750696,237Deferred revenue41,07955,727Accrued expenses13,47849,125Security Deposit for trust arrangements8,961—Others5,134—Total436,402801,089 December 31,2016 December 31,2017RMB RMBDeferred tax liabilities:Withholding tax on cash dividend from PRC—11,277Total—11,277 Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize theexisting deferred tax assets. On the basis of this evaluation, as of December 31, 2016 and 2017, no allowance has been recorded for the deferred taxassets. The authoritative guidance requires that the Group recognizes the impact of a tax position in the financial statements if that position is more likelythan not of being sustained upon audit by the tax authority, based on the technical merits of the position. Under PRC laws and regulations,arrangements and transactions among related parties may be subject to examination by the PRC tax authorities. If the PRC tax authorities determinethat the contractual arrangements among related companies do not represent a price under normal commercial terms, they may make adjustments to thecompanies’ income and expenses. A transfer pricing adjustment could result in additional tax liabilities. F-37Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 9. INCOME TAXES — continued The Group did not identify significant unrecognized tax benefits for the years ended December 31, 2015, 2016 and 2017. The Group did not incur anyinterest related to unrecognized tax benefits, did not recognize any penalties as income tax expenses and also does not anticipate any significantchange in unrecognized tax benefits within 12 months from December 31, 2016. Under the EIT Law and its implementation rules, a withholding tax at 10%, unless reduced by a tax treaty or arrangement, is applied on dividendsreceived by non-PRC-resident corporate investors from PRC-resident enterprises, such as the Company’s PRC subsidiaries. Under the China-HK TaxArrangement and the relevant regulations, a qualified Hong Kong tax resident which is the “beneficial owner” and holds 25% equity interests or moreof a PRC enterprise is entitled to a reduced withholding rate of 5%. The Company believes that Yirendai HK will apply the 10% withholding tax rate.On July 29, 2017, the board of directors (the “Board”) of the Company approved a special cash dividend of RMB 5.0845 (US$0.75) per ordinary shareof the Company (or RMB 10.1690 (US$1.50) per American depositary share of the Company), which was paid on October 16, 2017 to holders of theCompany’s ordinary shares of record as of the close of business on September 29, 2017. On July 29, 2017, the Board also approved a semi-annualdividend policy. Under this policy, semi-annual dividends will be set at an amount equivalent to approximately 15% of the Company’s anticipated netincome after tax in each half year commencing from the second half of 2017, which will be derived from the earnings of the Group’s PRC. As a result,the Company incurred and paid withholding tax of RMB 60.0 million for the special cash dividend in August 2017, and accrued deferred tax liabilitiesof RMB 11.28 million related to semi-annual dividends as of December 31, 2017. Aggregate undistributed earnings of the Company’s VIE companies located in the PRC that are available for distribution to the Company wereapproximately RMB645.8 million as of December 31, 2017. A deferred tax liability should be recorded for taxable temporary differences attributable tothe excess of financial reporting amounts over tax basis amount in domestic subsidiaries. However, recognition is not required in situations where thetax law provides a means by which the reported amount of that investment can be recovered tax-free and the enterprise expects that it will ultimatelyuse that means. The Company has not recorded any such deferred tax liability attributable to the undistributed earnings of its financial interest in VIEsbecause it believes such excess earnings can be distributed in a manner that would not be subject to income tax. 10. SHARE-BASED COMPENSATION Share incentive plan In September 2015, the Company adopted the 2015 Share Incentive Plan (the “2015 Plan”), and in July 2017, the Company adopted the 2017 ShareIncentive Plan (the “2017 Plan”), which permits the grant of three types of awards: options, restricted shares and restricted share units. Persons eligibleto participate in the 2015 Plan and the 2017 Plan (collectively, the “Plans”) includes employees (including part-time employees) and directors of thecompany or any of affiliates, which include the Company’s parent company, subsidiaries and any entities in which the parent company or a subsidiaryof the Company holds a substantial ownership interest. According to resolutions of the board of directors and the shareholders of the Company inJuly 2017, the 2015 Plan was amended. Under the amended 2015 plan, the maximum ordinary shares available for issuance were decreased to3,939,100. Under the 2017 Plan, the maximum of 6,060,900 ordinary shares were reserved for issuance. On July 1, 2016 and 2017, the Company approved a grant of 4,034,100 and 3,744,782 restricted share units to directors and employees of the Groupand CreditEase and its consolidated subsidiaries and VIEs under the 2015 Plan and the 2017 Plan, respectively. Approximately 59.9% and 34.11% ofthe share awards were immediately vested and the rest is expected to be vested in various days up to four and five years, respectively. The grant date fairvalue of the awards was US$7.25 and US$12.5 per ordinary share, which was determined based on the closing price of the Company’s ADSs on NYSEon July 1, 2016 and 2017, respectively. Out of all the restricted shares granted, 524,000 and 2,251,202 restricted share units were granted to directors and employees of the Group under the2015 Plan and the 2017 Plan, respectively. The awards granted to the employees of the Group are recognized as share-based compensation expense andmeasured based on the fair value as of the grant date. The Company recognized compensation expenses in general and administrative expense of nil,RMB17,223 and RMB81,979 for the years ended December 31, 2015, 2016 and 2017. The remaining 3,510,100 and 1,493,580 restricted share units were granted to employees of CreditEase and its consolidated subsidiaries and VIEs underthe 2015 Plan and the 2017 Plan, respectively. The awards granted to employees of CreditEase and its subsidiaries were deemed dividend from theCompany to Parent as the employees of CreditEase do not provide service directly related to the Company. The awards are measured based on the fairvalue as of the grant date. The amount recognized as deemed dividend were nil, RMB124,210 and RMB108,604 for the years ended December 31,2015,2016 and 2017 respectively. F-38Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 10. SHARE-BASED COMPENSATION — continued Restricted Share Units The following table sets forth a summary of restricted share units activities: Number of Restricted Shares Weighted-AverageGrant-DateFair Value US$Outstanding at January 1, 2016——Granted4,034,1007.25Vested(2,512,300)7.25Forfeited(74,600)7.25Outstanding at December 31, 20161,447,2007.25Granted3,744,78212.50Vested(1,831,124)11.13Forfeited(133,430)10.10Outstanding at December 31, 20173,227,42811.02 As of December 31, 2017, unrecognized compensation cost related to unvested awards granted to employees of the Group, adjusted for estimatedforfeitures, was RMB109,113. This cost is expected to be recognized over 3.8 years on an accelerated basis. As of December 31, 2017, unrecognized deemed dividend related to unvested awards granted to employees of CreditEase and its consolidatedsubsidiaries and VIEs, adjusted for estimated forfeitures, was RMB49,670. Such deemed dividend will be recorded over 3.4 years on an acceleratedbasis. F-39Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 11. NET NCOME PER SHARE AND NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS The following table details the computation of the basic and diluted net income per share: Year endedDecember 31,2015 Year endedDecember 31,2016 Year endedDecember 31,2017RMB RMB RMBNumerator:Net income275,3391,116,3981,371,783Denominator:Weighted average number of ordinary shares outstanding,basic100,652,055118,240,414120,457,573Plus incremental weighted average ordinary shares fromassumed vesting of restricted share units using the treasurystock method—696,6681,799,265Weighted average number of ordinary shares outstanding,diluted100,652,055118,937,082122,256,838 Basic income per share2.73569.441811.3881Diluted income per share (i)2.73569.386511.2205 (i) No RSUs were excluded from the computation of diluted earnings per common share for 2015, 2016 and 2017 because their effect weredilutive. 12. SEGMENT INFORMATION The Group’s chief operating decision maker has been identified as the Chief Executive Officer who reviews the consolidated results of operation whenmaking decisions about allocating resources and assessing performance of the Group. The Group operates and manages its business as a single segment. All of the Group’s revenue for the years ended December 31, 2015, 2016 and 2017 were generated from the PRC. As of December 31, 2016 and 2017, respectively, all of long-lived assets of the Group were located in the PRC. F-40Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 13. EMPLOYEE BENEFIT PLAN Full time employees of the Group in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pensionbenefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The Group accrues forthese benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were RMB19,593,RMB43,874 and RMB66,190 for the years ended December 31, 2015, 2016 and 2017, respectively. 14. STATUTORY RESERVES AND RESTRICTED NET ASSETS In accordance with the PRC laws and regulations, the Company’s PRC subsidiaries and VIEs are required to make appropriation to certain statutoryreserves, namely general reserve, enterprise expansion reserve, and staff welfare and bonus reserve, all of which are appropriated from net profit asreported in their PRC statutory accounts. The Group’s PRC entities are required to appropriate at least 10% of their after-tax profits to the generalreserve until such reserve has reached 50% of their respective registered capital. Appropriations to the enterprise expansion reserve and the staff welfare and bonus reserve are to be made at the discretion of the board of directors ofeach of the Group’s PRC entities. There were no appropriations to these reserves by the Group’s PRC entities for the years ended December 31, 2015,2016 and 2017. As a result of PRC laws and regulations and the requirement that distributions by the PRC entity can only be paid out of distributable profits computedin accordance with the PRC GAAP, the PRC entity is restricted from transferring a portion of their net assets to the Company. Amounts restrictedinclude paid-in capital, capital reserve and statutory reserves of the Company’s PRC entities. As of December 31, 2016 and December 31, 2017, theaggregated amounts of paid-in capital, capital reserve and statutory reserves represented the amount of net assets of the relevant entity in the Group notavailable for distribution amounted to RMB549,388, and RMB926,417, respectively (including the statutory reserve fund of RMB138,483 andRMB305,512 as of December 31, 2016 and 2017, respectively). As a result of the above restrictions, parent-only financials are presented on financialstatement schedule 1. 15. COMMITMENTS AND CONTINGENCIES Operating lease as lessee The Group leases certain office premises under non-cancelable leases. Rental expenses under operating leases for the years ended December 31, 2015,2016 and 2017 were RMB9,881, RMB22,835, RMB21,575, respectively. Future minimum lease payments under non-cancelable operating leases agreements are as follows: Years ending RMB201819,21820191,5972020—2021—2022 and thereafter— F-41Table of Contents YIRENDAI LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continuedFOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017(in thousands, except share and per share data) 15. COMMITMENTS AND CONTINGENCIES — continued Contingencies In August, 2016, the Company and certain of the Company’s officers were named as defendants in two putative shareholder class action lawsuits filed inthe United States District Court for the Central District of California. The action—purportedly brought on behalf of a class of persons who allegedlysuffered damages as a result of their trading in the Company’s ADSs between May 11, 2016 and August 24, 2016—alleges that the Company’s publicpress releases dated May 11, 2016 and August 9, 2016 contained misstatements or omissions relating to the Company’s experiencing an increasingamount of fraud related to customer application for loans and the potential negative impact that the Chinese government’s implementation of new anti-fraud regulations could have on the Company’s business. On November 29, 2016, the Court entered an order consolidating the cases and appointinglead plaintiffs and lead counsel for the consolidated case. On January 27, 2017, the lead plaintiffs filed their first amended complaint. On March 28,2017, the Company filed a motion to dismiss the first amended complaint. On September 20, 2017, the Court issued an order granting defendants’motion to dismiss and allowed plaintiff until July 10, 2017 to file an amended complaint. On July 10, 2017, the parties filed a joint stipulation andproposed order dismissing the case with prejudice, which the Court granted on the same day. The Company believes that the case is closed, and there isno likelihood of a loss as of this stage. As of December 31, 2017, no losses with respect to this contingency were accrued. The Group has not made adequate contributions to employee benefit plans as required by applicable PRC laws and regulations but the amount,including potential late fees or fines, was immaterial as of December 31, 2016. As of December 31, 2017, the related amount has been fully accrued. The Group has no reasonably possible losses in addition to amounts accrued as of December 31, 2016 and 2017. 16. SUBSEQUENT EVENTS In January 2018, the Group entered into a three-year business agreement with PICC Property and Casualty Company Limited. PICC Property andCasualty Company Limited provides surety insurance for loans facilitated through the Group’s online marketplace with 12-month term and with anamount not exceeding RMB200,000 (approximately US$31,000), and will reimburse investors their principal and expected interest in the event of loandefault within the agreed scope of the Agreement. In March 2018, the Group began to cooperate with a guarantee company, whereby the guaranteecompany provides guarantee for loans facilitated through the Group’s online marketplace for the assurance that investors’ principal and interest wouldbe repaid in the event that their loans default. In January 2018, the Group established a new trust, Huijin No.28 Single Capital Trust E4, or Trust No.4, in collaboration with the trust company toinvest in loans facilitated on the Group’s online marketplace. Trust No. 4 is fully funded by the Group with an aggregate investment amount ofRMB350.0 million (US$53.8 million) and is consolidated by the Group. F-42Table of Contents YIRENDAI LTD. SCHEDULE 1-CONDENSED BALANCE SHEETS(in thousands, except share and per share data) December 31,2016 December 31,2017 December 31,2017RMB RMB US$Assets:Cash and cash equivalents394,505300,21846,143Prepaid expenses and other assets69034253Amount due from a subsidiary68,951145,71222,396Held-to-maturity investments34,021——Available-for-sale investments—34,7535,341Investments in subsidiaries and VIEs1,645,6302,503,805384,827 Total assets2,143,7972,984,830458,760Liabilities:Accrued expenses and other liabilities3,87814,7772,271 Total liabilities3,87814,7772,271Equity:Ordinary shares ($0.0001 par value; 500,000,000 shares authorized, 119,512,300and 121,343,424 shares issued and outstanding as of December 31, 2016 and2017, respectively)757612Additional paid-in capital933,2721,123,854172,733Accumulated other comprehensive income29,45711,0671,701Retained earnings1,177,1151,835,056282,043 Total equity2,139,9192,970,053456,489 Total liabilities and equity2,143,7972,984,830458,760 F-43Table of Contents YIRENDAI LTD. SCHEDULE 1-CONDENSED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year endedDecember 31,2015 Year endedDecember 31,2016 Year endedDecember 31,2017 Year endedDecember 31,2017RMB RMB RMB US$Equity in earnings of subsidiaries and VIEs275,3401,145,6451,464,230225,048 Operating costs and expenses(1)(30,667)(98,635)(15,160)Interest income—6555,411832Non-operating income, net—765777119 Net income275,3391,116,3981,371,783210,839 Basic net income per share2.73569.441811.38811.7503 Weighted average number of ordinary shares outstanding, basic100,652,055118,240,414120,457,573120,457,573 Diluted net income per share2.73569.386511.22051.7246 Weighted average number of ordinary shares outstanding,diluted100,652,055118,937,082122,256,838122,256,838 F-44Table of Contents YIRENDAI LTD. SCHEDULE 1-CONDENSED STATEMENTS OF COMPREHENSIVE INCOME(in thousands, except share and per share data) Year ended December 31,20152016 2017 2017RMBRMB RMB US$Net income275,3391,116,3981,371,783210,839 Other comprehensive income/(loss), net of tax of nil:Foreign currency translation adjustment10129,356(17,979)(2,763)Unrealized losses on available-for-sale investments——(411)(63) Comprehensive income275,4401,145,7541,353,393208,013 F-45Table of Contents YIRENDAI LTD. SCHEDULE 1-CONDENSED STATEMENTS of CASH FLOWS(in thousands, except share and per share data) Year endedDecember 31,2015Year endedDecember 31,2016 Year endedDecember 31,2017 Year endedDecember 31,2017RMBRMB RMB US$Cash Flows from Operating Activities:Net income275,3391,116,3981,371,783210,839Adjustments to reconcile net income to net cash used in operatingactivities:Equity in earnings of subsidiaries and VIEs(275,340)(1,145,645)(1,464,230)(225,048)Share-based compensation—17,22381,97912,600Dividends received——540,00082,997Changes in operating assets and liabilities:Prepaid expenses and other assets—(690)34853Accrued expenses and other current liabilities6,469(2,592)10,9001,675 Net cash provided by/(used in) operating activities6,468(15,306)540,78083,116 Cash Flows from Investing Activities:Amounts due from subsidiaries(75,429)6,479(11,523)(1,770)Purchase of held-to-maturity investments—(34,021)(326)(50)Redemption of held-to-maturity investments——34,3475,279Purchase of available-for-sale investments(35,164)(5,405)Investment in a subsidiary———— Net cash used in other investing activities(75,429)(27,542)(12,666)(1,946) Cash Flows from Financing Activities:Cash contribution from owner62———Proceeds from initial public offering, net of offering cost441,600———Proceeds from concurrent private placement, net of offering cost58,256———Payments of initial public offering cost—(21,824)——Dividends paid to shareholders——(605,238)(93,023) Net cash provided by/(used in) financing activities499,918(21,824)(605,238)(93,023) Effect of foreign exchange rate changes(322)28,542(17,163)(2,638) Net increase/(decrease) in cash and cash equivalents430,635(36,130)(94,287)(14,491)Cash and cash equivalents, beginning of year—430,635394,50560,634 Cash and cash equivalents, end of year430,635394,505300,21846,143 F-46Table of Contents YIRENDAI LTD. SCHEDULE 1-NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY 1. BASIS FOR PREPARATION The condensed financial information of the Company has been prepared using the same accounting policies as set out in the consolidated financialstatements, except that the equity method has been used to account for investments in its subsidiaries and VIEs. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generallyaccepted in the United States of America have been condensed or omitted. The footnote disclosures contain supplemental information relating to theoperations of the Company and, as such, these statements should be read in conjunction with the notes to the accompanying consolidated financialstatements. 2. INVESTMENTS IN SUBSIDIARIES AND VIES The Company, its subsidiaries and VIEs are included in the consolidated financial statements where the inter-company balances and transactions areeliminated upon consolidation. For the purpose of the Company’s stand-alone financial statements, its investments in subsidiaries and VIEs are reportedusing the equity method of accounting. The Company’s share of income and losses from its subsidiaries and VIEs are reported as earnings fromsubsidiaries and VIEs in the accompanying condensed financial information of parent company. 3. AMOUNT DUE FROM A SUBSIDIARY Amount due from a subsidiary represents an interest-free, unsecured and repayable on demand loan provided to Yirendai HK. 4. MATERIAL CONTINGENCIES As of December 31, 2017, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemptionrequirements of redeemable stocks or guarantees of the Company, except for those which have been separately disclosed in the Consolidated FinancialStatement, if any. F-47Exhibit 4.18 Amended and Restated Equity Interest Pledge Agreement This Amended and Restated Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on April 27,2018 in Beijing, the People’s Republic of China (“China” or the “PRC”): Party A: Chongqing Hengyuda Technology Co., Ltd. (hereinafter “Pledgee”), a wholly foreign owned enterprise, organized and existing under the laws ofthe PRC, with its address at Room 3507, Floor 35, HNA-Poly International Center, No. 235, Minsheng Road, Yuzhong District, Chongqing; Party B: Ning TANG (hereinafter “Pledgor”), a Chinese citizen with Chinese Identification No.: ; and Party C: Yiren Financial Information Services (Beijing) Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with itsaddress at 350 meters north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, Beijing. In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the“Parties”. Whereas: 1. All the Parties hereto entered into an Equity Interest Pledge Agreement dated October 13, 2016 (the “Prior Agreement”); 2. Pledgor is a citizen of China who as of the date hereof holds 40% of equity interests of Party C, representing RMB4,000,000 in the registered capital ofParty C. Party C is a limited liability company registered in Beijing, China. Party C acknowledges the respective rights and obligations of Pledgor andPledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; 3. Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C which is partially owned by Pledgor have executed an ExclusiveBusiness Cooperation Agreement (as defined below); Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as defined below);Pledgee and Pledgor have executed a Loan Agreement (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor ofPledgee. 4. To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive OptionAgreement, the Loan Agreement, and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party Cas security for Party C’s and Pledgor’s obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the LoanAgreement and the Power of Attorney.  To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon thefollowing terms, which will terminate and replace the Prior Agreement in its entirety and in all aspects. 1. Definitions Unless otherwise provided herein, the terms below shall have the following meanings: 1.1 Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Section 2 of this Agreement, i.e., the right of Pledgee to bepaid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds fromauction or sale of the Equity Interest. 1.2 Equity Interest: shall refer to 40% equity interests in Yiren Financial Information Services (Beijing) Co., Ltd. currently held by Pledgor,representing RMB4,000,000 in the registered capital of Yiren Financial Information Services (Beijing) Co., Ltd., and all of the equity interesthereafter acquired by Pledgor in Party C. 1.3 Term of Pledge: shall refer to the term set forth in Section 3 of this Agreement. 1.4 Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee onOctober 13, 2016 (the “Exclusive Business Cooperation Agreement”), the Loan Agreement executed by and between Pledgee and Pledgor onOctober 13, 2016 (the “Loan Agreement”), the Exclusive Option Agreement executed by and among Party C, Pledgee and Pledgor onOctober 13, 2016 (the “Exclusive Option Agreement”), Power of Attorney executed on October 13, 2016 by Pledgor (the “Power of Attorney”)and any modification, amendment and restatement to the aforementioned documents. 1.5 Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Loan Agreement, the Power ofAttorney and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive OptionAgreement and this Agreement. 1.6 Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred asa result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecastof Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred inconnection with enforcement by Pledgee of Pledgor’s and/or Party C’s Contract Obligations and etc.  1.7 Event of Default: shall refer to any of the circumstances set forth in Section 7 of this Agreement. 1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. 2. Pledge 2.1 Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtednessunder this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. 2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividendsdistributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction ofindividual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee andused to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or(2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. 2.3 Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as aresult of Pledgor’s subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. 2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s dissolution orliquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure theContract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally donated toPledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. 3. Term of Pledge 3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein is registered with relevantadministration for industry and commerce (the “AIC”). The Pledge shall remain effective until all Contract Obligations have been fullyperformed and all Secured Indebtedness have been fully paid. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register ofParty C within 3 business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of thePledge of the Equity Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant thatfor the purpose of registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or anequity interest pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledgehereunder (the “AIC Pledge Contract”). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of thisAgreement. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws andregulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible aftersubmission for filing.  3.2 During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgeeshall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement. 4. Custody of Records for Equity Interest subject to Pledge 4.1 During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the capital contribution certificate for theEquity Interest and the shareholders’ register containing the Pledge within one week from the execution of this Agreement. Pledgee shall havecustody of such documents during the entire Term of Pledge set forth in this Agreement. 5. Representations and Warranties of Pledgor and Party C As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that: 5.1 Pledgor is the sole legal and beneficial owner of the Equity Interest. 5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. 5.3 Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. 5.4 Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) forexecution, delivery and performance of this Agreement. 5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s articles ofassociation or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it isa party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approvalgranted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions.  6. Covenants of Pledgor and Party C 6.1 During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: 6.1.1 Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the EquityInterest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; 6.1.2 Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five(5) days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge,shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order orrecommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable requestor upon consent of Pledgee; 6.1.3 Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on the EquityInterest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and otherobligations of Pledgor arising out of this Agreement. 6.1.4 Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expirationof such term to maintain the validity of this Agreement. 6.2 Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted orharmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. 6.3 To protect or perfect the security interest granted by this Agreement for the Contract Obligations and Secured Indebtedness, Pledgor herebyundertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deedsand/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge toperform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and toenter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required byPledgee.  6.4 Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under thisAgreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shallindemnify Pledgee for all losses resulting therefrom. 7. Event of Breach 7.1 The following circumstances shall be deemed Event of Default: 7.1.1 Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement. 7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement. 7.2 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described inSection 7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly. 7.3 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) days after thePledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default toPledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions ofSection 8 of this Agreement. 8. Exercise of Pledge 8.1 Pledgee shall issue a written Notice of Default to Pledgor when it exercises the Pledge. 8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice ofDefault in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interestsassociated with the Equity Interest. 8.3 After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicablePRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based onthe monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgeeshall not be liable for any loss incurred by its duly exercise of such rights and powers.  8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interestand to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After thepayment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balanceunder applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any otherperson designated by Pledgee. 8.5 Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in priority withthe Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of theEquity Interest under this Agreement, without exercising any other remedy measure first. 8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise anyobjection to such exercise. 8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enablePledgee to enforce the Pledge in accordance with this Agreement. 9. Breach of Agreement 9.1 If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/orrequire Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; 9.2 Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. 10. Assignment 10.1 Without Pledgee’s prior written consent, Pledgor and Party C shall not have the right to assign or delegate their rights and obligations under thisAgreement. 10.2 This Agreement shall be binding on Pledgor and his/her successors and permitted assigns, and shall be valid with respect to Pledgee and each ofhis/her successors and assigns. 10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents and this Agreement to its designee(s),in which case the assigns shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were theoriginal party to the Transaction Documents and this Agreement.  10.4 In the event of change of Pledgee due to assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreementwith the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. 10.5 Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Partieshereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from anyaction/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interestpledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. 11. Termination 11.1 Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall releasethe Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge fromthe shareholders’ register of Party C and with relevant PRC local administration for industry and commerce. 11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. 12. Handling Fees and Other Expenses All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any othertaxes and fees, shall be borne by Party C. 13. Confidentiality The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties inconnection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality ofall such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidentialinformation to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’sunauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, ororders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legalcounsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counselsor financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidentialinformation by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential informationby such Party and such Party shall be held liable for breach of this Agreement.  14. Governing Law and Resolution of Disputes 14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereundershall be governed by the laws of China. 14.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute throughfriendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the otherParties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic andTrade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing. Thearbitration award shall be final and binding on all Parties. 14.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of anydispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreementand perform their respective obligations under this Agreement. 15. Notices 15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent byregistered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. Aconfirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shallbe determined as follows: 15.2 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date ofdelivery or refusal at the address specified for notices. 15.3 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by anautomatically generated confirmation of transmission).  15.4 For the purpose of notices, the addresses of the Parties are as follows: Party A: Chongqing Hengyuda Technology Co., Ltd.Address: Room 3507, Floor 35, HNA-Poly International Center, No.235, Minsheng Road, Yuzhong District, ChongqingAttn: Lin MEIPhone:Email: Party B: Ning TANGAddress:Attn: Ning TangPhone:Email: Party C: Yiren Financial Information Services (Beijing) Co., Ltd.Address: 350 metres north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, BeijingAttn: Joanne LIUPhone:Email: 15.5 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. 16. Severability In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with anylaws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in anyrespect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish tothe greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possibleto the economic effect of those invalid, illegal or unenforceable provisions. 17. Attachments The attachments set forth herein shall be an integral part of this Agreement. 18. Effectiveness 18.1 This Agreement shall become effective upon execution by the Parties. 18.2 Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of thegovernmental filing procedures (if applicable) after the affixation of the signatures or seals of the Parties. 18.3 As of the effective date of this Agreement, the Prior Agreement shall terminate automatically.  19. Language and Counterparts This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copyshall be used for registration. The Chinese version and English version shall have equal legal validity. The Remainder of this page is intentionally left blank  IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Agreement as of the date first above written. Party A:Chongqing Hengyuda Technology Co., Ltd. By:/s/Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative Party B:Ning TANG By:/s/Ning TANG Party C:Yiren Financial Information Services (Beijing) Co., Ltd. By:/s/Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative  Attachments: 1. Shareholders’ Register of Party C 2. The Capital Contribution Certificate for Party C 3. Exclusive Business Cooperation Agreement 4. Loan Agreement 5. Exclusive Option Agreement 6. Power of Attorney  Amended and Restated Equity Interest Pledge Agreement This Amended and Restated Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on April 27,2018 in Beijing, the People’s Republic of China (“China” or the “PRC”): Party A: Chongqing Hengyuda Technology Co., Ltd. (hereinafter “Pledgee”), a wholly foreign owned enterprise, organized and existing under the laws ofthe PRC, with its address at Room 3507, Floor 35, HNA-Poly International Center, No. 235, Minsheng Road, Yuzhong District, Chongqing; Party B: Fanshun KONG (hereinafter “Pledgor”), a Chinese citizen with Chinese Identification No.: ; and Party C: Yiren Financial Information Services (Beijing) Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with itsaddress at 350 meters north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, Beijing. In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the“Parties”. Whereas: 1. All the Parties hereto entered into an Equity Interest Pledge Agreement dated October 13, 2016 (the “Prior Agreement”); 2. Pledgor is a citizen of China who as of the date hereof holds 30% of equity interests of Party C, representing RMB3,000,000 in the registered capital ofParty C. Party C is a limited liability company registered in Beijing, China. Party C acknowledges the respective rights and obligations of Pledgor andPledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; 3. Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C which is partially owned by Pledgor have executed an ExclusiveBusiness Cooperation Agreement (as defined below); Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as defined below);Pledgee and Pledgor have executed a Loan Agreement (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor ofPledgee. 4. To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive OptionAgreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party Cas security for Party C’s and Pledgor’s obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the LoanAgreement and the Power of Attorney.  To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon thefollowing terms, which will terminate and replace the Prior Agreement in its entirety and in all aspects. 1. Definitions Unless otherwise provided herein, the terms below shall have the following meanings: 1.1 Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Section 2 of this Agreement, i.e., the right of Pledgee to bepaid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds fromauction or sale of the Equity Interest. 1.2 Equity Interest: shall refer to 30% equity interests in Yiren Financial Information Services (Beijing) Co., Ltd. currently held by Pledgor,representing RMB3,000,000 in the registered capital of Yiren Financial Information Services (Beijing) Co., Ltd., and all of the equity interesthereafter acquired by Pledgor in Party C. 1.3 Term of Pledge: shall refer to the term set forth in Section 3 of this Agreement. 1.4 Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee onOctober 13, 2016 (the “Exclusive Business Cooperation Agreement”), the Loan Agreement executed by and between Pledgee and Pledgor onOctober 13, 2016 (the “Loan Agreement”), the Exclusive Option Agreement executed by and among Party C, Pledgee and Pledgor onOctober 13, 2016 (the “Exclusive Option Agreement”), Power of Attorney executed on October 13, 2016 by Pledgor (the “Power of Attorney”)and any modification, amendment and restatement to the aforementioned documents. 1.5 Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Loan Agreement, the Power ofAttorney and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive OptionAgreement and this Agreement. 1.6 Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred asa result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecastof Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred inconnection with enforcement by Pledgee of Pledgor’s and/or Party C’s Contract Obligations and etc.  1.7 Event of Default: shall refer to any of the circumstances set forth in Section 7 of this Agreement. 1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. 2. Pledge 2.1 Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtednessunder this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. 2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividendsdistributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction ofindividual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee andused to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or(2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. 2.3 Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as aresult of Pledgor’s subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. 2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s dissolution orliquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure theContract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally donated toPledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. 3. Term of Pledge 3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein is registered with relevantadministration for industry and commerce (the “AIC”). The Pledge shall remain effective until all Contract Obligations have been fullyperformed and all Secured Indebtedness have been fully paid. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register ofParty C within 3 business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of thePledge of the Equity Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant thatfor the purpose of registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or anequity interest pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledgehereunder (the “AIC Pledge Contract”). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of thisAgreement. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws andregulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible aftersubmission for filing.  3.2 During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgeeshall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement. 4. Custody of Records for Equity Interest subject to Pledge 4.1 During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the capital contribution certificate for theEquity Interest and the shareholders’ register containing the Pledge within one week from the execution of this Agreement. Pledgee shall havecustody of such documents during the entire Term of Pledge set forth in this Agreement. 5. Representations and Warranties of Pledgor and Party C As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that: 5.1 Pledgor is the sole legal and beneficial owner of the Equity Interest. 5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. 5.3 Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. 5.4 Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) forexecution, delivery and performance of this Agreement. 5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s articles ofassociation or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it isa party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approvalgranted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions.  6. Covenants of Pledgor and Party C 6.1 During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: 6.1.1 Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the EquityInterest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; 6.1.2 Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five(5) days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge,shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order orrecommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable requestor upon consent of Pledgee; 6.1.3 Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on the EquityInterest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and otherobligations of Pledgor arising out of this Agreement. 6.1.4 Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expirationof such term to maintain the validity of this Agreement. 6.2 Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted orharmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. 6.3 To protect or perfect the security interest granted by this Agreement for the Contract Obligations and Secured Indebtedness, Pledgor herebyundertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deedsand/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge toperform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and toenter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required byPledgee.  6.4 Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under thisAgreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shallindemnify Pledgee for all losses resulting therefrom. 7. Event of Breach 7.1 The following circumstances shall be deemed Event of Default: 7.1.1 Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement. 7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement. 7.2 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described inSection 7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly. 7.3 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) days after thePledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default toPledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions ofSection 8 of this Agreement. 8. Exercise of Pledge 8.1 Pledgee shall issue a written Notice of Default to Pledgor when it exercises the Pledge. 8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice ofDefault in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interestsassociated with the Equity Interest. 8.3 After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicablePRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based onthe monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgeeshall not be liable for any loss incurred by its duly exercise of such rights and powers.  8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interestand to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After thepayment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balanceunder applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any otherperson designated by Pledgee. 8.5 Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in prioritywith the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale ofthe Equity Interest under this Agreement, without exercising any other remedy measure first. 8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise anyobjection to such exercise. 8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enablePledgee to enforce the Pledge in accordance with this Agreement. 9. Breach of Agreement 9.1 If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/orrequire Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; 9.2 Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. 10. Assignment 10.1 Without Pledgee’s prior written consent, Pledgor and Party C shall not have the right to assign or delegate their rights and obligations under thisAgreement. 10.2 This Agreement shall be binding on Pledgor and his/her successors and permitted assigns, and shall be valid with respect to Pledgee and each ofhis/her successors and assigns. 10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents and this Agreement to its designee(s),in which case the assigns shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were theoriginal party to the Transaction Documents and this Agreement.  10.4 In the event of change of Pledgee due to assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreementwith the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. 10.5 Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Partieshereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from anyaction/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interestpledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. 11. Termination 11.1 Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall releasethe Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge fromthe shareholders’ register of Party C and with relevant PRC local administration for industry and commerce. 11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. 12. Handling Fees and Other Expenses All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any othertaxes and fees, shall be borne by Party C. 13. Confidentiality The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties inconnection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality ofall such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidentialinformation to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’sunauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, ororders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legalcounsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counselsor financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidentialinformation by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential informationby such Party and such Party shall be held liable for breach of this Agreement.  14. Governing Law and Resolution of Disputes 14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereundershall be governed by the laws of China. 14.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute throughfriendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the otherParties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic andTrade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing. Thearbitration award shall be final and binding on all Parties. 14.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of anydispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreementand perform their respective obligations under this Agreement. 15. Notices 15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent byregistered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. Aconfirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shallbe determined as follows: 15.2 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date ofdelivery or refusal at the address specified for notices. 15.3 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by anautomatically generated confirmation of transmission).  15.4 For the purpose of notices, the addresses of the Parties are as follows: Party A:Chongqing Hengyuda Technology Co., Ltd.Address:Room 3507, Floor 35, HNA-Poly International Center, No.235,Minsheng Road, Yuzhong District, ChongqingAttn:Lin MEIPhone:Email: Party B:Fanshun KONGAddress:Attn:Fanshun KONGPhone:Email: Party C:Yiren Financial Information Services (Beijing) Co., Ltd.Address:350 metres north of Roundabout, Yanfu Road, Yancun Town,Fangshan District, BeijingAttn:Joanne LIUPhone:Email: 15.5 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. 16. Severability In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with anylaws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in anyrespect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish tothe greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible tothe economic effect of those invalid, illegal or unenforceable provisions. 17. Attachments The attachments set forth herein shall be an integral part of this Agreement. 18. Effectiveness 18.1 This Agreement shall become effective upon execution by the Parties. 18.2 Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of thegovernmental filing procedures (if applicable) after the affixation of the signatures or seals of the Parties. 18.3 As of the effective date of this Agreement, the Prior Agreement shall terminate automatically.  19. Language and Counterparts This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copyshall be used for registration. The Chinese version and English version shall have equal legal validity. The Remainder of this page is intentionally left blank  IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Agreement as of the date first above written. Party A:Chongqing Hengyuda Technology Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative Party B:Fanshun KONG By:/s/ Fanshun KONG Party C:Yiren Financial Information Services (Beijing) Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative  Attachments: 1. Shareholders’ Register of Party C 2. The Capital Contribution Certificate for Party C 3. Exclusive Business Cooperation Agreement 4. Loan Agreement 5. Exclusive Option Agreement 6. Power of Attorney  Amended and Restated Equity Interest Pledge Agreement This Amended and Restated Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on April 27,2018 in Beijing, the People’s Republic of China (“China” or the “PRC”): Party A: Chongqing Hengyuda Technology Co., Ltd. (hereinafter “Pledgee”), a wholly foreign owned enterprise, organized and existing under the laws ofthe PRC, with its address at Room 3507, Floor 35, HNA-Poly International Center, No. 235, Minsheng Road, Yuzhong District, Chongqing; Party B: Yan TIAN (hereinafter “Pledgor”), a Chinese citizen with Chinese Identification No.: ; and Party C: Yiren Financial Information Services (Beijing) Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with itsaddress at 350 meters north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, Beijing. In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the“Parties”. Whereas: 1. All the Parties hereto entered into an Equity Interest Pledge Agreement dated October 13, 2016 (the “Prior Agreement”); 2. Pledgor is a citizen of China who as of the date hereof holds 30% of equity interests of Party C, representing RMB3,000,000 in the registered capital ofParty C. Party C is a limited liability company registered in Beijing, China. Party C acknowledges the respective rights and obligations of Pledgor andPledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; 3. Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C which is partially owned by Pledgor have executed an ExclusiveBusiness Cooperation Agreement (as defined below); Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as defined below);Pledgee and Pledgor have executed a Loan Agreement (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor ofPledgee. 4. To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive OptionAgreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party Cas security for Party C’s and Pledgor’s obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the LoanAgreement and the Power of Attorney.  To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon thefollowing terms, which will terminate and replace the Prior Agreement in its entirety and in all aspects. 1. Definitions Unless otherwise provided herein, the terms below shall have the following meanings: 1.1 Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Section 2 of this Agreement, i.e., the right of Pledgee to bepaid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds fromauction or sale of the Equity Interest. 1.2 Equity Interest: shall refer to 30% equity interests in Yiren Financial Information Services (Beijing) Co., Ltd. currently held by Pledgor,representing RMB3,000,000 in the registered capital of Yiren Financial Information Services (Beijing) Co., Ltd., and all of the equity interesthereafter acquired by Pledgor in Party C. 1.3 Term of Pledge: shall refer to the term set forth in Section 3 of this Agreement. 1.4 Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee onOctober 13, 2016 (the “Exclusive Business Cooperation Agreement”), the Loan Agreement executed by and between Pledgee and Pledgor onOctober 13, 2016 (the “Loan Agreement”), the Exclusive Option Agreement executed by and among Party C, Pledgee and Pledgor onOctober 13, 2016 (the “Exclusive Option Agreement”), Power of Attorney executed on October 13, 2016 by Pledgor (the “Power of Attorney”)and any modification, amendment and restatement to the aforementioned documents. 1.5 Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Loan Agreement, the Power ofAttorney and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive OptionAgreement and this Agreement. 1.6 Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred asa result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecastof Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred inconnection with enforcement by Pledgee of Pledgor’s and/or Party C’s Contract Obligations and etc.  1.7 Event of Default: shall refer to any of the circumstances set forth in Section 7 of this Agreement. 1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. 2. Pledge 2.1 Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtednessunder this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. 2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividendsdistributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction ofindividual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee andused to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or(2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. 2.3 Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as aresult of Pledgor’s subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. 2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s dissolution orliquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure theContract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally donated toPledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. 3. Term of Pledge 3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein is registered with relevantadministration for industry and commerce (the “AIC”). The Pledge shall remain effective until all Contract Obligations have been fullyperformed and all Secured Indebtedness have been fully paid. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register ofParty C within 3 business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of thePledge of the Equity Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant thatfor the purpose of registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or anequity interest pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledgehereunder (the “AIC Pledge Contract”). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of thisAgreement. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws andregulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible aftersubmission for filing.  3.2 During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgeeshall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement. 4. Custody of Records for Equity Interest subject to Pledge 4.1 During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the capital contribution certificate for theEquity Interest and the shareholders’ register containing the Pledge within one week from the execution of this Agreement. Pledgee shall havecustody of such documents during the entire Term of Pledge set forth in this Agreement. 5. Representations and Warranties of Pledgor and Party C As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that: 5.1 Pledgor is the sole legal and beneficial owner of the Equity Interest. 5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. 5.3 Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. 5.4 Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) forexecution, delivery and performance of this Agreement. 5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s articles ofassociation or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it isa party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approvalgranted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions.  6. Covenants of Pledgor and Party C 6.1 During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: 6.1.1 Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the EquityInterest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; 6.1.2 Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five(5) days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge,shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order orrecommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable requestor upon consent of Pledgee; 6.1.3 Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on the EquityInterest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and otherobligations of Pledgor arising out of this Agreement. 6.1.4 Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expirationof such term to maintain the validity of this Agreement. 6.2 Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted orharmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. 6.3 To protect or perfect the security interest granted by this Agreement for the Contract Obligations and Secured Indebtedness, Pledgor herebyundertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deedsand/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge toperform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and toenter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required byPledgee.  6.4 Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under thisAgreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shallindemnify Pledgee for all losses resulting therefrom. 7. Event of Breach 7.1 The following circumstances shall be deemed Event of Default: 7.1.1 Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement. 7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement. 7.2 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described inSection 7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly. 7.3 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) days after thePledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default toPledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions ofSection 8 of this Agreement. 8. Exercise of Pledge 8.1 Pledgee shall issue a written Notice of Default to Pledgor when it exercises the Pledge. 8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice ofDefault in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interestsassociated with the Equity Interest. 8.3 After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicablePRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based onthe monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgeeshall not be liable for any loss incurred by its duly exercise of such rights and powers.  8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interestand to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After thepayment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balanceunder applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any otherperson designated by Pledgee. 8.5 Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in prioritywith the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale ofthe Equity Interest under this Agreement, without exercising any other remedy measure first. 8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise anyobjection to such exercise. 8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enablePledgee to enforce the Pledge in accordance with this Agreement. 9. Breach of Agreement 9.1 If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/orrequire Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; 9.2 Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. 10. Assignment 10.1 Without Pledgee’s prior written consent, Pledgor and Party C shall not have the right to assign or delegate their rights and obligations under thisAgreement. 10.2 This Agreement shall be binding on Pledgor and his/her successors and permitted assigns, and shall be valid with respect to Pledgee and each ofhis/her successors and assigns. 10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents and this Agreement to its designee(s),in which case the assigns shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were theoriginal party to the Transaction Documents and this Agreement.  10.4 In the event of change of Pledgee due to assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreementwith the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. 10.5 Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Partieshereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from anyaction/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interestpledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. 11. Termination 11.1 Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall releasethe Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge fromthe shareholders’ register of Party C and with relevant PRC local administration for industry and commerce. 11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. 12. Handling Fees and Other Expenses All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any othertaxes and fees, shall be borne by Party C. 13. Confidentiality The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties inconnection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality ofall such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidentialinformation to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’sunauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, ororders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legalcounsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counselsor financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidentialinformation by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential informationby such Party and such Party shall be held liable for breach of this Agreement.  14. Governing Law and Resolution of Disputes 14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereundershall be governed by the laws of China. 14.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute throughfriendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the otherParties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic andTrade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing. Thearbitration award shall be final and binding on all Parties. 14.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of anydispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreementand perform their respective obligations under this Agreement. 15. Notices 15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent byregistered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. Aconfirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shallbe determined as follows: 15.2 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date ofdelivery or refusal at the address specified for notices. 15.3 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by anautomatically generated confirmation of transmission).  15.4 For the purpose of notices, the addresses of the Parties are as follows: Party A:Chongqing Hengyuda Technology Co., Ltd.Address:Room 3507, Floor 35, HNA-Poly International Center, No.235,Minsheng Road, Yuzhong District, ChongqingAttn:Lin MEIPhone:Email: Party B:Yan TIANAddress:Attn:Yan TIANPhone:Email: Party C:Yiren Financial Information Services (Beijing) Co., Ltd.Address:350 metres north of Roundabout, Yanfu Road, Yancun Town,Fangshan District, BeijingAttn:Joanne LIUPhone:Email: 15.5 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. 16. Severability In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with anylaws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in anyrespect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish tothe greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible tothe economic effect of those invalid, illegal or unenforceable provisions. 17. Attachments The attachments set forth herein shall be an integral part of this Agreement. 18. Effectiveness 18.1 This Agreement shall become effective upon execution by the Parties. 18.2 Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of thegovernmental filing procedures (if applicable) after the affixation of the signatures or seals of the Parties. 18.3 As of the effective date of this Agreement, the Prior Agreement shall terminate automatically.  19. Language and Counterparts This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copyshall be used for registration. The Chinese version and English version shall have equal legal validity. The Remainder of this page is intentionally left blank  IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Agreement as of the date first above written. Party A:Chongqing Hengyuda Technology Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative Party B:Yan TIAN By:/s/ Yan TIAN Party C:Yiren Financial Information Services (Beijing) Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative  Attachments: 1. Shareholders’ Register of Party C 2. The Capital Contribution Certificate for Party C 3. Exclusive Business Cooperation Agreement 4. Loan Agreement 5. Exclusive Option Agreement 6. Power of Attorney Exhibit 4.21 Amended and Restated Exclusive Option Agreement This Amended and Restated Exclusive Option Agreement (this “Agreement”) is executed by and among the following Parties as of April 27, 2018 inBeijing, the People’s Republic of China (“China” or the “PRC”): Party A: Chongqing Hengyuda Technology Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC, with itsaddress at Room 3507, Floor 35, HNA-Poly International Center, No. 235, Minsheng Road, Yuzhong District, Chongqing; Party B: Ning TANG, a Chinese citizen with Chinese Identification No.: ; and Party C: Yiren Financial Information Services (Beijing) Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with itsaddress at 350 meters north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, Beijing. In this Agreement, Party A, Party B, and Party C shall each be referred to as a “Party” respectively, and they shall be collectively referred to as the“Parties.” Whereas: 1. All the Parties hereto executed an Exclusive Option Agreement on October 13, 2016 (the “Prior Agreement”). 2. Party B is a shareholder of Party C and as of the date hereof holds 40% of the equity interests of Party C, representing RMB4,000,000 in the registeredcapital of Party C. 3. Party A and Party B executed a Loan Agreement (“Loan Agreement”) on October 13, 2016, pursuant to which Party A has provided to Party B a loan inthe aggregate amount of RMB4,000,000 for the purpose as designated in the Loan Agreement. After mutual discussions and negotiations, the Parties have now reached the following agreement, which will terminate and replace the Prior Agreementin its entirety and in all aspects. 1. Sale and Purchase of Equity Interest 1.1 Option Granted Party B hereby irrevocably and unconditionally grants Party A a binding and exclusive right to purchase, or designate one or more persons (each, a“Designee”) to purchase the equity interests in Party C then held by Party B at once or at multiple times at any time in part or in whole at Party A’ssole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “EquityInterest Purchase Option”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or otherrights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to PartyA. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts, or non-corporateorganizations. 1 1.2 Steps for Exercise of the Equity Interest Purchase Option Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written noticeto Party B (the “Equity Interest Purchase Option Notice”), specifying: (a) Party A’s or the Designee’s decision to exercise the Equity InterestPurchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the “Optioned Interests”); and (c) thedate for purchasing the Optioned Interests or the date for transfer of the Optioned Interests. 1.3 Equity Interest Purchase Price The total price for the purchase by Party A of all Optioned Interests held by Party B upon exercise of the Equity Interest Purchase Option by PartyA shall equal to the amount of registered capital contributed by Party B in Party C for such Optioned Interests (or such price may be as set forth inthe equity transfer agreement to be executed between Party A (or the Designee) and Party B separately, provided that such price does not violatePRC laws and regulations and is acceptable to Party A); if Party A exercises the Equity Interest Purchase Option to purchase part of the OptionedInterests held by Party B in Party C, then the purchase price shall be calculated on a pro rata basis. If at the time when Party A exercises the EquityInterest Purchase Option, the PRC laws impose mandatory requirements on the purchase price of such Optioned Interests, such that the minimumprice permitted under PRC law is higher than the aforementioned price, then the purchase price shall be such minimum price permitted by PRC law(collectively, the “Equity Interest Purchase Price”). 1.4 Transfer of Optioned Interests For each exercise of the Equity Interest Purchase Option: 1.4.1 Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party B’stransfer of the Optioned Interests to Party A and/or the Designee(s); 1.4.2 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to PartyA and/or the Designee(s) and waiving any right of first refusal related thereto; 2 1.4.3 Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever isapplicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the OptionedInterests; 1.4.4 The relevant Parties shall execute all other necessary contracts, agreements, or documents, obtain all necessary government licenses andpermits, and take all necessary actions to transfer the valid ownership of the Optioned Interests to Party A and/or the Designee(s),unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the OptionedInterests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights orinterests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention, or other security arrangements, butshall be deemed to exclude any security interest created by this Agreement, Party B’s Equity Interest Pledge Agreement, and Party B’sPower of Attorney. “Party B’s Equity Interest Pledge Agreement” as used in this Agreement shall refer to the Interest Pledge Agreementexecuted by and among Party A, Party B and Party C on the date hereof and any modifications, amendments, and restatements thereto. “Party B’s Power of Attorney” as used in this Agreement shall refer to the Power of Attorney executed by Party B on the date hereofgranting Party A with a power of attorney and any modifications, amendments, and restatements thereto. 1.5 Payment The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall beused for repayment of the loan provided by Party A (and any interest thereon) in accordance with the Loan Agreement. Accordingly, upon exerciseof the Equity Interest Purchase Option, Party A may make the payment of the Equity Interest Purchase Price by way of offset of the outstandingdebts owed by Party B to Party A (including without limitation the outstanding amount of the loan owed by Party B to Party A and any interestthereon under the Loan Agreement) (such debts, the “Offset Debts”), in which case Party A shall not be required to pay any additional purchaseprice to Party B, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the PRC laws. If the PRClaws impose mandatory requirements on the Equity Interest Purchase Price agreed under this Agreement, such that the minimum Equity InterestPurchase Price permitted under PRC laws exceeds the price already offset with the Offset Debts, the Party B shall promptly donate all of the amountexceeding the Offset Debts received by it to Party A or any other person designated by Party A in the manner permitted by the applicable PRC laws/ Party B hereby waives its right to receive the amount of price that exceeds the amount offset with the Offset Debts. 3 2. Covenants 2.1 Covenants regarding Party C Party B (as a shareholder of Party C) and Party C hereby covenant on the following: 2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change, or amend the articles of association ofParty C, increase or decrease its registered capital, or change its structure of registered capital in other manners; 2.1.2 They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices, as well asobtain and maintain all necessary government licenses and permits by prudently and effectively operating its business and handling itsaffairs; 2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage, or dispose of inany manner any material assets of Party C or legal or beneficial interest in the material business or revenues of Party C of more thanRMB 500,000, or allow the encumbrance thereon of any security interests; 2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee, or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; 2.1.5 They shall always operate all of Party C’s businesses within the normal business scope to maintain the asset value of Party C and refrainfrom any action/omission that may affect Party C’s operating status and asset value; 2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in theordinary course of business (for the purpose of this subsection, a contract with a price exceeding RMB 500,000 shall be deemed a majorcontract); 2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with a loan or credit; 2.1.8 They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request; 4 2.1.9 If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrieracceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; 2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire, or invest in anyperson; 2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration, or administrativeproceedings relating to Party C’s assets, business, or revenue; 2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary orappropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against all claims; 2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to itsshareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to itsshareholders; 2.1.14 At the request of Party A, they shall appoint any person designated by Party A as the director or executive director of Party C. 2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and 2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A. 2.2 Covenants of Party B Party B hereby covenants to the following: 2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage, or dispose of in any other manner any legal orbeneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed inaccordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney; 2.2.2 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting and/or the directors (or the executivedirector) of Party C not to approve any sale, transfer, mortgage, or disposition in any other manner of any legal or beneficial interest inthe equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the interest placedin accordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney; 5 2.2.3 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting or the directors (or the executive director) ofParty C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person; 2.2.4 Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration, or administrativeproceedings relating to the equity interests in Party C held by Party B; 2.2.5 Party B shall cause the shareholders’ meeting or the directors (or the executive director) of Party C to vote their approval of the transferof the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; 2.2.6 To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, takeall necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against allclaims; 2.2.7 Party B shall appoint any designee of Party A as the director or the executive director of Party C, at the request of Party A; 2.2.8 Party B hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party C to Party A (ifany), and gives consent to the execution by each other shareholder of Party C with Party A and Party C the exclusive option agreement,the equity interest pledge agreement and the power of attorney similar to this Agreement, Party B’s Equity Interest Pledge Agreement,and Party B’s Power of Attorney, and accepts not to take any actions in conflict with such documents executed by the othershareholders; 2.2.9 Party B shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated byParty A to the extent permitted under the applicable PRC laws; and 2.2.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B,Party C, and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect theeffectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subjectto this Agreement hereunder or under Party B’s Equity Interest Pledge Agreement or under Party B’s Power of Attorney, Party B shall notexercise such rights except in accordance with the written instructions of Party A. 6 3. Representations and Warranties Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of theOptioned Interests, that: 3.1 They have the power, capacity, and authority to execute and deliver this Agreement and any equity interest transfer contracts to which they areparties concerning the Optioned Interests to be transferred thereunder (each, a “Transfer Contract”), and to perform their obligations under thisAgreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreementupon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute orwill constitute their legal, valid, and binding obligations, and shall be enforceable against them in accordance with the provisions thereof; 3.2 Party B and Party C have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) forthe execution, delivery, and performance of this Agreement. 3.3 The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shallnot: (i) cause any violations of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws, or other organizationaldocuments of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, orconstitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of anycondition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension orrevocation of or imposition of additional conditions to any licenses or permits issued to either of them; 3.4 Party B has a good and merchantable title to the equity interests held by Party B in Party C. Except for Party B’s Equity Interest PledgeAgreement and Party B’s Power of Attorney, Party B has not placed any security interest on such equity interests; 3.5 Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets; 7 3.6 Party C does not have any outstanding debts, except for (i) debt incurred within its normal business scope; and (ii) debts disclosed to Party A forwhich Party A’s written consent has been obtained. 3.7 Party C has complied with all laws and regulations of China applicable to asset acquisitions; and 3.8 There are no pending or threatened litigation, arbitration, or administrative proceedings relating to the equity interests in Party C, assets of PartyC, or Party C. 4. Effective Date and Term This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party B in Party C have beentransferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. 5. Governing Law and Dispute Resolution 5.1 Governing Law The execution, effectiveness, construction, performance, amendment, and termination of this Agreement as well as any dispute resolutionhereunder shall be governed by the laws of the PRC. 5.2 Methods of Dispute Resolution In the event of any dispute arising with respect to the construction and performance of this Agreement, the Parties shall first attempt to resolve thedispute through friendly negotiations. In the event that the Parties fail to reach an agreement on the dispute within 30 days after either Party’srequest to the other Parties for dispute resolution through negotiations, either Party may submit the relevant dispute to the China InternationalEconomic and Trade Arbitration Commission for arbitration, in accordance with its arbitration rules. The arbitration shall be conducted inBeijing, and the arbitration award shall be final and binding to all Parties. 6. Taxes and Fees Each Party shall pay any and all transfer and registration taxes, expenses, and fees incurred thereby or levied thereon in accordance with the laws ofChina in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactionscontemplated under this Agreement and the Transfer Contracts. 7. Notices 7.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent byregistered mail, prepaid postage, commercial courier services, or facsimile transmission to the address of such Party set forth below. Aconfirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall bedetermined as follows: 8 7.1.1 Notices given by personal delivery, courier services, registered mail, or prepaid postage shall be deemed effectively given on the date ofreceipt or refusal at the address specified for such notices; 7.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by anautomatically generated confirmation of the transmission). 7.2 For the purpose of notices, the addresses of the Parties are as follows: Party A:Chongqing Hengyuda Technology Co., Ltd.Address:Room 3507, Floor 35, HNA-Poly International Center, No.235, Minsheng Road, Yuzhong District, ChongqingAttn:Lin MEIPhone:Email: Party B:Ning TANGAddress:Attn:Ning TangPhone:Email: Party C:Yiren Financial Information Services (Beijing) Co., Ltd.Address:350 metres north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, BeijingAttn:Joanne LIUPhone:Email: 7.3 Any Party may at any time change its address for notices by having a notice delivered to the other Parties in accordance with the terms hereof. 8. Confidentiality The Parties acknowledge that the existence and the terms of this Agreement, and any oral or written information exchanged between the Parties inconnection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain theconfidentiality of all such confidential information, and without obtaining the written consent of other Parties, it shall not disclose any relevantconfidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through thereceiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stockexchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees,legal counsels, or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legalcounsels, or financial advisors shall be bound by the confidential obligations similar to those set forth in this Section. Disclosure of any confidentialinformation by the shareholders, director, employees of, or agencies engaged by any Party shall be deemed disclosure of such confidential informationby such Party and that Party shall be held liable for breach of this Agreement. 9 9. Further Warranties The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions andpurposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions andpurposes of this Agreement. 10. Breach of Agreement 10.1 If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/orrequire Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; 10.2 Party B or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. 11. Miscellaneous 11.1 Amendments, changes, and supplements Any amendments, changes, and supplements to this Agreement shall require the execution of a written agreement by all of the Parties. 11.2 Entire agreement Except for the amendments, supplements, or changes in writing executed after the execution of this Agreement, this Agreement shall constitutethe entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral andwritten consultations, representations, and contracts reached with respect to the subject matter of this Agreement, including but not limited tothe Prior Agreement. 10 11.3 Headings The headings of this Agreement are for convenience only, and shall not be used to interpret, explain, or otherwise affect the meanings of theprovisions of this Agreement. 11.4 Language This Agreement is written in both Chinese and English, and contains three copies, with each Party having one copy. The Chinese version andEnglish version shall have equal legal validity. 11.5 Severability In the event that one or several of the provisions of this Agreement are found to be invalid, illegal, or unenforceable in any aspect in accordancewith any laws or regulations, the validity, legality, or enforceability of the remaining provisions of this Agreement shall not be affected orcompromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal, or unenforceable provisions with effectiveprovisions that accomplish to the greatest extent permitted by the relevant laws and the intentions of the Parties, and the economic effect ofsuch effective provisions shall be as close as possible to the economic effect of those invalid, illegal, or unenforceable provisions. 11.6 Successors This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of suchParties. 11.7 Survival 11.7.1 Any obligations that occur or are due as a result of this Agreement upon the expiration or early termination of this Agreement shallsurvive the expiration or early termination thereof. 11.7.2 The provisions of Sections 5, 8, 10, and this Section 11.7 shall survive the termination of this Agreement. 11.8 Waivers Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require thesignatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver bysuch a Party with respect to any similar breach in other circumstances. 11 IN WITNESS WHEREOF, the authorized representatives of the Parties have executed this Agreement as of the date first above written. Party A:Chongqing Hengyuda Technology Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative Party B:Ning TANG By:/s/ Ning TANG Party C:Yiren Financial Information Services (Beijing) Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative  Amended and Restated Exclusive Option Agreement This Amended and Restated Exclusive Option Agreement (this “Agreement”) is executed by and among the following Parties as of April 27, 2018 inBeijing, the People’s Republic of China (“China” or the “PRC”): Party A: Chongqing Hengyuda Technology Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC, with itsaddress at Room 3507, Floor 35, HNA-Poly International Center, No. 235, Minsheng Road, Yuzhong District, Chongqing; Party B: Fanshun KONG, a Chinese citizen with Chinese Identification No.: ; and Party C: Yiren Financial Information Services (Beijing) Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with itsaddress at 350 meters north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, Beijing. In this Agreement, Party A, Party B, and Party C shall each be referred to as a “Party” respectively, and they shall be collectively referred to as the“Parties.” Whereas: 1. All the Parties hereto executed an Exclusive Option Agreement on October 13, 2016 (the “Prior Agreement”). 2. Party B is a shareholder of Party C and as of the date hereof holds 30% of the equity interests of Party C, representing RMB3,000,000 in the registeredcapital of Party C. 3. Party A and Party B executed a Loan Agreement (“Loan Agreement”) on October 13, 2016, pursuant to which Party A has provided to Party B a loan inthe aggregate amount of RMB3,000,000 for the purpose as designated in the Loan Agreement. After mutual discussions and negotiations, the Parties have now reached the following agreement, which will terminate and replace the Prior Agreementin its entirety and in all aspects. 1. Sale and Purchase of Equity Interest 1.1 Option Granted Party B hereby irrevocably and unconditionally grants Party A a binding and exclusive right to purchase, or designate one or more persons (each, a“Designee”) to purchase the equity interests in Party C then held by Party B at once or at multiple times at any time in part or in whole at Party A’ssole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “EquityInterest Purchase Option”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or otherrights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to PartyA. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts, or non-corporateorganizations. 1 1.2 Steps for Exercise of the Equity Interest Purchase Option Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written noticeto Party B (the “Equity Interest Purchase Option Notice”), specifying: (a) Party A’s or the Designee’s decision to exercise the Equity InterestPurchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the “Optioned Interests”); and (c) thedate for purchasing the Optioned Interests or the date for transfer of the Optioned Interests. 1.3 Equity Interest Purchase Price The total price for the purchase by Party A of all Optioned Interests held by Party B upon exercise of the Equity Interest Purchase Option by PartyA shall equal to the amount of registered capital contributed by Party B in Party C for such Optioned Interests (or such price may be as set forth inthe equity transfer agreement to be executed between Party A (or the Designee) and Party B separately, provided that such price does not violatePRC laws and regulations and is acceptable to Party A); if Party A exercises the Equity Interest Purchase Option to purchase part of the OptionedInterests held by Party B in Party C, then the purchase price shall be calculated on a pro rata basis. If at the time when Party A exercises the EquityInterest Purchase Option, the PRC laws impose mandatory requirements on the purchase price of such Optioned Interests, such that the minimumprice permitted under PRC law is higher than the aforementioned price, then the purchase price shall be such minimum price permitted by PRC law(collectively, the “Equity Interest Purchase Price”). 1.4 Transfer of Optioned Interests For each exercise of the Equity Interest Purchase Option: 1.4.1 Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party B’stransfer of the Optioned Interests to Party A and/or the Designee(s); 1.4.2 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to PartyA and/or the Designee(s) and waiving any right of first refusal related thereto; 2 1.4.3 Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever isapplicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the OptionedInterests; 1.4.4 The relevant Parties shall execute all other necessary contracts, agreements, or documents, obtain all necessary government licenses andpermits, and take all necessary actions to transfer the valid ownership of the Optioned Interests to Party A and/or the Designee(s),unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the OptionedInterests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights orinterests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention, or other security arrangements, butshall be deemed to exclude any security interest created by this Agreement, Party B’s Equity Interest Pledge Agreement, and Party B’sPower of Attorney. “Party B’s Equity Interest Pledge Agreement” as used in this Agreement shall refer to the Interest Pledge Agreementexecuted by and among Party A, Party B and Party C on the date hereof and any modifications, amendments, and restatements thereto. “Party B’s Power of Attorney” as used in this Agreement shall refer to the Power of Attorney executed by Party B on the date hereofgranting Party A with a power of attorney and any modifications, amendments, and restatements thereto. 1.5 Payment The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall beused for repayment of the loan provided by Party A (and any interest thereon) in accordance with the Loan Agreement. Accordingly, upon exerciseof the Equity Interest Purchase Option, Party A may make the payment of the Equity Interest Purchase Price by way of offset of the outstandingdebts owed by Party B to Party A (including without limitation the outstanding amount of the loan owed by Party B to Party A and any interestthereon under the Loan Agreement) (such debts, the “Offset Debts”), in which case Party A shall not be required to pay any additional purchaseprice to Party B, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the PRC laws. If the PRClaws impose mandatory requirements on the Equity Interest Purchase Price agreed under this Agreement, such that the minimum Equity InterestPurchase Price permitted under PRC laws exceeds the price already offset with the Offset Debts, the Party B shall promptly donate all of the amountexceeding the Offset Debts received by it to Party A or any other person designated by Party A in the manner permitted by the applicable PRC laws/ Party B hereby waives its right to receive the amount of price that exceeds the amount offset with the Offset Debts. 3 2. Covenants 2.1 Covenants regarding Party C Party B (as a shareholder of Party C) and Party C hereby covenant on the following: 2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change, or amend the articles of association ofParty C, increase or decrease its registered capital, or change its structure of registered capital in other manners; 2.1.2 They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices, as well asobtain and maintain all necessary government licenses and permits by prudently and effectively operating its business and handling itsaffairs; 2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage, or dispose of inany manner any material assets of Party C or legal or beneficial interest in the material business or revenues of Party C of more thanRMB 500,000, or allow the encumbrance thereon of any security interests; 2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee, or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; 2.1.5 They shall always operate all of Party C’s businesses within the normal business scope to maintain the asset value of Party C and refrainfrom any action/omission that may affect Party C’s operating status and asset value; 2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in theordinary course of business (for the purpose of this subsection, a contract with a price exceeding RMB 500,000 shall be deemed a majorcontract); 2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with a loan or credit; 2.1.8 They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request; 4 2.1.9 If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrieracceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; 2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire, or invest in anyperson; 2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration, or administrativeproceedings relating to Party C’s assets, business, or revenue; 2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary orappropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against all claims; 2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to itsshareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to itsshareholders; 2.1.14 At the request of Party A, they shall appoint any person designated by Party A as the director or executive director of Party C. 2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and 2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A. 2.2 Covenants of Party B Party B hereby covenants to the following: 2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage, or dispose of in any other manner any legal orbeneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed inaccordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney; 2.2.2 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting and/or the directors (or the executivedirector) of Party C not to approve any sale, transfer, mortgage, or disposition in any other manner of any legal or beneficial interest inthe equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the interest placedin accordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney; 5 2.2.3 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting or the directors (or the executive director) ofParty C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person; 2.2.4 Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration, or administrativeproceedings relating to the equity interests in Party C held by Party B; 2.2.5 Party B shall cause the shareholders’ meeting or the directors (or the executive director) of Party C to vote their approval of the transferof the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; 2.2.6 To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, takeall necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against allclaims; 2.2.7 Party B shall appoint any designee of Party A as the director or the executive director of Party C, at the request of Party A; 2.2.8 Party B hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party C to Party A (ifany), and gives consent to the execution by each other shareholder of Party C with Party A and Party C the exclusive option agreement,the equity interest pledge agreement and the power of attorney similar to this Agreement, Party B’s Equity Interest Pledge Agreement,and Party B’s Power of Attorney, and accepts not to take any actions in conflict with such documents executed by the othershareholders; 2.2.9 Party B shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated byParty A to the extent permitted under the applicable PRC laws; and 2.2.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B,Party C, and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect theeffectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subjectto this Agreement hereunder or under Party B’s Equity Interest Pledge Agreement or under Party B’s Power of Attorney, Party B shall notexercise such rights except in accordance with the written instructions of Party A. 6 3. Representations and Warranties Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of theOptioned Interests, that: 3.1 They have the power, capacity, and authority to execute and deliver this Agreement and any equity interest transfer contracts to which they areparties concerning the Optioned Interests to be transferred thereunder (each, a “Transfer Contract”), and to perform their obligations under thisAgreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreementupon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute orwill constitute their legal, valid, and binding obligations, and shall be enforceable against them in accordance with the provisions thereof; 3.2 Party B and Party C have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) forthe execution, delivery, and performance of this Agreement. 3.3 The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shallnot: (i) cause any violations of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws, or other organizationaldocuments of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, orconstitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of anycondition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension orrevocation of or imposition of additional conditions to any licenses or permits issued to either of them; 3.4 Party B has a good and merchantable title to the equity interests held by Party B in Party C. Except for Party B’s Equity Interest PledgeAgreement and Party B’s Power of Attorney, Party B has not placed any security interest on such equity interests; 3.5 Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets; 7 3.6 Party C does not have any outstanding debts, except for (i) debt incurred within its normal business scope; and (ii) debts disclosed to Party A forwhich Party A’s written consent has been obtained. 3.7 Party C has complied with all laws and regulations of China applicable to asset acquisitions; and 3.8 There are no pending or threatened litigation, arbitration, or administrative proceedings relating to the equity interests in Party C, assets of PartyC, or Party C. 4. Effective Date and Term This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party B in Party C have beentransferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. 5. Governing Law and Dispute Resolution 5.1 Governing Law The execution, effectiveness, construction, performance, amendment, and termination of this Agreement as well as any dispute resolutionhereunder shall be governed by the laws of the PRC. 5.2 Methods of Dispute Resolution In the event of any dispute arising with respect to the construction and performance of this Agreement, the Parties shall first attempt to resolve thedispute through friendly negotiations. In the event that the Parties fail to reach an agreement on the dispute within 30 days after either Party’srequest to the other Parties for dispute resolution through negotiations, either Party may submit the relevant dispute to the China InternationalEconomic and Trade Arbitration Commission for arbitration, in accordance with its arbitration rules. The arbitration shall be conducted in Beijing,and the arbitration award shall be final and binding to all Parties. 6. Taxes and Fees Each Party shall pay any and all transfer and registration taxes, expenses, and fees incurred thereby or levied thereon in accordance with the laws ofChina in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactionscontemplated under this Agreement and the Transfer Contracts. 7. Notices 7.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent byregistered mail, prepaid postage, commercial courier services, or facsimile transmission to the address of such Party set forth below. Aconfirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall bedetermined as follows: 8 7.1.1 Notices given by personal delivery, courier services, registered mail, or prepaid postage shall be deemed effectively given on the date ofreceipt or refusal at the address specified for such notices; 7.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by anautomatically generated confirmation of the transmission). 7.2 For the purpose of notices, the addresses of the Parties are as follows: Party A:Chongqing Hengyuda Technology Co., Ltd.Address:Room 3507, Floor 35, HNA-Poly International Center, No.235, Minsheng Road, Yuzhong District, ChongqingAttn:Lin MEIPhone:Email: Party B:Fanshun KONGAddress:Attn:Fanshun KONGPhone:Email: Party C:Yiren Financial Information Services (Beijing) Co., Ltd.Address:350 metres north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, BeijingAttn:Joanne LIUPhone:Email: 7.3 Any Party may at any time change its address for notices by having a notice delivered to the other Parties in accordance with the terms hereof. 8. Confidentiality The Parties acknowledge that the existence and the terms of this Agreement, and any oral or written information exchanged between the Parties inconnection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain theconfidentiality of all such confidential information, and without obtaining the written consent of other Parties, it shall not disclose any relevantconfidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through thereceiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stockexchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees,legal counsels, or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legalcounsels, or financial advisors shall be bound by the confidential obligations similar to those set forth in this Section. Disclosure of any confidentialinformation by the shareholders, director, employees of, or agencies engaged by any Party shall be deemed disclosure of such confidential informationby such Party and that Party shall be held liable for breach of this Agreement. 9 9. Further Warranties The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions andpurposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions andpurposes of this Agreement. 10. Breach of Agreement 10.1 If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/orrequire Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; 10.2 Party B or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. 11. Miscellaneous 11.1 Amendments, changes, and supplements Any amendments, changes, and supplements to this Agreement shall require the execution of a written agreement by all of the Parties. 11.2 Entire agreement Except for the amendments, supplements, or changes in writing executed after the execution of this Agreement, this Agreement shall constitutethe entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral andwritten consultations, representations, and contracts reached with respect to the subject matter of this Agreement, including but not limited tothe Prior Agreement. 10 11.3 Headings The headings of this Agreement are for convenience only, and shall not be used to interpret, explain, or otherwise affect the meanings of theprovisions of this Agreement. 11.4 Language This Agreement is written in both Chinese and English, and contains three copies, with each Party having one copy. The Chinese version andEnglish version shall have equal legal validity. 11.5 Severability In the event that one or several of the provisions of this Agreement are found to be invalid, illegal, or unenforceable in any aspect in accordancewith any laws or regulations, the validity, legality, or enforceability of the remaining provisions of this Agreement shall not be affected orcompromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal, or unenforceable provisions with effectiveprovisions that accomplish to the greatest extent permitted by the relevant laws and the intentions of the Parties, and the economic effect ofsuch effective provisions shall be as close as possible to the economic effect of those invalid, illegal, or unenforceable provisions. 11.6 Successors This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of suchParties. 11.7 Survival 11.7.1 Any obligations that occur or are due as a result of this Agreement upon the expiration or early termination of this Agreement shallsurvive the expiration or early termination thereof. 11.7.2 The provisions of Sections 5, 8, 10, and this Section 11.7 shall survive the termination of this Agreement. 11.8 Waivers Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require thesignatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver bysuch a Party with respect to any similar breach in other circumstances. 11 IN WITNESS WHEREOF, the authorized representatives of the Parties have executed this Agreement as of the date first above written. Party A:Chongqing Hengyuda Technology Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative Party B:Fanshun KONG By:/s/ Fanshun KONG Party C:Yiren Financial Information Services (Beijing) Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative  Amended and Restated Exclusive Option Agreement This Amended and Restated Exclusive Option Agreement (this “Agreement”) is executed by and among the following Parties as of April 27, 2018 inBeijing, the People’s Republic of China (“China” or the “PRC”): Party A: Chongqing Hengyuda Technology Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC, with itsaddress at Room 3507, Floor 35, HNA-Poly International Center, No. 235, Minsheng Road, Yuzhong District, Chongqing; Party B: Yan TIAN, a Chinese citizen with Chinese Identification No.: ; and Party C: Yiren Financial Information Services (Beijing) Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with itsaddress at 350 meters north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, Beijing. In this Agreement, Party A, Party B, and Party C shall each be referred to as a “Party” respectively, and they shall be collectively referred to as the“Parties.” Whereas: 1. All the Parties hereto executed an Exclusive Option Agreement on October 13, 2016 (the “Prior Agreement”). 2. Party B is a shareholder of Party C and as of the date hereof holds 30% of the equity interests of Party C, representing RMB3,000,000 in the registeredcapital of Party C. 3. Party A and Party B executed a Loan Agreement (“Loan Agreement”) on October 13, 2016, pursuant to which Party A has provided to Party B a loan inthe aggregate amount of RMB3,000,000 for the purpose as designated in the Loan Agreement. After mutual discussions and negotiations, the Parties have now reached the following agreement, which will terminate and replace the Prior Agreementin its entirety and in all aspects. 1. Sale and Purchase of Equity Interest 1.1 Option Granted Party B hereby irrevocably and unconditionally grants Party A a binding and exclusive right to purchase, or designate one or more persons (each, a“Designee”) to purchase the equity interests in Party C then held by Party B at once or at multiple times at any time in part or in whole at Party A’ssole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “EquityInterest Purchase Option”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or otherrights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to PartyA. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts, or non-corporateorganizations.  1.2 Steps for Exercise of the Equity Interest Purchase Option Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written noticeto Party B (the “Equity Interest Purchase Option Notice”), specifying: (a) Party A’s or the Designee’s decision to exercise the Equity InterestPurchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the “Optioned Interests”); and (c) thedate for purchasing the Optioned Interests or the date for transfer of the Optioned Interests. 1.3 Equity Interest Purchase Price The total price for the purchase by Party A of all Optioned Interests held by Party B upon exercise of the Equity Interest Purchase Option by PartyA shall equal to the amount of registered capital contributed by Party B in Party C for such Optioned Interests (or such price may be as set forth inthe equity transfer agreement to be executed between Party A (or the Designee) and Party B separately, provided that such price does not violatePRC laws and regulations and is acceptable to Party A); if Party A exercises the Equity Interest Purchase Option to purchase part of the OptionedInterests held by Party B in Party C, then the purchase price shall be calculated on a pro rata basis. If at the time when Party A exercises the EquityInterest Purchase Option, the PRC laws impose mandatory requirements on the purchase price of such Optioned Interests, such that the minimumprice permitted under PRC law is higher than the aforementioned price, then the purchase price shall be such minimum price permitted by PRC law(collectively, the “Equity Interest Purchase Price”). 1.4 Transfer of Optioned Interests For each exercise of the Equity Interest Purchase Option: 1.4.1 Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party B’stransfer of the Optioned Interests to Party A and/or the Designee(s); 1.4.2 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to PartyA and/or the Designee(s) and waiving any right of first refusal related thereto;  1.4.3 Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever isapplicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the OptionedInterests; 1.4.4 The relevant Parties shall execute all other necessary contracts, agreements, or documents, obtain all necessary government licenses andpermits, and take all necessary actions to transfer the valid ownership of the Optioned Interests to Party A and/or the Designee(s),unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the OptionedInterests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights orinterests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention, or other security arrangements, butshall be deemed to exclude any security interest created by this Agreement, Party B’s Equity Interest Pledge Agreement, and Party B’sPower of Attorney. “Party B’s Equity Interest Pledge Agreement” as used in this Agreement shall refer to the Interest Pledge Agreementexecuted by and among Party A, Party B and Party C on the date hereof and any modifications, amendments, and restatements thereto. “Party B’s Power of Attorney” as used in this Agreement shall refer to the Power of Attorney executed by Party B on the date hereofgranting Party A with a power of attorney and any modifications, amendments, and restatements thereto. 1.5 Payment The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall beused for repayment of the loan provided by Party A (and any interest thereon) in accordance with the Loan Agreement. Accordingly, upon exerciseof the Equity Interest Purchase Option, Party A may make the payment of the Equity Interest Purchase Price by way of offset of the outstandingdebts owed by Party B to Party A (including without limitation the outstanding amount of the loan owed by Party B to Party A and any interestthereon under the Loan Agreement) (such debts, the “Offset Debts”), in which case Party A shall not be required to pay any additional purchase priceto Party B, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the PRC laws. If the PRC lawsimpose mandatory requirements on the Equity Interest Purchase Price agreed under this Agreement, such that the minimum Equity Interest PurchasePrice permitted under PRC laws exceeds the price already offset with the Offset Debts, the Party B shall promptly donate all of the amountexceeding the Offset Debts received by it to Party A or any other person designated by Party A in the manner permitted by the applicable PRC laws /Party B hereby waives its right to receive the amount of price that exceeds the amount offset with the Offset Debts.  2. Covenants 2.1 Covenants regarding Party C Party B (as a shareholder of Party C) and Party C hereby covenant on the following: 2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change, or amend the articles of association ofParty C, increase or decrease its registered capital, or change its structure of registered capital in other manners; 2.1.2 They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices, as well asobtain and maintain all necessary government licenses and permits by prudently and effectively operating its business and handling itsaffairs; 2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage, or dispose of inany manner any material assets of Party C or legal or beneficial interest in the material business or revenues of Party C of more thanRMB 500,000, or allow the encumbrance thereon of any security interests; 2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee, or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; 2.1.5 They shall always operate all of Party C’s businesses within the normal business scope to maintain the asset value of Party C and refrainfrom any action/omission that may affect Party C’s operating status and asset value; 2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in theordinary course of business (for the purpose of this subsection, a contract with a price exceeding RMB 500,000 shall be deemed a majorcontract); 2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with a loan or credit; 2.1.8 They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request; 2.1.9 If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrieracceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;  2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire, or invest in anyperson; 2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration, or administrativeproceedings relating to Party C’s assets, business, or revenue; 2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary orappropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against all claims; 2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to itsshareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to itsshareholders; 2.1.14 At the request of Party A, they shall appoint any person designated by Party A as the director or executive director of Party C. 2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and 2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A. 2.2 Covenants of Party B Party B hereby covenants to the following: 2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage, or dispose of in any other manner any legal orbeneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed inaccordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney; 2.2.2 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting and/or the directors (or the executivedirector) of Party C not to approve any sale, transfer, mortgage, or disposition in any other manner of any legal or beneficial interest inthe equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the interest placedin accordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney;  2.2.3 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting or the directors (or the executive director) ofParty C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person; 2.2.4 Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration, or administrativeproceedings relating to the equity interests in Party C held by Party B; 2.2.5 Party B shall cause the shareholders’ meeting or the directors (or the executive director) of Party C to vote their approval of the transferof the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; 2.2.6 To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, takeall necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against allclaims; 2.2.7 Party B shall appoint any designee of Party A as the director or the executive director of Party C, at the request of Party A; 2.2.8 Party B hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party C to Party A (ifany), and gives consent to the execution by each other shareholder of Party C with Party A and Party C the exclusive option agreement,the equity interest pledge agreement and the power of attorney similar to this Agreement, Party B’s Equity Interest Pledge Agreement,and Party B’s Power of Attorney, and accepts not to take any actions in conflict with such documents executed by the othershareholders; 2.2.9 Party B shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated byParty A to the extent permitted under the applicable PRC laws; and 2.2.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B,Party C, and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect theeffectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subjectto this Agreement hereunder or under Party B’s Equity Interest Pledge Agreement or under Party B’s Power of Attorney, Party B shall notexercise such rights except in accordance with the written instructions of Party A.  3. Representations and Warranties Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of theOptioned Interests, that: 3.1 They have the power, capacity, and authority to execute and deliver this Agreement and any equity interest transfer contracts to which they areparties concerning the Optioned Interests to be transferred thereunder (each, a “Transfer Contract”), and to perform their obligations under thisAgreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreementupon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute orwill constitute their legal, valid, and binding obligations, and shall be enforceable against them in accordance with the provisions thereof; 3.2 Party B and Party C have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) forthe execution, delivery, and performance of this Agreement. 3.3 The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shallnot: (i) cause any violations of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws, or other organizationaldocuments of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, orconstitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of anycondition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension orrevocation of or imposition of additional conditions to any licenses or permits issued to either of them; 3.4 Party B has a good and merchantable title to the equity interests held by Party B in Party C. Except for Party B’s Equity Interest PledgeAgreement and Party B’s Power of Attorney, Party B has not placed any security interest on such equity interests; 3.5 Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;  3.6 Party C does not have any outstanding debts, except for (i) debt incurred within its normal business scope; and (ii) debts disclosed to Party A forwhich Party A’s written consent has been obtained. 3.7 Party C has complied with all laws and regulations of China applicable to asset acquisitions; and 3.8 There are no pending or threatened litigation, arbitration, or administrative proceedings relating to the equity interests in Party C, assets of PartyC, or Party C. 4. Effective Date and Term This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party B in Party C have beentransferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. 5. Governing Law and Dispute Resolution 5.1 Governing Law The execution, effectiveness, construction, performance, amendment, and termination of this Agreement as well as any dispute resolutionhereunder shall be governed by the laws of the PRC. 5.2 Methods of Dispute Resolution In the event of any dispute arising with respect to the construction and performance of this Agreement, the Parties shall first attempt to resolve thedispute through friendly negotiations. In the event that the Parties fail to reach an agreement on the dispute within 30 days after either Party’srequest to the other Parties for dispute resolution through negotiations, either Party may submit the relevant dispute to the China InternationalEconomic and Trade Arbitration Commission for arbitration, in accordance with its arbitration rules. The arbitration shall be conducted in Beijing,and the arbitration award shall be final and binding to all Parties. 6. Taxes and Fees Each Party shall pay any and all transfer and registration taxes, expenses, and fees incurred thereby or levied thereon in accordance with the laws ofChina in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactionscontemplated under this Agreement and the Transfer Contracts. 7. Notices 7.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent byregistered mail, prepaid postage, commercial courier services, or facsimile transmission to the address of such Party set forth below. Aconfirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall bedetermined as follows:  7.1.1 Notices given by personal delivery, courier services, registered mail, or prepaid postage shall be deemed effectively given on the date ofreceipt or refusal at the address specified for such notices; 7.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by anautomatically generated confirmation of the transmission). 7.2 For the purpose of notices, the addresses of the Parties are as follows Party A:Chongqing Hengyuda Technology Co., Ltd.Address:Room 3507, Floor 35, HNA-Poly International Center, No.235, Minsheng Road, Yuzhong District, ChongqingAttn:Lin MEIPhone:Email: Party B:Yan TIANAddress:Attn:Yan TIANPhone:Email: Party C:Yiren Financial Information Services (Beijing) Co., Ltd.Address:350 metres north of Roundabout, Yanfu Road, Yancun Town, Fangshan District, BeijingAttn:Joanne LIUPhone:Email: 7.3 Any Party may at any time change its address for notices by having a notice delivered to the other Parties in accordance with the terms hereof. 8. Confidentiality The Parties acknowledge that the existence and the terms of this Agreement, and any oral or written information exchanged between the Parties inconnection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain theconfidentiality of all such confidential information, and without obtaining the written consent of other Parties, it shall not disclose any relevantconfidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through thereceiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stockexchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees,legal counsels, or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legalcounsels, or financial advisors shall be bound by the confidential obligations similar to those set forth in this Section. Disclosure of any confidentialinformation by the shareholders, director, employees of, or agencies engaged by any Party shall be deemed disclosure of such confidential informationby such Party and that Party shall be held liable for breach of this Agreement.  9. Further Warranties The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions andpurposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions andpurposes of this Agreement. 10. Breach of Agreement 10.1 If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/orrequire Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; 10.2 Party B or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. 11. Miscellaneous 11.1 Amendments, changes, and supplements Any amendments, changes, and supplements to this Agreement shall require the execution of a written agreement by all of the Parties. 11.2 Entire agreement Except for the amendments, supplements, or changes in writing executed after the execution of this Agreement, this Agreement shall constitutethe entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral andwritten consultations, representations, and contracts reached with respect to the subject matter of this Agreement, including but not limited tothe Prior Agreement.  11.3 Headings The headings of this Agreement are for convenience only, and shall not be used to interpret, explain, or otherwise affect the meanings of theprovisions of this Agreement. 11.4 Language This Agreement is written in both Chinese and English, and contains three copies, with each Party having one copy. The Chinese version andEnglish version shall have equal legal validity. 11.5 Severability In the event that one or several of the provisions of this Agreement are found to be invalid, illegal, or unenforceable in any aspect in accordancewith any laws or regulations, the validity, legality, or enforceability of the remaining provisions of this Agreement shall not be affected orcompromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal, or unenforceable provisions with effectiveprovisions that accomplish to the greatest extent permitted by the relevant laws and the intentions of the Parties, and the economic effect ofsuch effective provisions shall be as close as possible to the economic effect of those invalid, illegal, or unenforceable provisions. 11.6 Successors This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of suchParties. 11.7 Survival 11.7.1 Any obligations that occur or are due as a result of this Agreement upon the expiration or early termination of this Agreement shallsurvive the expiration or early termination thereof. 11.7.2 The provisions of Sections 5, 8, 10, and this Section 11.7 shall survive the termination of this Agreement. 11.8 Waivers Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require thesignatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver bysuch a Party with respect to any similar breach in other circumstances.  IN WITNESS WHEREOF, the authorized representatives of the Parties have executed this Agreement as of the date first above written. Party A:Chongqing Hengyuda Technology Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative Party B:Yan TIAN By:/s/ Yan TIAN Party C:Yiren Financial Information Services (Beijing) Co., Ltd. By:/s/ Ning TANG(Company seal affixed)Name:Ning TANGTitle:Legal Representative EXHIBIT 8.1 List of Subsidiaries and Consolidated Variable Interest Entities Subsidiaries: Place of Incorporation Yirendai Hong Kong LimitedHong KongYi Ren Heng Ye Technology Development (Beijing) Co., Ltd.PRCChongqing Heng Yu Da Technology Co., Ltd.PRCYi Ren Information Consulting (Beijing) Co., Ltd.PRC Consolidated variable interest entities: Heng Cheng Technology Development (Beijing) Co., Ltd.PRCYiren Financial Information Service (Beijing) Co., Ltd.PRCHuijin No. 28 Single Capital Trust E1*PRCYiren Elite Loan Trust Beneficial Right Asset Backed Special Plan*PRCHuijin No. 28 Single Capital Trust E2*PRCBohai Trust • Zhong Yi Property Trust No.1*PRCHuijin No.28 Single Capital Trust E3*PRCBohai Trust • Yirendai Single Capital Trust*PRC * Please see Note 2 to the audited consolidated financial statements included in this annual report for the details of the basis of consolidation. 1EXHIBIT 12.1 Certification by the Principal Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Yihan Fang, certify that: 1. I have reviewed this annual report on Form 20-F of Yirendai Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internalcontrol over financial reporting. Date: April 30, 2018 By:/s/Yihan FangName:Yihan FangTitle:Chief Executive Officer EXHIBIT 12.2 Certification by the Principal Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Yu Cong, certify that: 1. I have reviewed this annual report on Form 20-F of Yirendai Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internalcontrol over financial reporting. Date: April 30, 2018 By:/s/Yu CongName:Yu CongTitle:Chief Financial Officer EXHIBIT 13.1 Certification by the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Yirendai Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Yihan Fang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: April 30, 2018 By:/s/Yihan FangName:Yihan FangTitle:Chief Executive Officer EXHIBIT 13.2 Certification by the Principal Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Yirendai Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Yu Cong, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: April 30, 2018 By:/s/Yu CongName:Yu CongTitle:Chief Financial Officer EXHIBIT 15.1 April 30, 2018 Yirendai Ltd.10/F, Building 9, 91 Jianguo RoadChaoyang District, Beijing 100022The People’s Republic of China Dear Sir/Madam: We hereby consent to the reference of our name under the headings “Item 3. Key Information—D. Risk Factors—Risks Related to Our CorporateStructure” and “Item 4. Information on the Company—C. Organizational Structure” in Yirendai Ltd.’s annual report on Form 20-F for the year endedDecember 31, 2017 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month of April 2018, andfurther consent to the incorporation by reference into the Registration Statement (No. 333-212056 and No. 333-219404). We also consent to the filing of thisconsent letter with the SEC as an exhibit to the Annual Report. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of theSecurities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder. Very truly yours, /s/Han Kun Law OfficesHan Kun Law Offices 1Exhibit 15.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-212056 and No. 333-219404) of our report datedApril 30, 2018, relating to the consolidated financial statements and financial statements schedule of Yirendai Ltd., its subsidiaries and variable interestentities, (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the change of reporting currency from U.S. dollarsto Renminbi and the translation of Renminbi amounts to U.S. dollar amounts for the convenience of the readers in the United States of America), appearing inthis annual report on Form 20-F of Yirendai Ltd. for the year ended December 31, 2017. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPDeloitte Touche Tohmatsu Certified Public Accountants LLPBeijing, People’s Republic of China April 30, 2018 

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