FinVolution(FINV) - 2022 Q4 - Annual Report

Foreign Currency Exchange Risk - In 2022, the company did not enter into hedging transactions to mitigate foreign currency exchange risk, which may adversely affect investments due to exchange rate fluctuations [258]. - The company's operations in overseas markets expose it to currency exchange rate fluctuations, as revenues are earned in local currencies while some costs are in U.S. dollars [259]. - The PRC government imposes controls on the convertibility of RMB into foreign currencies, which may limit the company's ability to utilize net revenues effectively and affect the price of its ADSs [260]. Regulatory Compliance and Taxation - The company may face penalties for failing to make adequate contributions to employee benefit plans and withhold individual income tax on employees' salaries as required by PRC regulations [263]. - M&A Rules and PRC regulations establish complex procedures for acquisitions by foreign investors, potentially complicating the company's growth through acquisitions in China [264]. - PRC regulations regarding offshore investment activities may limit the company's ability to increase registered capital or distribute profits from its PRC subsidiaries [266]. - Failure to comply with SAFE registration requirements for employee stock incentive plans may subject the company to fines and limit its ability to contribute additional capital to PRC subsidiaries [271]. - If classified as a PRC resident enterprise, the company could face unfavorable tax consequences, including a 25% tax rate on global income [273]. - The tax residency status of the company is uncertain, and if determined to be a PRC resident enterprise, it may be subject to PRC tax on gains from the sale of ADSs [274]. - The company may face a withholding tax rate of 10% on dividends from its PRC subsidiaries, which could be reduced to 5% under certain conditions [276]. - The company is subject to uncertainties regarding indirect transfers of equity interests in PRC resident enterprises, which may require reporting to PRC tax authorities [277]. - The SAT Public Notice 7 introduces a new tax regime for indirect transfers, potentially subjecting gains to PRC enterprise income tax at a rate of 10% [278]. - The company may incur significant compliance costs related to SAT Circular 698 and SAT Public Notice 7, which could adversely affect its financial condition [280]. Securities Regulation and Market Risks - Approval from the CSRC may be required for offshore offerings, and delays or failures in obtaining such approval could lead to sanctions [281]. - The Trial Administrative Measures require PRC domestic companies to file with the CSRC for overseas offerings, with penalties for non-compliance ranging from RMB1 million to RMB10 million [283]. - The PCAOB's ability to inspect auditors in China has been restored, but future access remains uncertain, impacting investor confidence [287]. - Under the HFCA Act, if the SEC determines the company has not filed audit reports from PCAOB-inspected firms for two consecutive years, trading of its ADSs may be prohibited [289]. - The PCAOB may restrict trading of the company's securities in the U.S. if it cannot fully inspect accounting firms in mainland China and Hong Kong, which could materially impact the company's financial condition and prospects [290]. - The market price of the company's American Depositary Shares (ADSs) is likely to be volatile, influenced by the performance of other Chinese companies listed in the U.S. and broader market factors [291]. - Significant fluctuations in trading volume and price of the company's ADSs may occur due to changes in economic performance or market valuations of online consumer finance platforms [293]. - The company may face adverse effects on its ADSs' market price if analysts do not maintain adequate research coverage or publish unfavorable reports [294]. - Future sales or perceived potential sales of ADSs could lead to a decline in their market price, especially after the expiration of the 180-day lock-up period following the initial public offering [295]. - The depositary may close its transfer books or refuse to register transfers of ADSs, which could limit the ability to transfer these securities [306]. Corporate Governance and Shareholder Rights - The company operates under the laws of the Cayman Islands, making it difficult for shareholders to enforce judgments obtained in U.S. courts against the company or its directors [307]. - The company may not be able to distribute dividends or other distributions to ADS holders if it is deemed illegal or impractical [305]. - The company may not be able to provide rights offerings to ADS holders unless registered under the Securities Act, potentially leading to dilution of holdings [303]. - The discretionary proxy given to the depositary may limit shareholders' ability to influence management decisions regarding the underlying Class A ordinary shares [299]. - As of March 31, 2023, holders of Class B ordinary shares own 93.2% of the aggregate voting power, significantly limiting the influence of Class A shareholders on corporate matters [314]. - The maximum number of Class A ordinary shares that may be issued under the 2013 Plan is 221,917,800, with 127,415,885 options granted as of March 31, 2023 [316]. - Under the 2017 Plan, the maximum number of Class A ordinary shares that may be issued is 1,000,000,000, with 6,710,045 options granted and 109,433,625 restricted share units granted as of March 31, 2023 [317]. - Share-based compensation expenses incurred in 2022 amounted to RMB88.2 million (US$12.8 million), indicating a potential increase in future expenses due to ongoing share incentive awards [319]. - The company is classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes for the taxable year ended December 31, 2022, which may have adverse tax consequences for U.S. investors [323]. - The company incurs significant accounting, legal, and compliance costs as a public entity, which may strain management and operational resources [326]. - The dual-class share structure may discourage potential change of control transactions, affecting the opportunity for Class A shareholders to sell shares at a premium [314]. - The company is exempt from certain U.S. securities regulations, resulting in less extensive and timely information being available to investors compared to U.S. domestic issuers [320]. - The rights of shareholders under Cayman Islands law are less clearly established than in some U.S. jurisdictions, potentially complicating shareholder actions [310]. - The company has adopted anti-takeover provisions that could limit the ability of third parties to acquire control, adversely affecting shareholder rights [315].