Exploring the compliance path of affiliate chain points

Consumer reward points are awarded by a business to customers who purchase its goods and are a sales offer attached to the business that consumers can use to redeem for goods sold by that business or other parties.

Exploring the compliance path of affiliate chain points

The Nature of Consumer Rewards Points

Consumer reward points are awarded by an enterprise to its customers who purchase its goods, and are a kind of sales offer attached to the enterprise, which consumers can use to exchange for goods sold by the enterprise or other parties.

Through a case published in People’s Justice, Sara’s team analyzed the legal nature of affiliate chain consumption points as property interests (see article “What is the legal nature of affiliate chain points? .

According to the “Guidelines on the Application of Regulatory Rules – Accounting Class No. 1” issued by the SEC on November 13, 2020, “When a customer chooses to redeem goods sold by other parties, the enterprise assumes the obligation to pay the price of the relevant goods to the other parties. If the reward points granted by the enterprise to the customer provide him/her with an additional purchase option and constitute a material right, it should be treated as a separate performance obligation. The enterprise is required to apportion the price charged for the sale of goods between the sale of goods and the reward points in the relative proportion of the separate selling price.”

In addition, the relevant regulations in the Ministry of Finance take a similar view and hold that “the portion related to reward points should first be treated as deferred revenue and carried forward to current profit or loss when the reward points are redeemed or lapse by the customer” (see “Notice of the Ministry of Finance on the 2008 Annual Report of Enterprises Implementing Accounting Standards” (Caihui Letter [ 2008] No. 60)). According to the two aforementioned regulations, the attribute of consumer reward points is debt, which has the nature of prepayment for customers and pre-receipt for issuing enterprises. According to the provisions of the Civil Code, claims are transferable. From this perspective, the transaction between consumer reward points as debts is not illegal per se.

Affiliate chain consumption points, tokens and vouchers?

Regarding the determination of token coupons, the General Office of the People’s Bank of China in its “Letter on the Determination of the Nature of Shopping Cards” dated July 5, 2000 held that according to the relevant provisions of Article 19 of the People’s Bank Law, the Provisional Regulations on Cash Management and the 1991 “Notice of the State Council on the Prohibition of Printing, Offering, Purchasing and Using All Kinds of Token Shopping Coupons”, “tokens ” shall generally have the following elements: firstly, they have a certain amount of money; secondly, they are used indefinitely or have a certain period of use, i.e. they have a certain span in time; thirdly, they are used and circulated within a certain range and can be used to purchase unspecified goods; fourthly, they are bearer and unregistered.

However, according to the “Opinions on Issues Related to Token Shopping Vouchers (Cards)” issued by the General Office of the People’s Bank in 2006, the definition of the elements of “Token Shopping Vouchers (Cards)” has been changed in this document: (1) the monetary element, i.e., a certain amount of money is indicated in RMB; (2) the legal compensation element, i.e., it is compulsory for a third party to accept it. (2) the legal element, i.e., the compulsory acceptance by a third party to pay all public and private debts within a certain range in lieu of RMB; and (3) the anonymous element, i.e., anonymous and unaccounted for. From the point of view of the constituent elements, the consumer reward points currently on the market are not marked up, and there is no compulsory third-party acceptance, so they do not belong to the token shopping vouchers (cards).

It should be reminded that, despite the legal obstacles to interpretation, according to the current regulatory trend of strict regulation of digital crypto assets, if points are issued on the Alliance Chain, the possibility of being recognized as token vouchers and circulating in the market instead of RMB in accordance with the aforementioned provisions of the People’s Bank Law cannot be completely ruled out. For example, according to the Notice on Preventing Risks of Token Issuance and Financing, token issuance and financing is essentially a kind of unapproved illegal public financing, suspected of illegal offering of tokens and vouchers, illegal issuance of securities and illegal fund raising, financial fraud, pyramid schemes and other illegal and criminal activities. Obviously, in the view of China’s regulatory authorities, other crypto assets that are not mainstream may constitute token coupons, and the offering of non-mainstream crypto assets with financing properties or financing purposes may be suspected of illegal offering of token coupons, which constitutes an administrative violation.

Exploration of the compliance path of affiliate chain consumption points

Firstly, the channel of purchasing points in fiat currency is not provided, and it is strictly limited to issuing only consumption points. Otherwise, if an enterprise does not obtain the “Payment Business License” and does not handle “Internet Payment” business, if it provides rechargeable points for reward and uses the points for cross-group consumption and exchange, it may comply with Article 225(3) of the Criminal Law “without the approval of the relevant state authorities If the company illegally operates securities, futures or insurance business, or illegally engages in the business of payment and settlement of funds”, it may constitute the crime of illegal operation.

Second, control the circulation of points to avoid moving from the alliance chain to the public chain in essence. If the points can be used between different groups and the scope of redeemable commodities can be expanded indefinitely, it may be considered as a substitute for RMB circulation in the market, thus violating Article 20 of the People’s Bank Law and Article 28 of the RMB Management Regulations.

Thirdly, in terms of points marketing methods, be wary of pyramid schemes. If an enterprise, in the name of marketing designated goods whose price is seriously deviated from their value or selling self-issued points, obtains membership by participants purchasing a certain number of goods or a certain amount of points, and forms a hierarchy in a certain order, directly or indirectly using the number of people developed as the basis of remuneration or rebate, lures point buyers to continue to develop others to participate and cheat them of their property, it may constitute the “Criminal Law Article 224-1, the crime of organizing and leading pyramid selling activities.

Fourth, if the points issuer provides an anchor RMB payment reserve, it is required to pay the reserve in full and be audited regularly. There have been cases in the United States where fraud was punished for not paying the 1:1 reserve as promised and for arbitrarily over-issuing: in February 2021, the New York State Attorney General’s Office had issued a statement saying that it was a lie that USDT was backed entirely by USD reserves and had issued over $34 billion in stable coins, after which the prosecution settled with the USDT issuer for a fine of $18.5 million. The significance for our points issuer is that paying the full amount of reserves can protect against a certain degree of administrative regulation and other risks.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/exploring-the-compliance-path-of-affiliate-chain-points/
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