In the previous article, we discussed the new regulations on supervision issued by SAFE at the end of the year. Today, we will analyze in depth the core content of one of the new regulations issued by SAFE on December 26, the "Measures for the Administration of Bank Foreign Exchange Risk Transaction Reports (Trial)" , and explore its specific impact on traders.
With the changes in the global financial environment and the increasing complexity of cross-border capital flows, bank foreign exchange risk management has become an important area of concern for regulators. As a new regulatory document, the "Management Measures for Bank Foreign Exchange Risk Transaction Reporting (Trial)" has put forward higher requirements for the transparency, compliance and risk management of banks and their foreign exchange trading activities. For foreign exchange traders, the implementation of this measure may bring a series of direct or indirect impacts, covering trading operations, risk management, reporting obligations and other aspects.
I. Obligations and Responsibilities of Banks
Risky transaction monitoring and reporting: When banks discover or reasonably suspect foreign exchange risk transactions involving false trade, illegal cross-border financial activities involving virtual currencies, etc., they are obliged to monitor and submit reports in a timely manner. Comprehensive and effective monitoring standards need to be formulated, and transaction information should be manually analyzed and identified based on information released by the central bank, the State Administration of Foreign Exchange, public security and judicial authorities, as well as their own business conditions and other factors.
For risky transactions, the analysis process should be fully recorded; for those that are not risky, the reasons for exclusion should be recorded. The report should be submitted electronically in a timely manner after the information is confirmed, and no later than 5 working days. For illegal cross-border financial activities, the screening information should be submitted directly according to the requirements of the State Administration of Foreign Exchange. At the same time, the report should be corrected in a timely manner according to the notification of the State Administration of Foreign Exchange or the problems found by itself, and the monitoring standards should be evaluated and optimized regularly.
Cooperate with supervision and inspection: Banks must actively cooperate with the supervision and inspection work of the State Administration of Foreign Exchange, and provide all kinds of relevant documents, materials, data and information truthfully, accurately, completely and promptly. They must not refuse, hinder or conceal them, so as to ensure the smooth progress of supervision work.
Internal management measures: According to the measures, the internal management system should be formulated and improved, the foreign exchange risk transaction reporting process should be standardized, and the implementation of the branch should be effectively supervised and managed. A sound foreign exchange risk transaction information monitoring system should be established to comprehensively collect the identity and transaction information of the transaction subject to provide strong support for the work.
At the same time, internal information sharing should be realized, and the degree and scope of sharing should be reasonably determined according to the sensitivity of information and its relevance to foreign exchange risk trading management. The relevant information should be kept for at least 5 years from the date of its generation. If it involves suspected violations that are being investigated by the foreign exchange administration department and the investigation has not been completed, it should be kept until the investigation is completed. In addition, the information obtained through the implementation of the measures must be kept strictly confidential and must not be disclosed or illegally provided to others.
Liability for violations: If a bank violates the provisions of the Measures, it will face penalties in accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration. However, if the bank can prove that it has diligently and responsibly identified the unreported foreign exchange risk transaction information and the reasons for not reporting are reasonable, it will not be held legally liable.
2. If cross-border funds are transferred, how does the bank determine whether there is "reasonable grounds for suspicion" in accordance with Article 3 of the Measures? What criteria will the bank use to make the determination?
When banks determine whether there is "reasonable reason to suspect" a cross-border funds transfer, they will conduct a comprehensive assessment, with the transaction amount, frequency and funds flow being the focus.
In terms of transaction amount, if a large amount of cross-border funds flows in an individual or corporate account that is seriously inconsistent with its own economic strength and normal business scale, the bank will be suspicious. For example, a small family business with an annual turnover of only a few million suddenly has a cross-border fund remittance of tens of millions, which is quickly dispersed and transferred out to multiple overseas accounts. This is obviously abnormal.
In terms of transaction frequency, abnormal changes will attract the attention of banks. For example, if an individual merchant usually has only a few cross-border purchases per month, but has dozens of cross-border fund transactions every day during a certain period of time, and the amounts vary, far exceeding the normal business scope, the bank will regard it as a suspicious signal.
The flow of funds is also key. If the flow of funds is inconsistent with the purpose claimed by the customer, or flows to high-risk areas, the bank will be alert. For example, if the customer claims that it is a normal trade payment, but the funds flow to an area that is not related to trade and is under the attention of international anti-money laundering organizations, the bank will suspect that the transaction is abnormal.
In addition, banks will also refer to their own business characteristics and regulatory information. If a customer's fund transfer in a certain industry deviates from the norm, or encounters a specific risk transaction prompted by the regulator, the bank will focus on checking and judging.
3. Assuming that you are involved in virtual currency transactions and cross-border transfers, is it possible that banks will consider it a risky transaction? According to Article 3, is it easy for virtual currency to be identified as high-risk? What is the attitude of banks and other financial institutions to this?
In theory, virtual currency transactions are easily included in the high-risk regulatory scope by banks and financial institutions. According to Article 3 of the "Management Measures for Bank Foreign Exchange Risk Transaction Reports (Trial)", virtual currency cross-border financial activities are clearly regarded as high-risk transactions. For example, Xiao Zhang made a large cross-border transfer through a bank account, and the funds flowed to a virtual currency trading platform. If the bank's monitoring system finds that the transaction amount is large and the cross-border transfers are frequent, it may mark it as a risky transaction, suspend the relevant account transactions, and report to the regulatory authorities.
The situation is similar in other financial institutions. For example, a payment platform detected that customers frequently transferred money to virtual currency-related accounts. Although the customers tried to conceal it, the platform promptly identified the anomaly through big data analysis and stopped the payment service.
The People's Bank of China and other regulatory agencies have clearly pointed out that virtual currency transactions are prone to being used for illegal fund transfers and money laundering due to the lack of effective supervision, large price fluctuations, and strong anonymity. Regulatory authorities have stressed that financial institutions must be highly vigilant about virtual currency transactions and take strict control measures to maintain financial market stability and prevent risks.
4. If a large amount of funds is transferred or cross-border transactions are made frequently, will the bank consider it as an abnormal transaction? What factors do banks usually consider to determine whether a transaction is abnormal?
Large-value fund transfers or frequent cross-border transactions are likely to be considered abnormal transactions . When determining whether there is an abnormality, banks will consider it from multiple angles.
If the transaction amount is far beyond the daily income and expenditure of the account, especially if there is a sudden large transfer in an ordinary account, the bank will pay close attention.
A sharp increase in transaction frequency in a short period of time is also a focus of bank monitoring, as it may indicate abnormalities in the flow of funds.
If the flow of funds is unclear or unrelated to the normal business activities of the account, the bank will often become suspicious of the transaction and conduct further review.
Virtual currency transactions also present similar risk characteristics in this regard.
High-frequency transactions and complex and difficult-to-track capital paths will alert banks. In particular, when the source and purpose of funds do not match, or there is frequent exchange of legal currency and virtual currency, banks are likely to regard such transactions as risky transactions. For example, some users may frequently top up and withdraw funds when conducting swing trading. This high frequency of capital inflows and outflows not only increases the difficulty of bank monitoring, but also makes banks more suspicious of the legality of transactions.
If there is no clear transaction voucher for the funds in and out of the account, or if it is inconsistent with the actual use of the account, it is also easy to be judged as abnormal. Such transactions will trigger further review by the bank to identify potential risks such as money laundering and illegal fund transfer.
Therefore, whether it is a large-scale fund transfer or a virtual currency transaction, banks will remain highly vigilant when handling these transactions, and will carefully analyze and intervene in any possible abnormal behavior based on relevant monitoring standards.
5. If a bank determines that a transaction is risky, what measures will it take? For example, freezing an account or restricting fund transfers, how should traders respond and can they avoid being frozen?
According to the Measures, if a bank determines that a transaction is risky, it will take a series of measures:
Increase risk level and strengthen review: Increase the foreign exchange compliance risk level of the transaction subject and take strengthened review measures for subsequent foreign exchange business. For example, if a company is found to have risky transactions, the bank will more strictly review the relevant documents and transaction background when the company handles foreign exchange business in the future.
Adjust the approval level: clarify that the subsequent establishment and maintenance of foreign exchange business relationships with transaction entities, or the handling of subsequent foreign exchange business, requires an increase in the approval level. For example, if an individual applies for a foreign exchange loan, the branch bank may approve it, but now it may require approval from the branch bank due to risky transactions.
Restrict business relationships: restrict the establishment of new foreign exchange business relationships, refuse to handle subsequent foreign exchange business, or even terminate established foreign exchange business relationships. If a customer is involved in suspicious transactions, the bank will reject his new foreign exchange remittance application.
Restricting non-face-to-face business: Reasonably restricting the amount, frequency and type of foreign exchange business that trading entities can handle in a non-face-to-face manner.
Measures such as freezing accounts: In extreme cases, accounts may be frozen or fund transfers may be restricted.
To avoid being frozen, it is necessary to ensure that the transaction is legal and compliant, and provide clear and reasonable transaction background descriptions, relevant certificates, etc. For example, individual merchants usually conduct cross-border transactions reasonably and legally, and can provide complete contracts, invoices and other information for each transaction. Even if there are large transactions, the bank will not freeze the account after reviewing and determining that it is normal. Banking experts also emphasize that customers' compliance operations and active cooperation with bank investigations can effectively reduce the probability of being identified as risky transactions and having their accounts frozen.
For example, Mr. Liu runs a small import and export trading company, which mainly trades with Southeast Asia. Recently, the bank detected that several large sums of money in the company's account suddenly flowed to some regions with weak financial supervision and often used for illegal capital flows, and the transaction frequency was significantly higher than the normal business needs in the past. At the same time, the company could not give a reasonable and clear explanation for these transactions. Based on this, the bank determined that these transactions were risky, raised the company's foreign exchange compliance risk level, and took enhanced review measures for subsequent foreign exchange business. Each foreign exchange settlement, remittance and other business needs to provide more detailed trade contracts, logistics documents and other information than before, and some businesses that could originally be handled at the branch were also required to be upgraded to the branch approval level.
6. If a bank freezes an account, is this measure short-term or long-term? How long is the freezing period usually? Will it affect the flow of funds in the long term? How to restore the account to normal?
The Measures do not clearly mention whether the bank's account freezing measure is short-term or long-term, how long the freezing period is usually, and whether it will have a long-term impact on the flow of funds. Because the main audience of the regulatory plan is banks, and the object of supervision is also banks, there is no clear mention of specific steps such as how traders can restore their bank accounts.
However, in general, if your account is frozen due to foreign exchange risk transactions, it is recommended that you explain the transaction background and purpose to the bank in detail and clearly, provide legal, compliant and complete transaction vouchers and other relevant materials, and actively cooperate with the bank's investigation. The account may be restored to normal only after the bank has reviewed and confirmed that there is no risk in the transaction.
7. What specific impacts will virtual currency trading participants (including "U merchants") face under the measures that banks may take against risky transactions? For example, will banks' restrictions or monitoring and reporting of risky transactions related to virtual currencies lead to restrictions on U merchants' capital flow, increased transaction costs, or greater compliance pressure on platform operations?
When banks strengthen risk monitoring, restrictions and reporting of virtual currency transactions, participants in virtual currency transactions ("U merchants") may face problems such as restricted capital flow, increased transaction costs and increased compliance pressure. For example, when banks strengthen monitoring and involve large amounts or high-risk cross-border transactions, they may restrict or freeze the bank accounts of platform users, especially when requiring additional transaction proof and customer information. U merchants cannot operate funds freely, affecting platform liquidity and user experience.
In addition, banks’ monitoring measures may lead to higher transaction costs. Banks may charge additional fees for virtual currency transactions or require platforms to provide more compliance materials, such as anti-money laundering (AML) and customer identity verification (KYC) checks. These additional requirements will increase the operating costs of the platform, and some of the fees may eventually be passed on to users, resulting in higher overall transaction costs.
More importantly, with the strengthening of bank supervision, U-commerce faces greater compliance pressure. In cross-border transactions, platforms need to comply with the laws and regulations of different countries and invest more resources in compliance review and risk control, which increases operating costs and may affect efficiency. Especially for small platforms, the compliance burden may be too heavy. Overall, bank supervision measures may restrict capital flow, increase transaction costs, and increase compliance pressure, affecting the overall operation of U-commerce.
This article only represents the personal views of the author and does not constitute legal advice or legal opinion on specific matters.
