In the previous article ( https://www.odaily.news/post/5202126 ), we conducted an in-depth analysis of the Measures for the Administration of Bank Foreign Exchange Risk Transaction Reports (Trial) issued by the State Administration of Foreign Exchange. However, on December 26, the State Administration of Foreign Exchange also issued the Regulations on Due Diligence Exemption for Bank Foreign Exchange Business (Trial) document. Today, let us read this regulation in one article and gain an in-depth understanding of the important significance and key points behind it, to help everyone clarify the rules and responsibilities in foreign exchange business.
In the process of conducting foreign exchange business, the banks responsibility boundaries and exemption situations have always attracted much attention. The introduction of the Regulations on Due Diligence Exemption for Bank Foreign Exchange Business (Trial) has brought clear regulations to this field, avoiding excessive supervision and strong shocks to the banks foreign exchange business, and ensuring financial stability and order. This regulation is not only related to the daily business operations of banks, but also closely linked to the vital interests of every trader.
1. What are the obligations of banks?
Due diligence obligations: According to the Provisions on Due Diligence Exemption for Bank Foreign Exchange Business (Trial Implementation), banks must perform the duties of knowing customers, knowing the business, and due diligence throughout the foreign exchange business. Banks must be diligent and implement effective risk management measures to prevent, identify, assess, monitor and deal with foreign exchange compliance risks.
Obligation to review in accordance with regulations: Banks are required to conduct compliance reviews on foreign exchange accounts, foreign exchange fund collection and payment, foreign exchange settlement and sales, etc. conducted by customers. The review process should be strictly carried out in accordance with foreign exchange management regulations, and when referring to reports from third-party professional institutions, the quality and authenticity of their reports should be reviewed. If banks conduct business in accordance with the guidance of financial regulatory departments, they should maintain a prudent attitude and ensure that they meet the prescribed compliance standards.
Monitoring and reporting obligations: When implementing foreign exchange facilitation policies and handling foreign exchange business for customers, banks need to conduct transaction risk monitoring, promptly identify potential risks of violations and report to the foreign exchange management department. If the monitoring system has issued an early warning but has not included the relevant transaction in the foreign exchange risk transaction report, the bank should provide a reasonable reason for not submitting it to ensure transparency and compliance.
Compliance with international rules and reporting obligations: If a bank conducts business in compliance with international rules for cross-border business or the requirements of international organizations such as overseas card organizations, and discovers risks of violations in the process, it should report to the foreign exchange management department in a timely manner to ensure compliance with international regulatory standards.
Obligation to cooperate in the review of appeals: When the SAFE initiates an investigation into suspected violations, the bank should, after receiving the preliminary characterization and handling opinions, promptly fill out and submit the Appeal Form and related evidence if it believes that the circumstances are met for due diligence exemption, and actively cooperate with the SAFEs investigation and requirements during the review process.
II. What consequences will banks face if they fail to fulfill their obligations under the Measures?
If the bank fails to fulfill its obligations, it must bear legal responsibilities including administrative penalties. According to regulations, legal liability refers to the legal liability related to administrative penalties implemented in accordance with the Administrative Penalty Law of the Peoples Republic of China and the Foreign Exchange Administration Regulations of the Peoples Republic of China, and does not include responsibilities such as accepting interviews with the State Administration of Foreign Exchange for rectification, criticism and education, and risk warnings.
3. What are the typical high-frequency and high-risk transactions in virtual currency transactions?
Risky transactions that are likely to be reported: Once a bank discovers or has reasonable grounds to suspect transactions involving suspected fraudulent trade, fraudulent investment and financing, underground banks, cross-border gambling, fraudulent export tax rebates, illegal cross-border financial activities involving virtual currencies, etc., it must monitor the information and report it to the State Administration of Foreign Exchange in a timely manner. In addition, all transactions suspected of illegal cross-border capital flows should be included in the monitoring and reporting scope.
Typical high-frequency and high-risk transactions in virtual currencies: High-frequency transactions in virtual currencies refer to traders frequently recharging, withdrawing, and swing trading, etc., and involve complex capital flow paths, such as funds being transferred through multiple accounts or directly connected to overseas exchanges. Related activities include large remittances, split funds, and transactions that lack a reasonable business background . Such transactions usually have a mismatch between the source of funds and the purpose, and the flow of funds is informal and lacks standardized business background support. Funds may pass through multiple wallet addresses or trading platforms and eventually flow into overseas accounts or overseas exchanges, and may even be traded anonymously through mixers. In addition, large amounts of funds flowing in and out in a short period of time and funds flowing to multiple platforms or accounts are typical high-risk transactions .
4. Which groups of people in the cryptocurrency circle are easily identified as risky traders?
Frequent arbitrageurs: People who frequently take advantage of arbitrage opportunities in the virtual currency market, convert fiat currency into virtual currency, and then repeatedly buy and sell on different exchanges to earn the price difference. Typical examples include people who engage in USDT arbitrage. Such people trade frequently and involve a large amount of funds, which can easily attract the attention of regulators.
Anonymous traders: People who use complex transaction paths to hide the flow of funds and trade through anonymous tools or in areas with weak supervision. Their trading behavior is mysterious and difficult to track, and they are often identified as high-risk groups. Banks pay close attention to such transaction patterns to prevent illegal capital flows.
Abnormal fund operations: participants in the cryptocurrency circle who have frequent inflows and outflows of funds in huge amounts, which are inconsistent with their personal financial conditions and who cannot provide reasonable explanations for their transactions. Such accounts are usually high-risk accounts, and banks will pay special attention to and strengthen their review to avoid illegal activities such as money laundering.
5. The bank mentioned that it can be exempted from liability when the transaction is beyond its review capabilities. So what kind of transactions are considered to be beyond its review capabilities?
In terms of technical and resource limitations: According to industry insiders, banks have limited monitoring technology and human and material resources. For example, in virtual currency transactions, if the flow of funds involves a large number of anonymous overseas wallet addresses and transactions are frequently conducted through decentralized trading platforms, the transaction data of these platforms is difficult to obtain and analyze.
Banks are limited by their own technical means and resources and are unable to track the true source and destination of funds, which can be considered beyond their review capabilities. Some small banks, without advanced monitoring systems and professional analysis teams, find it difficult to conduct a comprehensive review of complex cross-border virtual currency transactions.
In terms of regulations and information transparency: Virtual currencies lack a unified international regulatory framework, and regulations vary greatly from country to country. If a transaction involves multiple countries and regions with different regulatory policies, it is difficult for banks to accurately judge the compliance of the transaction based on current regulations, and it can also be considered as exceeding the review capacity. For example, some virtual currency transactions are legal in country A, but strictly prohibited in country B, and it is difficult for banks to clarify the applicable regulations.
In addition, the opacity of virtual currency transaction information, such as the trading platform not providing complete and accurate transaction records, and the banks inability to obtain key information needed to determine the legality of the transaction, should also be considered beyond the scope of review capabilities.
Abnormal complexity of transactions: If virtual currency transactions present a highly complex capital flow pattern, such as multiple currency mixing operations, transfers through multiple shell company accounts or related accounts, resulting in extremely chaotic capital flows, even if banks take routine review measures, it will be difficult to sort out the entire transaction chain, and it can be regarded as beyond their review capabilities.
6. Banks can be exempted from liability when conducting business in accordance with international rules, but if international rules conflict with domestic regulations, how should banks handle it?
When international rules conflict with domestic regulations, banks usually give priority to following domestic regulations, because banks conduct business domestically and are subject to domestic supervision, and following domestic regulations is the basis for ensuring the stability of the financial order.
For example, a client of a domestic bank is engaged in cross-border e-commerce business. He learned that under some international rules, he could use virtual currency to pay overseas suppliers to reduce costs. The client then applied to the bank for related business, but there are strict restrictions on virtual currency transactions in China to prevent financial risks. At this time, if the bank handles it according to international rules, it will not only face severe penalties from domestic regulators, but the clients transaction will also be invalid due to violation of domestic regulations. Once a transaction dispute or financial loss occurs, the client will not be able to obtain legal protection and may also face legal risks due to participation in illegal transactions.
For traders, these potential conflicts must be paid special attention. Before making a transaction, they should fully understand domestic laws and regulations to avoid damage to their own interests due to rule conflicts. They should also be alert to the possibility that banks may refuse to handle certain businesses that seem feasible under international rules due to compliance requirements.
7. If a bank is investigated for violations and an appeal is filed, what role does the trader play?
When a bank is investigated for irregularities and appeals are made, the role played by traders is more complex:
Assisting in investigations: Traders may need to assist banks in providing business-related information to restore the true situation of transactions. If banks fail to identify risky transactions in a timely manner, the SAFE may require traders to provide evidence such as transaction contracts and fund transaction records during the investigation. For example, if a bank is investigated for a foreign exchange fund collection and payment business of a client, if the trader can provide complete and clear transaction background information, it will help the bank to file a complaint and explain his due diligence in the business handling process.
Potentially responsible related roles: There are certain risks in providing evidence. Anti-money laundering experts pointed out that if there are problems with the evidence provided by the trader, such as deliberately concealing important information or providing false materials, it will not only affect the banks complaint, but the trader itself may also be investigated for participating in illegal cross-border financial activities. However, if the trader conducts normal and compliant transactions and provides evidence truthfully, it generally does not increase the risk of being identified as an illegal cross-border financial activity. If the transaction is legal, the traders cooperation with the investigation and providing evidence is to fulfill his civic duty and should be protected by law in theory. However, if the traders own transactions are illegal, the evidence provided may expose the illegal behavior, thereby facing legal risks.
In general, traders should remain cautious during the bank complaint process and provide evidence truthfully to safeguard their own and the bank’s legitimate rights and interests.
This article only represents the personal views of the author and does not constitute legal advice or legal opinion on specific matters.
