| The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo; and the designated national foreign exchange banks:
In order to enhance the capability of financial institutions to provide clients with services to hedge against exchange-rate risks, the following issues concerning the joint handling of forward settlement and sales of foreign exchange are hereby notified in accordance with the Regulations of the
1. The "joint handling of forward settlement and sales of foreign exchange refers to collaboration between a domestic bank and its branches that are not qualified to handle the forward settlement and sales of foreign exchange (hereinafter referred to as the cooperating banks) and a bank and its branches that are qualified to handle the aforesaid business (hereinafter referred to as the qualified bank) for the joint handling of forward settlement and sales of foreign exchange.
2. The head office (or main office) of a cooperating bank shall meet the following requirements:
(1) It must be qualified to operate spot settlement and sales of foreign exchange as ratified by the SAFE or its branches and sub-branches (hereinafter referred to as the foreign exchange authority) and must have engaged in the settlement and sales of foreign exchange for more than two years (inclusive);
(2) It should be free from all significant irregularities in the operation of spot settlement and sales of foreign exchange for the past two years (inclusive);
(3) Its average quarterly balance of foreign exchange assets for the previous year is equivalent to more than USD20 million (inclusive);
(4) It ranks as Grade-B or above in the appraisal of its compliance with the foreign exchange administration regulations for the past two years;
(5) It has a complete system for the management of joint handling of forward settlement and sales of foreign exchange;
(6) Other qualifications as required by the foreign exchange authority.
The branches or sub-branches of the cooperating bank shall obtain authorization from the head offices (or main offices) thereof, and shall satisfy the requirements in foregoing items (1), (2), and (4).
3. A qualified bank shall meet the following requirements:
(1) Its head office will have obtained qualifications to act as a forward-swap market maker or a general market maker on the inter-bank foreign exchange market;
(2) It is free from any significant irregularities in the operation of foreign exchange settlement and sales during the past two years (inclusive);
(3) It has a complete system for the management of joint handling of forward settlement and sales of foreign exchange;
(4) It ranks Grade-B or above in the previous years appraisal of its compliance with the foreign exchange administration regulations;
(5) Other qualifications as required by the foreign exchange authority.
4. A cooperating bank shall file an application with the foreign exchange authority in its locality for the joint handling of forward settlement and sales of foreign exchange. If the foreign exchange authority thereof is a central sub-branch or sub-branch of the SAFE, the foreign exchange authority thereof shall complete the preliminary examination within 20 working days as of the date of acceptance, and shall submit the results thereof to the relevant branch (or relevant administrative office) of the SAFE (hereinafter referred to as the foreign exchange branch) at the higher level. The foreign exchange branch thereof shall, within 20 working days from the date of receipt of the letter of application and other relevant documentation, make a decision as to whether or not to register the relevant application. For financial institutions that meet the relevant requirements, the foreign exchange branch shall issue the Notice of the State Administration of Foreign Exchange __ _ Branch (Administrative Office) on the Registration of the Joint Handling of Forward Settlement and Sales of Foreign Exchange (see Appendix 1), and shall keep the internal-use form thereof.
5. A cooperating bank shall, when applying for the joint handling of forward settlement and sales of foreign exchange, submit to the local foreign exchange authority the following materials:
(1) A letter of application;
(2) The management system for the joint handling of forward settlement and sales of foreign exchange, which includes instructions for business operations, assignment of internal responsibilities, the statistical reporting system, the risk control measures, accounting systems, and so forth;
(3) A template cooperation agreement signed with a qualified bank, in which the rights and obligations of both parties are specified;
(4) If the applicant is a branch or sub-branch of a bank, the applicant thereof shall, in addition to the aforesaid materials, submit to the relevant authorities the notice on the registration of the joint handling of forward settlement and sale of foreign exchange (in duplicate) which is granted by its head office (or main office) and the authorization documents from the same.
(5) Other documentation and materials as required by the local foreign exchange authority.
6. A cooperating bank shall comply with the following provisions when cooperating with a qualified bank for the handling of forward settlement and sales of foreign exchange:
(1) It shall abide by the existing regulations on the administration of forward settlement and sales of foreign exchange and it shall sign an agreement on the joint handling of forward settlement and sales of foreign exchange with the qualified bank and the client;
(2) It shall examine the regulatory compliance of its customer in the signing and fulfillment of the agreement on the handling of forward settlement and sales of foreign exchange, carry out separate accounting by creating specific accounts for the forward settlement and sales of foreign exchange, and close positions with the qualified bank on a case-by-case basis for its handling of forward foreign exchange settlement and sales for its customers.
(3) The qualified bank shall consider the joint handling of forward settlement and sales of foreign exchange to be forward settlement and sales of foreign exchange on behalf of its customers (the trading entity shall be determined based on the nature of the customers), which shall be incorporated into its comprehensive position of the settlement and sale of foreign exchange for statistical and management purposes, and shall submit the relevant statistical statements to the foreign exchange authority in compliance with the requirements of banks regarding statistics on foreign exchange settlement and sales and so forth. The cooperating bank shall assist the qualified bank in fulfilling the statistical obligations;
(4) The cooperating bank shall, within the first 5 working days of each month, submit to the local foreign exchange authority the Statistical Statement on the Joint Handling of Forward Settlement and Sales of Foreign Exchange (see Appendix 2).
7. The joint handling of forward settlement and sales of foreign exchange shall be incorporated into the annual appraisal of the qualified bank and cooperating bank by the local foreign exchange authority.
If a cooperating bank is involved in significant irregularities in the operation of the foreign exchange settlement and sales, or is scored a Grade-C in the annual appraisal, its qualifications to operate forward settlement and sales of foreign exchange shall be suspended thereby.
If a qualified bank is involved in significant irregularities in the operation of the foreign exchange settlement and sales, or fails to meet the requirements as stated in Article 3 of this Circular, the foreign exchange authority shall notify the cooperating bank in a timely manner of the termination of the cooperation with the aforesaid qualified bank for the joint handling of forward settlement and sales of foreign exchange.
8. A cooperating bank shall, when supplementing or changing its cooperating partner or when terminating the cooperation with a partner, report the relevant circumstances to the local foreign exchange authority for the record 20 working days before the relevant supplement, alteration, or termination is implemented.
9. Foreign exchange branches shall, within the first 10 working days of each year, complete and submit the List on the Joint Handling of Forward Settlement and Sales of Foreign Exchange by Institutions within the Jurisdiction (see Appendix 3) with the relevant data acquired by the end of the previous year, and it shall send it in a timely manner to the information portal Web site of the SAFE (manage@bop.safe).
10. If cooperating bank or a qualified bank handles the forward settlement and sales of foreign exchange in violation of the regulations with a qualified bank or a cooperating bank, penalties shall be imposed on the aforesaid cooperating or qualified bank by the foreign exchange authorities in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration and the relevant regulations.
The SAFE branches shall, upon receipt of this Circular, promptly forward it to the central sub-branches and branches of the SAFE as well as to the relevant financial institutions within their respective jurisdictions. If any problems are encountered during implementation, please refer them to the SAFE in a timely manner.
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FILE: Notice of the SAFE ___ Branch (Administrative Office) on the Registration of Joint Handling of Forward Settlement and Sales of Foreign Exchange (Internal-Use Form)
FILE: Statistical Statement on the Joint Handling of Forward Settlement and Sales of Foreign Exchange
FILE: List of Institutions within the Jurisdiction involved in the Joint Handling of Forward Settlement and Sales of Foreign
