The State Administration of Foreign Exchange (SAFE) recently issued the Circular of the SAFE on Relevant Issues Concerning the Management of Domestic Foreign Exchange Accounts of Overseas Institutions (hereinafter referred to as the Circular). A person-in-charge of the SAFE was interviewed on the relevant contents of the Circular.
Q: What are the purposes and significance of issuing the Circular?
A: In order to cope with the global financial crisis, the CPC Central Committee and the State Council have reiterated that efforts shall be strengthened to support economic development through financing, and the role of financing to bolster economic growth and to foster structural adjustments shall be given better play by implementing various measures. Emphasis has also been placed on deepening financial reform, strengthening risk prevention, and effectively maintaining financial security and stability. The issuance of this Circular is indicative of the efforts of the SAFE to fulfill the above requirements of the CPC Central Committee and the State Council. On the one hand, the Circular allows all domestic banks to open foreign exchange accounts for overseas institutions under the premise of prudent operations, and it streamlines the procedures for the examination and verification of documentary evidence for the account opening and overseas fund transfers by overseas institutions. These efforts are conducive for banks to broaden the scope of intermediary businesses and to facilitate fund management of go-globalenterprises so as to safeguard fund security, and consequently will enhance the capacity of banks and enterprises to cope with the global financial crisis. On the other hand, the Circular standardizes the identification mark of the foreign exchange accounts of overseas institutions as well as the rules on the declaration of balance of payments statistics, and clarifies that the cross-border transaction principle shall be applied to the examination of the authenticity of fund receipts and payments from/to domestic parties. Furthermore, the funds in the domestic foreign exchange accounts of overseas institutions shall be incorporated into the banks external debt management. Thus a firewall between the accounts of domestic institutions and the account of overseas institutions is established to prevent illegal inflows and outflows of funds via the domestic foreign exchange accounts of overseas institutions.
Q: What is the main content of the Circular?
A: The Circular allows qualified Chinese-funded banks and foreign-funded banks to open foreign exchange accounts and to provide financial services for overseas institutions after examining and verifying the authenticity and legitimacy of the opening of the domestic foreign exchange accounts by overseas institutions. However, the opening of special foreign exchange accounts by foreign investors and foreign exchange accounts of qualified overseas institutional investors etc. shall be subject to approval by the Foreign Exchange Administrations according to the regulations. The Circular also requires that domestic banks make identifying marks on the domestic foreign exchange accounts of overseas institutions and incorporate these accounts into relevant information system for uniform management. The receipts and payments from/to domestic institutions (individuals) by the said accounts shall be subject to cross-border transaction administration. Domestic banks must examine and verify valid commercial documents and vouchers as required and declare the balance of payments statistics according to the relevant regulations. The account funds are categorized as non-resident deposits, and accordingly shall be incorporated into the short-term external debt balance quota of the opening banks. Cash withdrawals from the accounts and foreign exchange settlements in a direct or disguised manner are prohibited unless approved by the Foreign Exchange Administrations. Domestic banks shall abide by the anti-money laundering regulations, such as the know your customer principle, the large-sum and suspicious transaction reporting system, and so forth. 
The Circular is not applicable to the opening and use of offshore foreign exchange accounts at offshore banking departments of domestic banks that have obtained offshore banking business qualifications in accordance with the law, and is also not applicable to the opening and use of foreign exchange accounts within China by overseas individuals.
Q: What does the Circular specify for foreign exchange accounts opened at domestic banks by banks registered overseas?
A: Banks registered overseas are identified as overseas institutions in the Circular, and all provisions in the Circular are applicable to the foreign exchange accounts opened by such banks at domestic banks. Such provisions include real-name accounts, affixing the NRA identification, free fund transfers from abroad, incorporating the funds in such foreign exchange accounts into the short-term external debt balance quota of the domestic opening banks, prohibiting cash deposits and withdrawals and prohibiting foreign exchange settlement, and so forth. Since the majority of the accounts opened by such banks at domestic banks are foreign exchange accounts of inter-bank deposits, which are relatively small in terms of their total amount, only involve overseas transfers, and are already covered in the balance of payments statistics, the foreign exchange accounts opened by these banks at domestic banks are not required to be incorporated into the foreign exchange account management information system, and are not subject to registration of the basic information, application of the special institutional code, and so forth.    
Q: What does the Circular specify in terms of monitoring and supervising the adoption of uniform identification of the domestic foreign exchange accounts of overseas institutions and in terms of submission of the information and so forth?
A: In order to strengthen the monitoring and supervision over foreign exchange fund flows, to facilitate the handling of statistics and business, as well as to provide differentiation from offshore foreign exchange accounts (OSA foreign exchange accounts), the Circular requires that the identification NRA (NON-RESIDENT ACCOUNT) be marked on the form for domestic foreign exchange accounts of overseas institutions with NRA + the foreign exchange account number.From the banks perspective, no uniform requirements are imposed on the specific forms for marking the NRA identification. This provides the banks with the latitude to make the identification directly before the account number or to use alternative technologies such as a matching system for the NRA identification, on the condition that the identification is presented in the form of NRA+ the foreign exchange account number, enabling the payer and payee of foreign exchange funds to effectively identify the nature of the account.  
The Circular also requires that the domestic foreign exchange accounts of overseas institutions be incorporated into the foreign exchange account management information system. The domestic banks shall submit detailed information about the account opening, balance, receipt, and payment of the domestic foreign exchange accounts of overseas institutions via the system to the Foreign Exchange Administrations. The Foreign Exchange Administrations will notify the domestic banks separately regarding the specific time for submission of the information, based on the situation for upgrading and transforming the foreign exchange account management information system, the preparation of the banks, and so forth. The domestic banks shall make relevant preparations and submit the information about the declaration of the balance of payments statistics, the information about the non-resident deposits under the item of short-term external debt balanced management, and so forth.