Recently, a meeting was held in Beijing by the State Administration of Foreign Exchange (SAFE) to circulate information about the situation regarding inspections of the foreign exchange businesses operated by banks. Deng Xianhong, deputy administrator of the SAFE, attended the meeting and delivered a speech. Representatives from 21 Chinese-funded banks and 7 foreign-funded banks attended the meeting.

It was stressed at the meeting that due to the drastic changes in the domestic and international economic and financial environments, the SAFE has taken active steps to prevent risks from abnormal cross-border fund flows and to crack down strongly on various types of violations of the foreign exchange laws and regulations. During the past two years, the SAFE carried out in succession a series of special inspections throughout the country of the foreign exchange businesses operated by banks. The results show that the designated foreign exchange banks have enhanced their awareness of regulatory compliance and risk prevention and have made improvements to comply with the regulations. But it was also discovered that some banks are still operating in breach of the foreign exchange regulations.

The meeting circulated information about the banks violations of the regulations with respect to the operation of foreign exchange businesses. Typical examples of violations include:  failure to fulfill the obligation to examine authenticity when handling agent businesses, violating the regulations for the administration of foreign exchange accounts, declaration of the balance of payments, capital fund and settlement and sales of exchange by individuals; violations of the regulations with regard to external debt, the comprehensive position of exchange settlement and sales, capital conversions of home and foreign currencies, and so forth, when handling foreign exchange businesses. Meanwhile, there are some specific phenomena in bank operations that require attention. These are: the constant low-level of operations of the comprehensive position by some banks, the hyper-normal increase in foreign exchange loans by some banks, and the increase in the number of interest arbitrage trade financing products by some banks. These violations can be attributed to three factors: the first is that some banks are weak in their awareness of regulatory compliance and driven by profit-making motives, some banks have deliberately lowered standards to examine authenticity; the second is that the internal control mechanisms of some banks are still imperfect, and their capability to execute their management system is weak; the third is that since the outbreak of the global financial crisis, some banks, driven by profit-making motives, have increasingly focused on business expansion and have overlooked regulatory compliance in their business operations.

Some representatives of the banks spoke at the meeting. They introduced their operations of foreign exchange business and some specific measures for enhancing the construction of internal control systems, optimizing foreign exchange business procedures, upgrading relevant techniques, and so on. They also made some suggestions about further refining foreign exchange administration policies, promoting policy dissemination and training, strengthening communications between the SAFE and banks, as well as other foreign-related economic entities.