A briefing on the inspection of the banks’ foreign exchange was recently held by the SAFE. The heads of the relevant businesses of 21 Chinese-funded banks and 11 foreign counterparts attended the meeting.
It was pointed out at the meeting that in 2013 the SAFE earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council, rigorously promoted facilitation of trade and investment, carefully prevented risks arising from cross-border capital flows, increased efforts to inspect the banks, as the major channel of cross-border capital flows, seriously investigated foreign exchange–related violations by banks and actively warned the banks of the risks of foreign exchange operations so as to encourage the banks to improve their compliance with foreign exchange operations. Based on the findings, on a whole the banks’ compliance with foreign exchange operations has been improved, but violations still exist as banks put an emphasis on business expansion and neglect administration of internal controls.
The meeting provided information on foreign exchange–related violations by banks, revealing a total of 439 cases discovered during 2013. The violations mainly included: 1. not handling foreign exchange settlements and sales in accordance with the relevant regulations. For example, some banks failed to create foreign exchange settlement and sale items separately and failed to handle their own foreign exchange settlement and sale business in compliance with the relevant regulations; while some banks handled foreign exchange capital settlements for companies and foreign exchange settlements and sales for individuals in violation of the relevant rules. 2. Failing to review the authenticity and consistency of the capital receipts and payments on the current account in accordance with the relevant regulations. For instance, some banks handled the balance of foreign exchange generated through trade in goods for unlisted companies, and some banks failed to review the retained data during the handling of capital receipts and payments for trade in goods (transit trade included) in compliance with the relevant regulations and provided receipts and payments business for Class B and Class C companies which is in violation of the relevant rules. 3. Violating the relevant regulations to provide capital receipts and payments on the capital account. Some banks failed to make timely foreign payments using the capital (RMB) acquired by handling foreign exchange capital settlements and sales in accordance with the relevant regulations. 4. Not complying with the relevant regulations to make statistical declarations on the balance of payments and to submit the relevant data. In addition, internal control systems were not improved, authenticity reviews were mere formalities, and some banks engaged in arbitrage by taking advantage of inbound and outbound linkages and avoiding the regulations by means of off-balance-sheet business innovations. All these issues require more attention.
It was requested at the meeting that all banks should enhance their macro awareness, handle the relationship between individual benefits and the policy orientation in a correct manner, actively conduct their foreign exchange business in a rational way, enhance a sense of responsibility, practically carry out “understanding your customers,” seriously fulfill their duty of authenticity reviews, improve compliance awareness, strengthen internal control administration and system construction, and further improve the operational level of compliance to create a sound environment for the foreign exchange market.
It was stressed at the meeting that in 2014 the SAFE will, in accordance with the decisions and operations of the CPC Central Committee and the State Council, continue to decentralize and further improve the level of facilitation of trade and investment, promote growth of the real economy, and, at the same time, closely monitor cross-border capital flows, prevent shocks from two-way capital flows across borders, maintain the bottom line in avoiding systemic and regional financial risks, and continuously reinforce and improve inspections of the foreign exchange business of financial institutions, such as banks, to encourage the finance industry to better serve the real economy and maintain foreign-related economic and financial security.
