On December 29, the State Administration of Foreign Exchange (SAFE) promulgated the Administrative Measures for Banks' Foreign Exchange Business (Trial) (hereinafter referred to as the "Business Development Measures"), which will come into force on January 1, 2024, in order to further enhance banks' foreign exchange business capabilities, promote cross-border trade, investment and financing facilitation, and prevent cross-border capital flow risks.
The Measures for Business Development, consisting of 6 chapters and 34 articles, promote the reengineering of commercial banks' foreign exchange business processes, build a whole-process business development framework that includes pre-event customer identification and classification, in-process differentiated review, and post-event monitoring and reporting, and strengthen the risk responsibility of ex-ante and ex-post links.
It is worth noting that the "Business Development Measures" have been piloted in four commercial banks in the early stage, and the pilot results have been good. According to the feedback from the pilot banks, the reengineering of foreign exchange business processes is in line with the bank's own needs for improving risk control and business development, and the cost is controllable, which is conducive to improving the bank's operational efficiency and management effectiveness.
It should be emphasized that banks may voluntarily choose to apply the "Business Development Measures" model to conduct foreign exchange business, and if they do not choose to apply the "Business Development Measures" model, they will conduct foreign exchange business in accordance with the original relevant foreign exchange management laws and regulations, and will not be affected.
Promote the reengineering of foreign exchange business processes of commercial banks
The Business Development Measures promote the reengineering of commercial banks' foreign exchange business processes, build a whole-process business development framework that includes pre-event customer identification and classification, in-process differentiated review, and post-event monitoring and reporting, and strengthen the risk responsibility of ex-ante and ex-post links. Specifically:
In advance, banks are required to carry out necessary due diligence on customers and dynamically update them to implement the bank's "know your customer" responsibility. Support banks to classify customers based on their own risk management requirements.
The relevant person in charge of the State Administration of Foreign Exchange pointed out that customer due diligence consists of "basic due diligence" and "special due diligence for foreign exchange business". Among them, "basic due diligence" mainly involves reusing the bank's existing due diligence information, such as customer identity information, beneficial owner information, etc. "Special due diligence" refers to the due diligence on the characteristics of the customer's foreign exchange business, such as the age, scale and structure of the customer's foreign exchange business, as well as the internal and external evaluations of the customer that the bank has mastered.
In this case, banks are required to implement differentiated review measures according to customer classification, clarifying that one type of customer can handle foreign exchange business according to instructions, the second type of customer is examined by the bank according to the principles of "risk-based" and "substance over form", and the third type of customer is strengthened by the bank according to the risk status.
Subsequently, banks are required to establish a compliance risk monitoring and analysis mechanism, and report foreign exchange risk transactions when they are found to be in a foreign exchange risk transaction report and take corresponding control measures as appropriate. Clarify the scope and reporting path of foreign exchange risk transactions.
At the same time, the Measures clarify the requirements for the bank's internal management system, covering the organizational structure, internal control system, information system, etc., and promote the improvement of the bank's risk prevention and control mechanism.
Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said that the "Business Development Measures" break the previous path dependence of "risk prevention" on the process of the matter, further improve the efficiency of banks' foreign exchange business, and enhance the level of cross-border trade, investment and financing facilitation.
Establish, improve and effectively implement the control system of the foreign exchange exhibition industry
In terms of internal control, the Measures for the Development of Foreign Exchange proposes that banks should follow three principles to establish, improve and effectively implement the control system within the foreign exchange exhibition industry:
The first is comprehensiveness. The control system of the bank's foreign exchange exhibition industry shall comprehensively cover the entire process of the operation and management of the foreign exchange business it has started, including but not limited to the division of responsibilities of the department, internal supervision and inspection, and the operation procedures of the foreign exchange business before, during and after the event.
The second is effectiveness. The control system of the bank's foreign exchange exhibition industry shall be compatible with the actual business of the institution, and ensure that the internal control system can be effectively implemented.
The third is consistency. When there is a change in the external regulatory policy or the bank's risk management strategy, the bank should update the control of the foreign exchange industry in a timely manner.
According to the Business Development Measures, banks should establish and optimize relevant business systems and information management systems in accordance with the needs of foreign exchange compliance risk management, ensure the accuracy, completeness and traceability of foreign exchange business information such as customer identity information and transaction information, and optimize and upgrade them in a timely manner according to the needs of risk and compliance management.
The relevant person in charge of the State Administration of Foreign Exchange pointed out that banks should establish corresponding systems to achieve information management of key links based on their own control system for foreign exchange exhibitions, such as customer due diligence information collection, customer risk rating assessment, customer classification and in-process review linkage, post-event monitoring, screening and disposal, and other key links. The goal of system control is to realize the effective linkage of business development links before, during and after the event through the implementation of standardized, informational, and intelligent systems, so as to improve the efficiency of business development and reduce moral hazard. The business development system can be a newly built stand-alone system, or it can be a new functional module based on the bank's existing system.
Further enhance the bank's foreign exchange business capabilities
In recent years, the State Administration of Foreign Exchange (SAFE) has continued to deepen the reform and opening up of the foreign exchange sector, and the facilitation of cross-border trade, investment and financing has been steadily improved. However, in the course of the implementation of the foreign exchange management reform, it was also found that there were problems such as "failure to conduct due diligence review" or "excessive review" of banks, and banks had illegal business activities, which may affect the micro perception of foreign exchange facilitation policies by compliant business entities.
Wang Chunying said that the State Administration of Foreign Exchange has conscientiously implemented the spirit of the Central Financial Work Conference and the decisions and arrangements of the CPC Central Committee and the State Council, drafted and issued the "Business Development Measures" on the basis of extensive research and prudent pilots, so as to promote the reengineering of commercial banks' foreign exchange business processes, further enhance the bank's foreign exchange business development capabilities, and create an institutional environment suitable for high-level opening-up.
By establishing a general framework for banks' foreign exchange business, the Measures further refine and clarify the standards for banks' business before, during and after the event, so as to promote banks to earnestly fulfill their audit obligations.
Wang Chunying introduced that the "Business Development Measures" have been piloted in four commercial banks in the early stage, and the pilot results are good. According to the feedback from the pilot banks, the reengineering of foreign exchange business processes is in line with the bank's own needs for improving risk control and business development, and the cost is controllable, which is conducive to improving the bank's operational efficiency and management effectiveness.
Wang Chunying said that in the next step, the State Administration of Foreign Exchange will steadily promote the implementation of the "Business Development Measures". The first is to respect the market and apply it voluntarily. The second is to follow up and prepare solidly. Foreign exchange bureaus at all levels will provide corresponding guidance and support to banks in transforming their systems and improving business processes, so as to reduce the cost of trial and error for banks. At present, we have established a counseling team in the location of the main corporate bank to connect with the relevant banks to carry out preparatory work.
Editor-in-charge: Wan Jianyi
Proofreading: Peng Qihua
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