Interpretation of the New Regulations by the State Administration of Foreign Exchange: Responsibilities and Exemptions in Bank Forex Business

Recently, the State Administration of Foreign Exchange issued the "Regulations on the Due Diligence and Exemption of Banks' Foreign Exchange Business (Trial)" to provide clear guidelines for banks to carry out foreign exchange business. This regulation not only relates to the daily operations of banks but is also closely related to the interests of every trader. This article will analyze the key points of the regulation and its potential impact.

The Main Obligations of Banks

1. Due diligence obligations: Banks must fulfill the responsibilities of "knowing your customer, knowing your business, and conducting due diligence" throughout the entire forex business process, and implement effective risk management measures.

2. Compliance review obligations: Conduct compliance audits on clients' forex accounts, fund receipts and payments, and foreign exchange transactions, strictly implementing foreign exchange management regulations.

3. Reporting Obligations: Conduct trading risk monitoring, promptly identify potential compliance risks and report them to the forex regulatory authorities.

4. Compliance with international rules and reporting obligations: When conducting business in accordance with international common rules, if any violation risks are identified, they should be promptly reported to the forex management department.

5. Obligation to cooperate in the review of complaints: During the investigation of suspected violations by the foreign exchange bureau, banks shall actively cooperate and promptly provide relevant evidence.

Consequences of Breach of Duty

If the bank fails to fulfill the above obligations, it will face legal liabilities including administrative penalties. These liabilities are based on the Administrative Penalty Law of the People's Republic of China and the Foreign Exchange Administration Regulations of the People's Republic of China, excluding non-administrative penalty measures such as accepting interviews and rectifications by the foreign exchange bureau and criticism or education.

High-Risk Trading Behavior

Banks will focus on and report the following trading behaviors:

• Suspected of false trade and false investment financing
• Underground money house activities
• Cross-border gambling
• Fraudulently obtaining export tax rebates
• Illegal cross-border financial activities of virtual currencies

In virtual currency trading, typical high-frequency and high-risk trades include:

• Frequent deposits, withdrawals, and swing trading
• The flow of funds is complex, involving multiple accounts or direct connections to foreign exchanges.
• Large remittances or fund splits are credited without reasonable commercial background.
• The source and use of funds are not matching.
• Large amounts of funds entering and exiting multiple platforms or accounts in the short term

Profile of High-Risk Traders

1. Frequent arbitrageurs: such as those engaging in USDT arbitrage, who trade frequently and involve large amounts of capital.

2. Anonymous traders: Use complex trading paths to hide the flow of funds, utilizing anonymous tools or trading in areas with weak regulation.

3. Abnormal fund operations: Frequent and large amounts of funds entering and exiting the account, inconsistent with personal financial status, and unable to provide a reasonable explanation.

Situations Beyond Bank Review Capability

1. Technical and resource constraints: For example, if virtual currency transactions involve a large number of anonymous overseas wallet addresses, or are conducted through decentralized trading platforms, banks find it difficult to trace the true source and destination of the funds.

2. Regulations and Information Transparency: The regulatory framework for virtual currencies is not unified, and there are significant differences in laws across countries, making it difficult for banks to assess the compliance of transactions.

3. The trading is extremely complex: For example, funds go through multiple mixing operations and transfers between several "shell" company accounts, resulting in a highly chaotic flow of funds.

Handling Conflicts Between International Rules and Domestic Regulations

When international regulations conflict with domestic regulations, banks usually prioritize domestic regulations. This may result in the rejection of certain transactions that are feasible under international rules. Traders should fully understand domestic regulatory policies to avoid losses due to conflicts in regulations.

The Role of Traders in Bank Complaints

When a bank is investigated and appeals for violations, traders may need to:

1. Assist in the investigation: Provide business-related information to restore the true state of the transaction.

2. Provide evidence cautiously: Providing evidence truthfully is a civic duty, but it also carries risks. If false materials are provided or important information is concealed, it may affect the bank's appeal and even expose oneself to legal risks.

In summary, traders should exercise caution and provide evidence truthfully to protect their own and the bank's legitimate rights and interests.