Author: Shanghai Lawyer Sha Jun

In the previous article, we made an in-depth analysis of the "Management Measures for Bank Foreign Exchange Risk Transaction Reports (Trial)" issued by the State Administration of Foreign Exchange. However, on December 26, the State Administration of Foreign Exchange also issued the "Bank Foreign Exchange Risk Transaction Report Management Measures" "Business Due Diligence Exemption Regulations (Trial)" document, today let us read this regulation in one article, gain an in-depth understanding of the significance and key points behind it, and help everyone clarify the rules, rights and responsibilities in foreign exchange business.

During the development of foreign exchange business, banks’ liability boundaries and exemptions have always attracted much attention. The promulgation of the "Regulations on Exemption of Due Diligence for Banks' Foreign Exchange Business (Trial)" has brought clear regulations to this field, avoiding excessive supervision and strong shocks to banks' foreign exchange businesses, and ensuring financial stability and order. This regulation is not only related to the daily business operations of banks, but also closely related to the vital interests of every trader.

1. What are the obligations of banks

Dutiful business obligations: According to the "Bank's Foreign Exchange Business Due Diligence Exemption Regulations (Trial)", banks must perform the responsibilities of "understanding customers, understanding business, and due diligence" throughout the entire foreign exchange business process. Banks must be diligent and perform their duties, implement effective risk management measures, and prevent, identify, evaluate, monitor and deal with foreign exchange compliance risks.

Compliance review obligations: Banks are required to conduct compliance reviews on customers' foreign exchange accounts, foreign exchange fund collection and payment, foreign exchange settlement and sales, and other businesses. The review process should be strictly carried out in accordance with the foreign exchange management regulations, and when referring to the reports of third-party professional institutions, the quality and authenticity of their reports should be reviewed. If a bank conducts business in accordance with the guidance of financial supervision and other departments, it should maintain a prudent attitude and ensure that it meets the prescribed compliance standards.

Monitoring and reporting obligations: When implementing foreign exchange facilitation and handling foreign exchange business for customers, banks need to carry out transaction risk monitoring, promptly discover potential violation risks and report them to the foreign exchange Management reports. If the monitoring system has issued an early warning but the relevant transaction has not been included in the foreign exchange risk transaction report, the bank should provide reasonable reasons for non-reporting to ensure transparency and compliance.

Comply with international rules and reporting obligations: If a bank handles business due to compliance with international rules for cross-border business or the requirements of international institutions such as overseas card organizations, it will If risks of violation are discovered during the process, they should be reported to the foreign exchange management department in a timely manner to ensure compliance with international regulatory standards.

Obligation to cooperate with representations and reviews: When the foreign exchange bureau files a case to investigate suspected violations, after receiving preliminary characterization and handling opinions, the bank should promptly fill in and provide feedback on the "Representation Form" and relevant evidence, and actively cooperate with the SAFE’s investigations and requirements during the review process.

2. What consequences will banks face if they fail to fulfill their obligations under the Measures?

If the bank fails to perform its obligations, it must bear legal liabilities including administrative penalties. According to regulations, legal liabilities refer to legal liabilities related to administrative penalties implemented in accordance with the "Administrative Punishment Law of the People's Republic of China" and the "Regulations of the People's Republic of China on Foreign Exchange Administration" , does not include responsibilities such as accepting interviews with the Foreign Exchange Bureau for rectification, criticism and education, and risk warnings.

3. What are the risky trading behaviors that banks are likely to report in practice? Among virtual currency transactions, there are typical high-frequency and high-risk transactions. Which ones?

Risk transactions that are likely to be reported: Once the bank discovers or has reasonable grounds to suspect that it involves false trade, false investment and financing, underground banks, cross-border gambling, fraudulent export tax rebates, illegal cross-border financial activities with virtual currencies, etc. Transactions must be monitored and reported to the Administration of Foreign Exchange in a timely manner. In addition, all transactions suspected of illegal and illegal cross-border capital flows should be included in the scope of monitoring and reporting.

Typical transactions of high-frequency and high-risk virtual currencies: High-frequency transactions of virtual currencies refer to traders’ frequent recharges, withdrawals, band operations, etc., and involve complex capital flow paths, such as funds being transferred through multiple accounts or directly connected overseas. Exchanges. Related activities include large-amount remittances, split-account transactions, and lack of reasonable commercial background. Such transactions usually have mismatches between the source of funds and the purpose of the funds. The flow path is "informal" and lacks standardized business background support. Funds may pass through multiple wallet addresses or trading platforms, and eventually flow into overseas accounts or overseas exchanges. In addition, large amounts of funds may even be traded anonymously through currency mixers. Incoming and outgoing and capital flows to multiple platforms or accounts in a short period of time are typical high-risk trading behaviors.

4. Which groups of people in the currency circle are easily identified as risky traders?

Frequent arbitrageurs: People who frequently take advantage of arbitrage opportunities in the virtual currency market. After converting legal currency into virtual currency, they earn price differences through repeated buying and selling on different exchanges. Typical examples include USDT trading. Arbitrage traders. This type of trading group trades frequently and involves large amounts of money, which can easily attract the attention of regulatory authorities.

Anonymous traders: People who use complex trading paths to hide the flow of funds and trade through anonymous tools or in weakly regulated areas. Their trading behavior is mysterious and difficult to trace.are often identified as high-risk groups. Banks pay close attention to such transaction patterns to prevent illegal fund flows.

Those with abnormal fund operations: participants in the currency circle who have frequent and huge amounts of funds in and out of their accounts that are inconsistent with their personal economic conditions and unable to provide reasonable transaction explanations. Such accounts are usually high-risk accounts, and banks will pay special attention and strengthen scrutiny to avoid illegal activities such as money laundering.

5. The bank can be exempted from liability if it exceeds its review capabilities. So what kind of transactions are considered to be beyond its review capabilities? For example, the flow of funds in virtual currency transactions is complex and involves multiple overseas accounts. How does a bank determine whether this exceeds its review capabilities?

Technology and resource limitations: According to industry insiders, banks have limited monitoring technology and human and material resources. For example, in virtual currency transactions, if the flow of funds involves a large number of anonymous overseas wallet addresses, and transactions are frequently conducted through decentralized trading platforms, it is difficult to obtain and analyze the transaction data of these platforms.

Banks are limited by their own technical means and resources and cannot trace the true source and whereabouts of funds, which can be regarded as exceeding their review capabilities. Because some small banks do not have advanced monitoring systems and professional analysis teams, it is difficult to fully examine complex cross-border virtual currency transactions.

In terms of regulations and information transparency: Virtual currencies lack a unified international regulatory framework, and regulations vary widely between countries. If a transaction involves multiple regulatory jurisdictions and regions, it is difficult for the bank to accurately judge the compliance of the transaction based on current regulations, and it may also be deemed to be beyond its review capabilities. For example, some virtual currency transactions are legal in country A, but strictly prohibited in country B. It is difficult for banks to clarify the application of regulations.

In addition, virtual currency transaction information is opaque. If the trading platform does not provide complete and accurate transaction records, banks cannot obtain information to judge the legality of the transaction. The key information required should also be beyond the scope of review capabilities.

In terms of abnormal transaction complexity: If the virtual currency transaction presents a highly complex fund flow pattern, for example, after multiple currency mixing operations, through multiple " Transfers from "shell" company accounts or related accounts lead to extremely chaotic fund flows. Even if the bank adopts regular review measures, it is difficult to sort out the entire transaction chain, and it can be regarded as exceeding its review capabilities.

6. Banks are exempt from liability when conducting business in accordance with international rules, but if international rules conflict with regulations, what should banks do? For example, there are strict regulations on virtual currency transactions, and the countryInternational rules do not have similar restrictions, what impact does this have on traders? Do we need to pay special attention to these potential conflicts?

When international rules conflict with Chinese regulations, banks usually take precedence over the Chinese regulations. Because banks carry out business in China, they need to be subject to supervision. Complying with regulations is the basis for ensuring the stability of financial order.

For example, a customer of a bank is engaged in cross-border e-commerce business. He learned that under some international rules, virtual currency can be used to pay overseas. Supplier payment to reduce costs. The customer applied for related business from the bank, but there were strict restrictions on virtual currency transactions to prevent financial risks. At this time, if the bank handles the matter in accordance with international rules, not only will it face severe regulatory penalties, but the customer's transactions will also be invalid due to violation of regulations. Once a transaction dispute or capital loss occurs, customers cannot receive legal protection and may also face legal risks due to participating in illegal transactions.

For traders, these potential conflicts must be of special concern. Before conducting transactions, you must fully understand the regulations to avoid damaging your own interests due to conflicts of rules. You must also be wary that banks may refuse to handle certain businesses that appear to be feasible under international rules due to compliance requirements.

7. If a bank is investigated for violations and appeals, what role do traders play? For example, if a bank fails to identify risky transactions in a timely manner, does the trader need to provide new evidence? If evidence is provided, will it increase the risk of being found to be illegal cross-border financial activities?

When banks are investigated and appealed for violations, traders play a more complex role:

Assist Investigative role: Traders may need to assist the bank in providing business-related information to restore the true status of the transaction. If banks fail to identify risky transactions in a timely manner, the foreign exchange bureau may require traders to provide evidence such as transaction contracts and capital transaction records during the investigation process. For example, if a bank is under investigation for a customer's foreign exchange fund collection and payment business, if the trader can provide complete and clear transaction background information, it will help the bank appeal and explain his due diligence in the business process.

Potential liability-related roles: Providing evidence involves certain risks. Anti-money laundering experts pointed out that if there are problems with the evidence provided by traders, such as deliberately concealing important information or providing false materials, it will not only affect the bank's appeal, but may also be investigated for participating in illegal cross-border financial activities. However, if traders conduct normal and compliant transactions and truthfully provide evidence, the risk of being identified as illegal cross-border financial activities will generally not increase. If the transaction is legal, the trader will cooperate with the investigation and provideEvidence is a fulfillment of a civic duty and should theoretically be protected by law. However, if a trader's own transactions involve violations, the evidence provided may expose the violations and thus face legal risks.

Generally speaking, traders should be cautious during the bank appeal process and truthfully provide evidence to safeguard the legitimate rights and interests of themselves and the bank.

This article only represents the personal views of the author of this article and does not constitute legal advice or legal opinions on specific matters.