On December 15, 2023, the NFRA officially issued Hui Fa [2023] No. 30 "Notice of the State Administration of Foreign Exchange on Expanding the Pilot Program for High-level Opening-up of Cross-border Trade and Investment", deciding to expand the implementation of the pilot policy of high-level opening-up for cross-border trade and investment in Shanghai, Jiangsu Province, Guangdong Province (including Shenzhen), Beijing, Zhejiang Province (including Ningbo City) and Hainan Province (hereinafter referred to as the pilot areas), so as to facilitate more business entities to handle cross-border trade and investment business in compliance with regulations. Promote high-grade with a high level of openness.
2.Support banks to optimize new international trade settlements. Encourage prudent and compliant banks in pilot areas to innovate financial services, and independently handle new types of international trade foreign exchange receipts and payments for pilot high-quality enterprises that are true and compliant.
3.Expand the scope of netting of trade balance. When a high-quality enterprise in the pilot area conducts foreign exchange business under a specific current account with the same overseas counterparty, the prudent and compliant bank in the pilot area can handle netting for the high-quality enterprise under the condition of ensuring that the risk is controllable.
4.Special foreign exchange refunds such as trade in goods exceeding the time limit are exempt from registration. Prudent and compliant banks in the pilot areas can directly handle special foreign exchange refund business for the pilot high-quality enterprises, and the enterprises do not need to register with the foreign exchange bureau in advance.
5.Optimize the management of substitution or apportionment business under trade in services. The business of sub-payment or apportionment of trade in services for more than 12 months between high-quality enterprises in the pilot area and their affiliated overseas institutions, as well as the sub-disbursement or apportionment business of trade in services between overseas institutions with non-affiliated relationships, shall be handled by the prudent and compliant banks in the pilot areas after reviewing the authenticity and reasonableness.
6.Foreign-invested enterprises are exempt from registration for domestic reinvestment. When a foreign-invested enterprise carries out domestic reinvestment business, if the invested enterprise or equity transferor is an enterprise registered within the jurisdiction of the pilot area, it is not required to go through the registration procedures for receiving domestic reinvestment.
7.The parent and subsidiary of the financial lease share the external debt quota. Eligible financial leasing companies in the pilot areas are allowed to share the external debt quota with their subordinate special purpose vehicles (SPVs).
8.The foreign exchange registration of part of the capital account shall be handled directly by the bank. Eligible non-financial enterprises in the pilot areas that borrow foreign debts and go public abroad can directly go through the relevant registration formalities with the bank.
It is not difficult to see that the main content of this pilot notice is that the State Administration of Foreign Exchange has a large delegation of power to the bank's foreign exchange-related business, under the premise that the bank fully conducts customer due diligence, KYC work, and business authenticity and reasonableness, it can apply a simplified process for high-quality customers to quickly handle foreign exchange business, which opens the door for customers to carry out foreign exchange and cross-border business.
How should banks identify high-quality customers? We may be able to find the answer by referring to the Administrative Measures for Foreign Exchange Business of Banks (Trial) (Consultation Paper) (hereinafter referred to as the "Consultation Paper") issued earlier for comments.
In the Consultation Paper, the State Administration of Foreign Exchange (SAFE) provides guidance on the identification of foreign exchange business and foreign exchange business risks, including internal control, customer due diligence and classification of foreign exchange compliance risk levels, foreign exchange business review, and monitoring and disposal of foreign exchange risk transactions.
Customer due diligence
During the establishment of foreign exchange business relationship with customers and the duration of foreign exchange business relationship, banks shall conduct customer due diligence, identify customer identities, and collect information such as the risk level of money laundering and terrorist financing of customers, and the classification of trading enterprise directory. For the purpose of risk classification management, banks may, based on the principle of customer voluntariness, further identify foreign exchange business information such as the customer's business status, the intention and nature of the foreign exchange business relationship, the main affiliated enterprises and cross-border counterparties.Re-identify/reject business
For scenarios where the reason for opening an account is unreasonable, the business is not consistent with the identity of the customer, etc., the customer identification should be re-conducted; Applications for foreign exchange business shall be refused if false identification information, business information or business background information are provided.Ongoing due diligence
During the existence of the customer relationship, the bank should continue to pay attention to and review the customer's identity, transactions and risk status.Foreign exchange compliance risk level
Before handling foreign exchange business, a bank should comprehensively examine the actual situation such as customer type, industry characteristics, transaction type, transaction channel, business history and status based on the information obtained from customer due diligence and the characteristics of the customer's foreign exchange business, and classify the customer into at least three different types of foreign exchange compliance risk levels. Category 1 customers (premium customers) should meet the following conditions:
1) Legally registered, continue to handle cross-border business for more than two years, and have real foreign exchange business needs;Adjust dynamically
Banks should dynamically assess and adjust the customer's foreign exchange compliance risk level in a timely manner based on the results of continuous due diligence to ensure that the customer's risk level is in line with the actual situation.Grading review
Banks should adopt differentiated review measures based on the customer's foreign exchange compliance risk level and overall judgment of business risk. For foreign exchange business that is subject to approval, registration and filing procedures in accordance with the law, banks and customers shall handle it in accordance with the current foreign exchange management regulations.Principles of Review
The foreign exchange business of the bank shall identify the transaction background and purpose, the transaction link and nature, the reasonableness and logic of the transaction applied for by the customer, and review the authenticity and compliance of the transaction and its consistency with the foreign exchange receipts and payments.Category 1 customer review
For a type of customer, the bank can handle cross-border payment and payment and foreign exchange settlement and sales for the customer with the paper or electronic instructions submitted by the customer. The instructions submitted by the client shall meet the foreign exchange payments.Monitoring reports
Banks shall carry out monitoring and analysis of foreign exchange risk transactions on customer transactions, and promptly form a foreign exchange risk transaction report and submit it to the State Administration of Foreign Exchange (SAFE) any information suspected of involving false trade, false investment and financing, underground banks, cross-border gambling, fraudulent export tax rebates, illegal cross-border financial activities in virtual currency, and other illegal cross-border capital flows discovered through due diligence, in-process review and post-event monitoring.Develop and optimize monitoring standards
Banks should formulate monitoring standards for identifying foreign exchange risk transaction information, and dynamically evaluate and continuously optimize them, and be responsible for their effectiveness.Disposal measures
Banks shall, according to the actual situation, take the following measures to prevent foreign exchange compliance risks with respect to the customers involved in the foreign exchange risk transaction report, including raising the customer's foreign exchange compliance risk level, adding enhanced review measures to the customer's subsequent foreign exchange business, restricting the establishment of new foreign exchange business relationships with the customer, refusing to handle subsequent foreign exchange business for the customer, or terminating the established foreign exchange business relationship.
According to the content of the draft for comments, the State Administration of Foreign Exchange (SAFE) has put forward higher requirements for banks' foreign exchange business in multiple links, dimensions and ways. Originally, due to the complexity of foreign exchange review, some places were often deterred from facilitation policies, or applied facilitation policies, but still had to be approved and reported at multiple levels, which did not have a substantial effect. Through the adjustment of business development and the implementation of facilitation, we can see that the State Administration of Foreign Exchange has changed the original regulatory model, from a large number of case-by-case approvals in the original matter, to the whole process of the bank to identify foreign exchange business risks, classify customers, identify high-quality customers and apply facilitation policies, and control risks through traditional case-by-case review or even enhanced review for general or suspicious customers, so as to truly implement the foreign exchange facilitation policy to the end, opening a new chapter for China's foreign exchange market.
Foreign Risk Management Platform is mainly composed of a rating system, a monitoring system, and a reporting system.
Rating system
According to the requirements of customer classification in advance, the rating system conducts customer rating and business rating through functions such as KYC/KYB, due diligence, list matching, etc., and supports users to customize regular re-examination and irregular re-examination, and collects and sorts data to form high-quality customer portrait data to assist in the monitoring of foreign exchange risk transactions during and after the event.
Monitoring system
The monitoring system screens bank customers, accounts and transaction data through decision-making models, decision-making engines and other functional modules, and can assist banks in intercepting risky transactions during the event, monitoring the risk of intra-bank data afterwards, and identifying potential foreign exchange risks. According to the draft of the State Administration of Foreign Exchange for business development, as well as the characteristics of this year's frequent foreign exchange events, the system presets a number of risk models for banks' reference.
Submission system
The reporting system is responsible for archiving and sorting out the risk events found by the monitoring system, and forming report documents that can be reviewed by business personnel, including: customer information, account information, transaction information, and risk characteristic information. And finally form a complete foreign exchange risk transaction report for the bank business personnel to review, submit for use.
RIKING Digital Technology (Shanghai) Co., Ltd. is a well-known financial supervision and compliance software solution provider in the financial industry. Founded in August 2013, it has been deeply engaged in the field of regulatory technology for more than 10 years, providing one-stop regulatory compliance consulting and software solutions covering the whole process of regulatory data governance, data mart, risk and compliance management, credit investigation, anti-money laundering and liquidity risk control for the world's leading financial institutions.Tel:400 921 0806.
