Analysis of the "Bank Forex Business Due Diligence Exemption Regulations" by the State Administration of Foreign Exchange: Clarifying Rules and Responsibilities

Recently, the State Administration of Foreign Exchange released the "Regulations on Due Diligence and Exemption for Bank Foreign Exchange Business (Trial)". This regulation clearly defines the boundaries of responsibility and exemption situations for bank foreign exchange business. This article will delve into the important significance and key points of this regulation to help readers fully understand the rules and responsibilities in foreign exchange business.

Main Obligations of Banks

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

2. Regulatory Review Obligations: Conduct compliance reviews of clients' forex accounts, fund transfers, and foreign exchange transactions, strictly implementing foreign exchange management regulations.

3. Reporting obligations for monitoring: Conduct trading risk monitoring to promptly identify potential violations and report them to the forex management department.

4. Compliance with international rules and reporting obligations: When following the internationally accepted rules for cross-border business, any identified risks of violations should be promptly reported to the forex management department.

5. Obligation to cooperate in the review and appeal: When the forex bureau investigates suspected violations, banks should promptly provide relevant evidence and actively cooperate.

Consequences of Non-Performance of Obligations

If the bank fails to fulfill the above obligations, it will face legal liabilities, including administrative penalties. These liabilities are mainly implemented based on the Administrative Penalty Law of the People's Republic of China and the Foreign Exchange Management Regulations of the People's Republic of China.

High-Risk Trading Behavior

Risk trading behaviors that banks may focus on and report include:

• Suspected of false trade or investment financing
• Underground banking activities
• Cross-border gambling
• Fraudulently obtaining export tax rebates
• Illegal cross-border financial activities involving virtual currency

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

• Frequent deposits, withdrawals, and swing trading
• Complex flow of funds
• Large fund remittance or fund splitting into account
• The source and use of funds do not match.
• Frequent inflows and outflows of funds across multiple platforms or accounts in the short term

Groups Easily Identified as Risk Traders

1. Frequent arbitrageurs: such as traders engaging in USDT brick moving arbitrage.

2. Anonymous traders: Individuals who use complex trading paths to obscure the flow of funds.

3. Abnormal capital operators: Traders whose account funds fluctuate frequently and involve large amounts, inconsistent with their personal financial situation.

Situations Beyond the Bank's Review Capability

1. Technical and resource limitations: For example, complex cryptocurrency transactions involve a large number of anonymous offshore wallet addresses and decentralized trading platforms.

2. Regulations and Information Transparency: Transactions across countries and regions with different regulatory policies, or trading platforms that do not provide complete and accurate transaction records.

3. Transaction is exceptionally complex: such as transactions involving multiple coin mixing operations or transfers through several "shell" company accounts.

Handling Conflicts Between International Rules and Domestic Regulations

When international regulations conflict with domestic regulations, banks typically prioritize domestic regulations. This may affect certain cross-border transactions, and traders should pay special attention to these potential conflicts to avoid detrimental impacts on their interests.

The Role of Traders in Bank Complaints

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

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

2. Provide evidence carefully: Providing evidence truthfully usually does not increase the risk of being identified as engaging in illegal activities, but providing false materials may lead to an investigation against oneself.

Traders should remain cautious and provide evidence truthfully to protect their legitimate rights and interests as well as those of the bank.