In-Depth Interpretation of the "Regulations on Due Diligence and Exemption of Liability for Banking Forex Business": Clarifying Rules and Responsibilities

The "Regulations on the Due Diligence and Exemption of Liability for Bank Foreign Exchange Business (Trial)" released by the State Administration of Foreign Exchange on December 26 brings clear specifications to the foreign exchange business sector, aiming to avoid excessive regulation and maintain financial stability. This regulation not only relates to the daily operations of banks but is also closely tied to the interests of every trader. Let us delve into the important significance and key points of this regulation.

The Main Obligations of Banks

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

2. Compliance Review Obligations: Conduct compliance audits on clients' forex accounts, fund receipts and payments, and foreign exchange transactions, strictly adhering to foreign exchange management regulations.

3. Reporting obligations for monitoring: During the implementation of forex facilitation policies, carry out transaction risk monitoring, promptly identify potential compliance risks, and report to the foreign exchange regulatory authorities.

4. Compliance with International Rules and Reporting Obligations: Adhere to the internationally accepted rules for cross-border operations and report any violation risks promptly.

5. Obligation to cooperate in the review of complaints: When the foreign exchange bureau investigates suspected violations, promptly fill out and provide feedback on the "Complaint Form" and relevant evidence, and actively cooperate with the investigation.

Consequences of Non-Performance of Obligations

If banks fail to fulfill their prescribed obligations, they will face legal liabilities, including administrative penalties, based on the Administrative Penalty Law of the People's Republic of China and the Foreign Exchange Control Regulations of the People's Republic of China.

High-Risk Trading Activities

The risk trades that banks focus on include:

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

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

• Frequent deposits, withdrawals, and swing trading
• The flow of funds is complex.
• Large remittances or fund splits credited
• The source and use of funds do not match.
• Capital flows to multiple platforms or accounts

Groups Easily Recognized as Risk Traders

1. Frequent arbitrageurs: such as those engaged in USDT arbitrage.

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

3. Those with abnormal fund operations: Participants in the cryptocurrency space whose account funds frequently enter and exit with large amounts, inconsistent with their personal financial situation.

Situations Beyond Bank Review Capability

1. Technical and resource limitations: For example, virtual currency trading involves a large number of anonymous foreign wallet addresses or frequent trading through decentralized trading platforms.

2. Regulation and Information Transparency: Transactions involve multiple countries and regions with different regulatory policies, or the trading platform does not provide complete and accurate transaction records.

3. Transaction is exceptionally complex: The capital flow model is highly complicated, such as through multiple coin mixing operations or transferring funds through several "shell" company accounts.

Handling Conflicts Between International Rules and Domestic Regulations

Banks typically prioritize following domestic regulations. For traders, it is crucial to fully understand domestic regulatory policies to avoid losses due to regulatory conflicts. Additionally, it is important to note that certain business activities that are permissible under international rules may be declined by banks due to domestic compliance requirements.

The Role of Traders in Bank Complaints

1. Assist in the investigation: You may need to provide business-related materials, such as transaction contracts, funds transfer records, etc.

2. Potential Liability Association: Caution is required when providing evidence; it must be stated truthfully. Providing false materials may affect the bank's complaint and could even lead to an investigation of oneself.

3. Risk Consideration: Traders who engage in normal compliant trading and provide evidence truthfully usually do not increase risk. However, if there are existing violations, providing evidence may expose the violations.

In summary, traders should exercise caution during the bank complaint process and provide evidence truthfully to protect their own and the bank's legal rights.