Foreign Exchange Regulator Flags Greater Focus on Banks


China’s State Administration of Foreign Exchange (SAFE) has pointed to Chinese banks as a key area for combating risk in relation to the foreign exchange market.

SAFE’s 2016 annual report indicates that it will focus on banks as a key means of strengthening regulation of the foreign exchange market this year, via further improvements to banking assessment standards and increased use of the assessment system.

The report notes that inspections in 2016 discovered that some banks were “blindly pursuing performance and neglecting regulation,” and failing to properly perform inspections of the authenticity or compliance of transactions.

SAFE accused some Chinese banks of turning a blind eye to noncompliant conduct, issuing a total of over 65 million yuan in fines to financial institutions last year.

Last year SAFE upgraded its bank assessment system to include more thorough mechanisms for ascertaining relationships with subsidiaries, as well as established mechanisms for the dynamic adjustment of assessment indices based on foreign exchange shifts.

According to the report which was issued on 3 May, SAFE intends to make full use of the guidance potential of its assessments of bank implementation of foreign exchange regulations.


The new report follows a crackdown of unprecedented intensity by the China Banking Regulatory Commission launched by freshly appointed chairman Guo Shuqing.

Last month Guo emphasised the need for the banking sector to improve foreign exchange risk management in order to better protect against external shocks.

Former SAFE official Guan Tao has reiterated Guo’s remarks, as well as pointed to the need to shift from rules-based regulation to principles-based regulation.

“Rules-based regulation will either involve too much micromanaging, which is not in the interests of the regular operation of enterprises, or involves lightening the responsibilities of banks, which is not of benefit to ability of banks to subjectively respond during the implementation of foreign exchange regulations,” said Guan.

“Principles-based regulation will enable banks to incorporate regulatory requirements into operation procedures, and fully employ the ability of bank to react subjectively during first-line assessments of authenticity.

“In actuality, anti-money laundering and tax-avoidance measures in overseas jurisdictions all involve similar regulatory requirements.”