PBOC Reprimands 40 Lenders for Interbank Account Violations


As many as 40 banks have received reprimands from the Chinese central bank for violating interbank account regulations, including some of the country’s biggest state-owned lenders.

Caixin reports that banks including Agricultural Bank of China, Bank of China, China Construction Bank, China Merchants Bank, China Minsheng Banking Corp and Ping An Bank received orders from the People’s Bank of China to conduct overhauls within three to six months, after it discovered they were in breach of interbank account regulation.

Banks found to be in breach of regulations will not be permitted to conduct interbank account business during the three to six month rectification period stipulated by PBOC.

Chinese regulators have stepped up their focus on interbank transactions since the second half of last year, due to concerns over the systemic risk they pose to the financial sector.

This latest investigatory sweep of interbank practices launched by PBOC in mid-July follows a four month round of investigations conducted from September 2016 to January of this year.

“Some banks during the implementation of the management of account opening and specialist management systems have suffered from problems with appropriate practice,” said PBOC. “Individual banks have suffered from multiple problems with regulatory breaches, high levels of regulatory violation, or even severe regulatory breaches with respect to the account opening inspections.”

The July interbank account investigation launched by PBOC focused on opening of interbank accounts, specialist management systems and daily management, looking at a total of 60,331 interbank accounts, including 30,421 settlement interbank accounts at a total of 2,664 banks, and 29,910 investment and financing interbank accounts at a total of 2,310 banks.

According to PBOC regional banks have had a bigger problem with interbank regulatory account breaches, in particular commercial banks, county banks and rural credit unions, where risk awareness is not as strong.

Regional banks accounts for 41.2% of all regulatory breaches in relation to investment and financing interbank accounts, and 43% of all breaches in relation to settlement interbank accounts.

A key problem highlighted by the latest PBOC investigation has been insufficient scrutiny and management of the opening of new interbank accounts.

According to Caixin a total of 19.3% of settlement interbank accounts investigated by PBOC suffered from regulatory  breaches with respect to management of account openings, while the figure for finance and investment interbank accounts was 13.6%.

Most of the regulatory breaches were in relation to the “Notice on the Strengthening of Banking Sector Financial Institution RMB Interbank Account Settlement Account Administration” (关于加强银行业金融机构人民币同业银行结算账户管理的通知), or “Document 178,” released by PBOC in 2014, which mandates multiple inspection procedures at the time of the opening of interbank accounts to ensure the veracity, completeness and compliance of related documents, as well as the intentions of the depositing bank.

PBOC figures indicate that during actual operation many banks had failed to abide by inspection procedures for new accounts as stipulated by Document 178.

18.2% of the banks investigated had failed to implement a unified initial account opening signature system for interbank accounts, 17% had failed to issue related account opening documentation to depositing banks, and 17.6% had failed to use in-person visits or a large-sum payment system to verify the transaction intentions of banks.

According to Caixin regulatory breaches wit respect to the opening of interbank accounts have emerged as a major source of risk for the Chinese banking system, especially when it comes to commercial paper business.

According to regulators some commercial paper intermediaries had even acquired control of the seals or interbank accounts of small-to-medium size banks, enabling them to undertake commercial paper discounting or commercial paper transactions under the names of such banks, leading to an explosion in risk.