Chinese Central Bank Sheds Further Light on Joint-venture with SWIFT

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The People’s Bank of China (PBOC) has issued an official notice providing more information on Jinrong Wangguan Xinxi Fuwu Co., Ltd. (Financial Gateway Information Services Co., Ltd.) (金融网关信息服务有限公司) – its joint-venture with international payments organisation the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

PBOC issued an official announcement on 23 March to clarify the official functions of Jinrong Wangguan, which was founded in January is majority owned by SWIFT.

According to the statement Jinrong Wangguan will serve as a “gateway between financial information networks within China and outside of it,” as well as “provide SWIFT’s customers within China with agreed upon services.”

PBOC said that the nature of these services will fall into one of two main categories:

  1. Establish and operate local network concentration points for financial messaging services, to provide SWIFT’s backbone network with stable, resilient and secure connections;
  2. Establish and operate local databases within China to be used for data storage in relation to cross-border transaction messaging and subsequent monitoring and analysis.

“The main purpose of the local network concentration points is to increase the stability, resilience and security of user network transmission, and ensure the continuous processing of cross-border financial information services,” said PBOC.

“By connecting with the local network concentration point, users can establish a stable, resilient and secure link with SWIFT’s backbone network, preventing network outrages and other irregularities.

“At the same time, Jinrong Wangguan provides specialised services including unified connection guidance and operational advice to customers, in order to facilitate their operations and technological management.”

With regard to the establishment of local databases for the storage of information in relation to cross-border financial messaging, PBOC said that cross-border payments operations are distinguished by lengthy transaction chains and multiple nodes, which means that a single entity is unable to fully grasp the complete state of an operation.

“Operations information is fragmentary and lacks transparency, which is inconvenient for financial institutions who seek real time understanding of within-group cross-border operations, and is also an inconvenience for regulatory authorities,” said PBOC.

“It is necessary to store financial messaging information domestically, in order to make financial network and information services more transparent, achieve across-the-board regulation and unified monitoring of cross-border offshore data, and better identify and manage operational risk and financial risk in relation to core services.”

PBOC said that an increasing number of domestic financial institutions were making use of the cross-border services provided by SWIFT in the wake of ongoing opening-up of the Chinese finance sector, but that cross-border operations had previously been hampered by unstable network connections, particularly with small and medium-sized banks.

In 2018 PBOC issued the “Notice Concerning Strengthening Cross-border Financial Networks and Information Services Regulation” (关于加强跨境金融网络与信息服务管理的通知), in response to the “Reducing the risk of wholesale payments fraud related to endpoint security” strategy released by the Committee on Payments and Market Infrastructure (CPMI) in May of that year.

On 15 January of this year Jinrong Wangguan Xinxi Fuwu Co., Ltd. (Financial Gateway Information Services Co., Ltd.) (金融网关信息服务有限公司) was established in Beijing as a joint-venture between SWIFT and several of China’s leading financial organisations, including the China National Clearing Centre (CNCC), PBOC’s Digital Currency Research Institute, the Cross-border Interbank Payment System (CIPS) and the Payments and Clearing Association of China (PCAC).

Financial Gateway Information Services has registered capital of 10 million euros, with SWIFT contributing 5.5 million euros for an equity stake of 55%. CNCC made a capital contribution of 3.4 million euros for an equity stake of 34%, while PBOC’s Digital Currency Research Institute and PCAC each made a contribution of 300,000 euros for 3% equity stakes.

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