Depth Interpretation: The Important Significance and Key Points of the New Regulations on Due Diligence and Liability Exemption in Bank Forex Business

The "Regulations on the Due Diligence Exemption for Bank Foreign Exchange Business (Trial)" released by the State Administration of Foreign Exchange on December 26 provides clear specifications for the boundaries of responsibility and exemption scenarios in bank foreign exchange business. This regulation is not only related to the daily operational activities of banks but also closely connected to the personal interests of every trader. This article will delve into the significant implications and key points of this regulation to help readers better understand the rules and responsibilities in foreign exchange business.

1. Main Obligations of Banks

1. Due diligence obligations: Banks must perform the duties of "Know Your Customer, Know Your Business, Due Diligence" throughout the entire forex business process and implement effective risk management measures.

2. Regulatory Review Obligations: Conduct compliance reviews of clients' forex accounts, forex fund receipts and payments, and foreign exchange settlement and sales, and review the quality and authenticity of reports from third-party professional institutions.

3. Monitoring Report Obligation: Conduct transaction risk monitoring, promptly identify potential violations and report to the forex management department.

4. Compliance with international rules and reporting obligations: Report any violation risks to the forex management department in a timely manner when such risks are discovered during the business operations in accordance with international practices.

5. Obligation to cooperate in the review of complaints: Actively cooperate and provide relevant evidence during the investigation of suspected violations by the forex bureau.

2. Consequences of Non-Performance of Obligations

If the bank fails to fulfill its 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.

3. High-Risk Trading Behavior

1. The risk transactions that banks are likely to report:

   • Suspected false trading and false investment financing
   • Underground money houses, cross-border gambling
   • Fraudulently obtaining export tax rebates
   • Illegal cross-border financial activities involving virtual currency
   • Other transactions suspected of illegal cross-border capital flows

2. Typical High-Frequency High-Risk Transactions in Virtual Currency:

   • Frequent deposits, withdrawals, and swing trading
   • The flow of funds is complex
   • Large amount forex remittance or fund splitting credited
   • The source and use of funds do not match
   • Funds have gone through multiple wallet addresses or trading platforms
   • Large amounts of funds entering and exiting multiple platforms or accounts in a short period of time

4. Groups Easily Identified as Risk Traders

1. Frequent arbitrageurs: Regularly engage in arbitrage in the virtual currency market, such as USDT brick-moving arbitrage.

2. Anonymous traders: Use complex trading paths to hide the flow of funds, utilize anonymous tools, or trade in areas with weak regulation.

3. Abnormal capital operation: Frequent and large amounts of funds entering and exiting the account that do not match the individual's financial situation, and cannot provide a reasonable explanation.

5. Situations Beyond Bank Review Capability

1. Technical and resource limitations:

   • The flow of funds involves a large number of anonymous overseas wallet addresses.
   • Frequent trading conducted through decentralized platforms
   • Small banks lack advanced monitoring systems and professional analysis teams

2. Regulations and Information Transparency:

   • Virtual currency trading involves multiple countries and regions with different regulatory policies.
   • The trading platform does not provide complete and accurate transaction records.

3. Trading is exceptionally complex:

   • After multiple mixing operations
   • Transfer through multiple "shell" company accounts or affiliated accounts
   • The flow of funds is extremely chaotic, making it difficult to trace the complete transaction chain.

6. Handling Conflicts Between International Rules and Domestic Regulations

Banks usually prioritize domestic regulations because they need to comply with domestic supervision and maintain financial order stability. Traders should pay special attention to these potential conflicts, fully understand domestic regulatory policies, and avoid losses due to conflicting rules.

7. The Role of Traders in the Bank Complaint Process

1. Investigation role: may need to provide business-related materials, such as trading contracts, fund transaction records, etc.

2. Potentially liable associated roles: Providing evidence carries certain risks. Truthfully providing evidence usually does not increase the risk of being recognized as illegal activity, but if the transaction itself is in violation, providing evidence may expose the violation.

Traders should exercise caution and provide evidence truthfully to protect their own and the bank's legal rights.