In-Depth Interpretation of the "Bank Forex Business Due Diligence Exemption Regulations": Clarifying Forex Business Rules and Responsibilities

Recently, the State Administration of Foreign Exchange (SAFE) issued the "Regulations on Due Diligence and Exemption of Liability for Bank Foreign Exchange Business (Trial)" document, which provides clear norms for the liability boundaries and exemption situations of bank foreign exchange business. The regulation aims to avoid excessive regulation, maintain financial stability, and has significant impacts on the daily operations of banks and the interests of traders.

1. The Main Obligations of Banks

1. Duty of Due Diligence: Fully perform the responsibilities of "Know Your Customer, Know Your Business, Due Diligence" throughout the process, and implement effective risk management.

2. Regulatory Review Obligations: Conduct compliance reviews of client transactions strictly in accordance with forex management regulations, and prudently reference reports from third-party professional institutions.

3. Reporting Obligations: Conduct trading risk monitoring, promptly identify potential violations, and report to the forex regulatory authorities.

4. Compliance with international rules and reporting obligations: When conducting business in accordance with internationally accepted rules, any identified risks of violations should be reported promptly.

5. Obligation to cooperate in the appeal review: During the investigation process by the forex bureau, timely fill out the "Appeal Form" and provide relevant evidence, actively cooperate with the investigation.

2. Consequences of Non-Performance of Obligations

If the bank fails to fulfill its prescribed obligations, it will face administrative penalties and other legal responsibilities, including relevant penalties imposed in accordance with the Administrative Penalty Law and the forex management regulations.

3. High-Risk Trading Activities

The high-risk transactions that banks are likely to report include:

• Suspected of false trade and false investment financing
• Underground money houses, cross-border gambling activities
• Fraudulently obtaining export tax rebates
• Illegal cross-border financial activities of virtual currencies
• Other cross-border capital flows suspected of violating laws and regulations

Typical trading characteristics of high-frequency and high-risk virtual currency:

• Frequent deposits, withdrawals, and swing trading
• The flow of funds is complex, involving multiple accounts or directly connecting to overseas exchanges.
• Large remittances or fund splits credited, lacking reasonable commercial background.
• The sources and uses of funds are mismatched.
• Funds pass through multiple wallet addresses or trading platforms
• Use a mixer for anonymous transactions
• Large amounts of funds entering and exiting multiple platforms or accounts in the short term

4. Groups Easily Identified as Risk Traders

1. Frequent arbitrage traders: For example, engaging in USDT arbitrage, frequent large transactions can easily attract attention.

2. Anonymous traders: Use complex trading paths to hide the flow of funds, making trading activities difficult to trace.

3. Abnormal fund operations: Frequent and large amounts of funds entering and exiting the account that do not match personal financial status.

5. Situations Beyond the Bank's Review Capability

1. Technical and resource limitations: Such as virtual currency transactions involving a large number of anonymous offshore wallet addresses, or frequent trading through decentralized platforms.

2. Regulations and Information Transparency: Virtual currencies lack a unified international regulatory framework, and transactions involve multiple countries and regions with differing regulatory policies.

3. Transaction is exceptionally complex: For example, after multiple coin mixing operations and transfers through several "shell" company accounts, the flow of funds becomes extremely chaotic.

6. Handling Conflicts Between International Rules and Domestic Regulations

Banks usually prioritize following domestic regulations. For example, although certain international rules allow the use of virtual currencies for payments, there are strict domestic restrictions on this, and banks still need to comply with domestic laws.

Traders should pay special attention to these potential conflicts, fully understand domestic regulations and policies, and avoid losses due to rule conflicts.

7. The Role of Traders in Bank Complaints

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

2. Potential Liability Association: Providing evidence carries risks; if information is deliberately concealed or false materials are provided, it may affect the bank's complaint and lead to an investigation of oneself.

3. Principle of Caution: Traders should provide evidence truthfully, protect the legitimate rights and interests of themselves and the bank, while also being mindful of safeguarding their own interests.

The content of this article represents only the author's personal views and does not constitute legal advice or opinions on specific matters. It is recommended to consult professionals in specific operations to ensure compliance with the law.