The People's Bank of China has announced a tightening of requirements relating to transaction monitoring and reporting of suspicious transactions. The amended rules were announced in late December and will take effect from 1 July 2017, replacing measures that have been in place since 2007.
Under the new rules, financial institutions will have to set their own transaction monitoring standards and ensure they are effective in preventing money laundering and terrorist financing, law firm Norton Rose said in a client briefing. Under the existing set of rules, financial institutions have only had to comply with explicit requirements set out by the regulator.
"This is in line with the overall trend of regulatory reform of China in recent years, which gives regulated entities more autonomy in conducting businesses while increasing the risks of non-compliance," the firm said.
While the existing regulations only apply to major financial institutions regulated by financial regulators in China and institutions conducting specific businesses, such as payment or clearing businesses, the amended rules widen the scope of application significantly, the law firm said.
The amended rules expressly identify some additional financial institutions, including insurance agents and brokers, consumer finance companies and loan companies. In addition, a "catch-all" provision is included to capture all other institutions, financial or otherwise, which engage in financial business and which are deemed by the PBoC to be liable for anti-money laundering compliance, the law firm said.
The new rules also "significantly reduce the reporting threshold" of cash transactions. For cash transactions, the new measures lower the reporting threshold for individuals to transfers of more than RMB50,000 per day, or RMB200,000 for cross-border transactions. Such reports should be filed with the PBoC within five days of the transaction.
Suspicious Transaction Reports
The PBoC has also changed its approach to filing suspicious transaction reports ("STRs"), introducing a broader definition of when a financial institution must submit a report. While the existing regulations provide a list of activities and transactions that should be reported as suspicious, the new rules have no such list of specific activities. Instead, they introduce a broad provision requiring firms to file a report if they reasonably suspect any clients or their funds may be linked to criminal activities such as money laundering or terrorism financing, regardless of the amount involved.
"More significantly perhaps, the measures require financial institutions to formulate their own transaction monitoring standards with regard to suspicious transactions and be responsible for the effectiveness of these standards," Norton Rose said.
Financial institutions will also have to conduct regular assessments of their transaction monitoring standards. They must keep a record of why a transaction was deemed suspicious, and of the firm's reasons for filing it with the regulator. Suspicious transaction reports will have to be filed within five days of the transaction taking place, as opposed to the existing 10-day requirement.
"The amended measures revise the current measures substantially and impose greater obligations on financial institutions in the reporting of large-sum and suspicious transactions," the law firm said.
"Without any doubt, most financial institutions will now have to put more human and financial resources into their anti-money laundering function if they are to comply with the requirements."
The amended rules also introduce a formal requirement for financial institutions to conduct real-time monitoring of lists of organisations and individuals that may be involved in terrorism activities, including lists compiled by the Chinese government, the PBoC and the United Nations Security Council.