In the previous article (https://www.odaily.news/post/5202126), we conducted an in-depth analysis of the "Administrative Measures for the Management of Bank Foreign Exchange Risk Trading Reports (Trial)" issued by the State Administration of Foreign Exchange (SAFE). However, on December 26, SAFE also released the "Regulations on the Duty of Care and Exemption for Bank Foreign Exchange Business (Trial)" document. Today, let us understand this regulation in one article, delve into its important significance and key points, and help everyone clarify the rules and responsibilities in foreign exchange business.

During the process of conducting foreign exchange business, the boundaries of banks' responsibilities and exemption situations have always attracted attention. The introduction of the "Regulations on the Duty of Care and Exemption for Bank Foreign Exchange Business (Trial)" brings clear norms to this field, avoiding excessive regulation and strong shocks to banks' foreign exchange business, thus ensuring financial stability. This regulation not only concerns the daily operational activities of banks but is also closely related to the vital interests of every trader.

I. What Are the Obligations of Banks

• Duty of Care in Business Operations: According to the "Regulations on the Duty of Care and Exemption for Bank Foreign Exchange Business (Trial)," banks must fulfill the responsibilities of "knowing the customer, understanding the business, and conducting due diligence" throughout the foreign exchange business process. Banks must act diligently, implement effective risk management measures, and prevent, identify, assess, monitor, and address foreign exchange compliance risks.

• Regulatory Review Obligation: Banks must conduct compliance reviews of foreign exchange accounts, foreign exchange fund receipts and payments, and foreign exchange trading conducted by customers. During the review process, banks should strictly adhere to foreign exchange management regulations and, when referencing reports from third-party professional institutions, assess the quality and authenticity of those reports. If banks conduct business based on guidance from financial regulatory departments, they should maintain a prudent attitude and ensure compliance with established standards.

• Monitoring and Reporting Obligation: When implementing foreign exchange facilitation policies and conducting foreign exchange business for customers, banks need to carry out transaction risk monitoring, promptly identify potential compliance risks, and report them to the foreign exchange management department. If the monitoring system has issued a warning but the relevant transactions are not included in the foreign exchange risk trading report, banks should provide reasonable justifications for the unreported transactions to ensure transparency and compliance.

• Compliance with International Rules and Reporting Obligations: If banks conduct business in accordance with internationally accepted rules for cross-border operations or requirements from international organizations such as foreign card organizations, and discover compliance risks during this process, they should promptly report to the foreign exchange management department to ensure adherence to international regulatory standards.

• Cooperation in Appeals and Reviews: When the foreign exchange bureau initiates an investigation into suspected violations, banks should, upon receiving preliminary classifications and handling opinions, promptly fill out and submit the "Appeal Form" and relevant evidence if they believe they meet the conditions for exemption from duty of care, and actively cooperate with the foreign exchange bureau's investigation and requests during the review process.

II. What Consequences Will Banks Face for Failing to Fulfill the Obligations Stipulated in the Regulations

If banks fail to fulfill their obligations, they will bear legal responsibilities, including administrative penalties. According to the regulations, legal responsibilities refer to the administrative penalties implemented in accordance with the "Administrative Penalty Law of the People's Republic of China" and the "Foreign Exchange Management Regulations of the People's Republic of China," excluding responsibilities such as receiving interviews for rectification, criticism and education, and risk warnings from the foreign exchange bureau.

III. What Are the Typical High-Frequency and High-Risk Transactions in Virtual Currency Trading?

• High Probability of Reporting Risk Transactions: Once banks discover or have reasonable grounds to suspect transactions involving false trade, false investment and financing, underground banks, cross-border gambling, fraudulent export tax refunds, or illegal cross-border financial activities related to virtual currencies, they must conduct information monitoring and promptly report to the foreign exchange management bureau. Additionally, all transactions suspected of illegal cross-border fund flows should be included in the monitoring and reporting scope.

• High-Frequency and High-Risk Typical Transactions in Virtual Currency: High-frequency trading in virtual currencies refers to traders frequently engaging in deposits, withdrawals, and swing trading, involving complex fund flow paths, such as funds being transferred through multiple accounts or directly connecting to overseas exchanges. Related activities include large remittances and transactions where funds are split into accounts without reasonable commercial backgrounds. Such transactions often exhibit mismatches between the sources and uses of funds, and the fund flow paths are "non-standard," lacking standardized commercial background support. Funds may pass through multiple wallet addresses or trading platforms, ultimately flowing into overseas accounts or foreign exchanges, and may even be anonymized through mixers. Additionally, large amounts of funds entering and exiting within a short period and funds flowing to multiple platforms or accounts are typical high-risk trading behaviors.

IV. Which Groups in the Cryptocurrency Circle Are Easily Identified as Risk Traders?

• Frequent Arbitrageurs: Individuals who frequently exploit arbitrage opportunities in the virtual currency market, converting fiat currency into virtual currency and repeatedly buying and selling across different exchanges to profit from price differences, such as those engaging in USDT arbitrage. This group of traders engages in frequent transactions involving large amounts of funds, easily attracting the attention of regulatory authorities.

• Anonymous Traders: Individuals who use complex trading paths to conceal the flow of funds, trading through anonymous tools or in regions with weak regulation. Their trading behavior is mysterious and difficult to trace, often identified as a high-risk group. Banks pay close attention to such trading patterns to prevent illegal fund flows.

• Individuals with Abnormal Fund Operations: Cryptocurrency participants whose account funds frequently enter and exit in large amounts, inconsistent with their personal financial situations, and who cannot provide reasonable explanations for their transactions. Such accounts are typically classified as high-risk accounts, and banks will pay special attention and enhance scrutiny to avoid money laundering and other illegal activities.

V. When Banks Mention Exemption Beyond Review Capabilities, What Types of Transactions Are Considered Beyond Review Capabilities?

• Technical and Resource Limitations: According to industry insiders, banks have limited monitoring technology and human and material resources. For example, in virtual currency trading, if the fund flows involve numerous anonymous overseas wallet addresses and transactions frequently occur through decentralized trading platforms, it becomes difficult to obtain and analyze transaction data from these platforms.

  Banks, constrained by their technical means and resources, may be unable to trace the true sources and destinations of funds, which can be considered beyond their review capabilities. Some small banks, lacking advanced monitoring systems and professional analysis teams, find it challenging to conduct comprehensive reviews in the face of complex virtual currency cross-border transactions.

• Regulatory and Information Transparency Limitations: Virtual currencies lack a unified international regulatory framework, and there are significant differences in regulations across countries. If transactions involve multiple countries and regions with different regulatory policies, banks may find it difficult to accurately assess the compliance of transactions based on existing regulations, which can also be deemed beyond their review capabilities. For instance, certain virtual currency transactions may be legal in Country A but strictly prohibited in Country B, making it difficult for banks to clarify the applicable regulatory issues.

  Additionally, the lack of transparency in virtual currency transaction information, such as trading platforms not providing complete and accurate transaction records, means banks cannot obtain the key information needed to assess the legality of transactions, which should also fall under the category of beyond review capabilities.

• Complexity of Transaction Patterns: If virtual currency transactions exhibit highly complex fund flow patterns, such as undergoing multiple mixing operations or transferring through multiple "shell" company accounts or related accounts, leading to extremely chaotic fund flows, even if banks take conventional review measures, it may be difficult to clarify the entire transaction chain, which can also be considered beyond their review capabilities.

VI. When Banks Can Be Exempted for Conducting Business According to International Rules, How Should They Handle Conflicts Between International Rules and Domestic Regulations?

When international rules conflict with domestic regulations, banks typically prioritize adherence to domestic regulations. Because banks conducting business domestically must comply with domestic supervision, following domestic laws is fundamental to ensuring the stability of the financial order.

For example, a customer of a domestic bank engaged in cross-border e-commerce learns that under certain international rules, they can use virtual currency to pay overseas suppliers to reduce costs. The customer then applies to the bank for related services; however, domestic regulations impose strict restrictions on virtual currency transactions to prevent financial risks. If the bank processes the application according to international rules, it not only faces severe penalties from domestic regulators but the customer's transaction may also be rendered invalid due to violations of domestic regulations. In the event of a transaction dispute or financial loss, the customer may not receive legal protection and could face legal risks for participating in illegal transactions.

For traders, these potential conflicts must be given special attention. Before conducting transactions, they should fully understand domestic regulatory policies to avoid damage to their interests due to rule conflicts, and they should also be cautious of banks potentially refusing to process certain transactions that may seem feasible under international rules due to compliance requirements.

VII. If a Bank Is Investigated and Appeals Due to Violations, What Role Do Traders Play in This Process?

When a bank is investigated and appeals due to violations, the role of traders is quite complex:

• Assisting in Investigations: Traders may need to assist the bank by providing relevant materials related to the business to restore the true nature of the transaction. If the bank fails to timely identify risk transactions, the foreign exchange bureau may request traders to provide evidence such as transaction contracts and fund flow records during the investigation process. For example, if a bank is investigated due to a customer's foreign exchange fund receipt and payment business, if the trader can provide complete and clear transaction background information, it will help the bank's appeal, demonstrating its due diligence in the business process.

• Potential Liability Association: Providing evidence carries certain risks. Anti-money laundering experts point out that if the evidence provided by traders has issues, such as deliberately concealing important information or providing false materials, it may not only affect the bank's appeal but also lead to the trader being investigated for participating in illegal cross-border financial activities. However, if traders engage in normal compliant transactions and provide evidence truthfully, it generally does not increase the risk of being identified as participating in illegal cross-border financial activities. If the transaction is legal, cooperating with the investigation and providing evidence is fulfilling a civic duty, which should theoretically be protected by law. However, if the trader's own transactions are in violation, the evidence provided may expose the violations, leading to legal risks.

Overall, traders should remain cautious during the bank's appeal process, providing evidence truthfully to protect their own and the bank's legal rights.

This represents the personal views of the author and does not constitute legal advice or opinions on specific matters.

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