China Takes Money Laundering Oversight Online

China stepped up its anti-money laundering campaign by putting online financial institutions under regulatory oversight.

The top financial regulators — the central bank, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission — jointly issued guidelines Wednesday setting anti-money laundering and counter-terrorism financing requirements for the burgeoning internet financial sector.

The new rules apply to online payment providers, online lenders, online financing information intermediaries, equity crowdfunding platforms, online fund sellers, insurance and trust platforms and internet consumer finance companies.

The new rules are part of a regulatory crackdown on internet financial risks and fit into the central government’s efforts to enhance the compliance of financial institutions with anti-money laundering policies.

In August, the central bank fined five institutions, including banks, securities firms and an insurer, for violating anti-money laundering law. It was the first time for the Beijing head office of the People’s Bank of China (PBOC) to directly slap money-laundering fines on financial institutions.

The new regulations will expand oversight to online financial institutions. An anti-money laundering regulatory mechanism for the online financial sector will combine supervision by the central bank and regulatory bodies of the State Council with self-discipline management by the National Internet Finance Association of China (NIFA), according to the guidelines.

This means the self-regulatory NIFA will play an important role in the anti-money laundering framework for online financial institutions, said Meng Zhaoli, dean of JD Fintech Institute.

The NIFA will issue applicable industry rules in accordance with the central bank’s guidelines. It is also responsible for operating and maintaining an online monitoring platform set up by the central bank.

The online financial institutions are required to set up sound internal control and monitoring systems to effectively check client identifications, report large and suspicious transactions, monitor a list of entities involved in terrorism activities and preserve client information and transaction records.

Financial institutions are required to report any single or daily cumulative cash transaction of 50,000 yuan ($7,222) or $10,000-equivalent of foreign currency within five business days after the transaction.

The rules, which will take effect Jan. 1, 2019, are still principles, and more specific regulations need to be established, a senior anti-money laundering official told Caixin.