Central Bank to Crack Down on Firms Providing Payment Services to Criminals
China’s central bank has vowed to crack down on payment services providers who facilitate criminal activity such as cross-border gambling and fraud.
Cutting off the financing channels used by the gambling sector is a crucial task in preventing and defusing major financial risks and is a national security issue, Fan Yifei, a deputy governor of the People’s Bank of China (PBOC), said at a recent meeting (link in Chinese) with several central government departments and major payment industry stakeholders.
Gambling is illegal on the Chinese mainland, outside of state-run lotteries. Gambling businesses targeting Chinese citizens often set up online casinos using overseas internet addresses and use payment services providers to move cash in and out of the country. In August last year, Beijing called on the Philippines to crack down on online gambling targeting Chinese citizens, with the country’s embassy saying “gambling-related funds flowing illegally out of China and into the Philippines amounts to hundreds of millions of yuan a year.”
Fan’s comments follow other moves in recent years by the central bank to tighten regulatory oversight of banks’ payment services businesses and non-bank payment services providers, which have often focused on illegal businesses and embezzling of clients’ funds. In April, the PBOC’s Beijing branch imposed a record total of 116 million yuan ($16.4 million) of fines on Beijing-based payment company Allscore Payment Services over its involvement in facilitating gambling.
At the meeting, Fan pledged to hold accountable companies that serve clients involved in illegal gambling and urged the industry to report suspicious transactions and identify their clients and people withdrawing funds.
“This wave of crackdowns on violations involving gambling in the payment industry is very strong. Even if (rule-breakers) have a ‘protective umbrella’, it may be difficult for them to avoid punishment,” a payment industry insider told Caixin.
In China, a “protective umbrella” is generally a person, usually a corrupt government official, who protects a criminal from scrutiny by the authorities.
One of the most common ways in which payment services providers violate regulations is by not thoroughly checking their customers’ identities, allowing them to create accounts with phony information.
The PBOC issued a draft regulation (link in Chinese) on June 8 on the industry, which says that each channel for funds, including machines used to scan QR codes and bank cards, can only be used by one business and one account, so they can’t be easily bought and sold by criminals.
Also, the draft regulation would require payment companies to check the identity of clients who apply for payment channels more thoroughly, including in-person checks and extra checks when the account and address associated with a channel are changed.
The draft PBOC regulation also says the industry should restrict how many payment QR codes an individual or business can possess and how many payments they can accept, to “prevent personal QR collection codes from being used for illegal and irregular purposes.”
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