Caixin
Dec 31, 2020 06:29 AM
FINANCE

Update: China Steps Up Money Laundering Oversight With New Rules

China is broadening its long-standing campaign against money laundering and terrorist financing with new regulations requiring nonbank financial institutions as well as banks to improve supervision and compliance.

Draft revisions to a 2014 rule released Wednesday (link in Chinese) by the People’s Bank of China (PBOC) set out detailed guidelines on how institutions should set up internal control and risk management systems to tackle money laundering, including the establishment or designation of a specialized department to handle the issue with a senior manager overseeing the work and ensuring its independence. The rules will also apply to nonbank financial institutions such as third-party payment companies, online microlenders, consumer finance companies and loan companies, many of whom have hitherto escaped the same level of regulatory supervision as banks.

The revisions are partly driven by “the need to improve the anti-money laundering regulatory mechanism in response to the changing environment,” the PBOC said in an accompanying statement. “Over the past few years, the domestic and international anti-money laundering situation has continued to change: international anti-money laundering requirements have become increasingly stringent, and regulatory rules have placed greater emphasis on risk-based supervision. The pressure on anti-money laundering supervision in various countries has increased, and domestic anti-money laundering regulatory measures need to be further refined.”

The PBOC added: “With continuous innovation in the financial sector and the emergence of new types of financial business, we need to improve the scope of anti-money laundering supervision.”

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The proposed revisions will help financial institutions develop a culture of compliance, offering them clear guidelines in the fight against money laundering, Yu Pei, a partner in the Deloitte China Anti-Money Laundering Center, told Caixin. “Domestic banks have not yet made a good risk assessment of themselves and do not know where they are exposed to money laundering risk. They just mechanically complete their compliance obligations but fail to implement more targeted risk-control measures.”

Chinese regulators have ramped up efforts to tackle money laundering and terrorism financing by updating regulations and imposing higher penalties following criticism from the Financial Action Task Force (FATF), a global watchdog for money laundering and terrorist financing.

While most financial institutions in China have a “satisfactory” understanding of their anti-money laundering compliance obligations, they often do not well understand the money laundering risks they face, the FATF said in its evaluation report in 2019. Measures to prevent money laundering and terrorist financing at nonbank financial institutions need to be improved, the report said, noting there is “limited to no implementation of these measures by online lending institutions.”

In the first nine months of 2020, the PBOC doled out penalties of more than 490 million yuan ($75 million) for money laundering violations, according to a report (link in Chinese) from consultancy PricewaterhouseCoopers LLP (PwC). This is more than twice the 215 million yuan (link in Chinese) imposed in the whole of 2019, data from the central bank show.

In the third quarter of 2020, out of all categories of companies in the financial sector, nonbank payment institutions were fined the second-highest amount for money laundering related offenses, according to the PwC report. In March, payment services provider Shenzhen RYX Infotech Co. Ltd. was handed a record 61 million yuan penalty by the PBOC’s Shenzhen branch, due to its failures in guarding against money laundering. The company has been fined at least 19 times since 2018.

Denise Jia and Han Wei contributed to this report.

Contact reporter Luo Meihan (meihanluo@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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