Comprehensively Strengthening Supervision and the Barrier to Cross-border...
Title: Comprehensively Strengthening Supervision and the Barrier to Cross-border Financial Security
China Forex: The year 2023 marks the first year to fully embrace the spirit of the 20th National Congress of the Communist Party of China. Could you provide an overview of the key initiatives undertaken by the Supervision and Inspection Department throughout the year?
HU Chunyu: Throughout 2023, under the resolute guidance of the Party Central Committee and the State Council, the Supervision and Inspection Department meticulously executed the directives set forth by the CPC SAFE Leadership Group. Our approach encompassed a thorough study and implementation of the spirit of the 20th CPC National Congress. And we dedicated ourselves to comprehensive themed education and the consolidation and expansion of central inspection rectification efforts. Upholding the principle of law-based administration, we have enhanced the quality and efficiency of foreign exchange inspection, which has led to investigation and settlement of more than 970 cases of foreign exchange violations in the course of 2023, imposing fines and confiscating more than 1.7 billion yuan in value. This robust action has been an effective deterrent to illegal foreign exchange activities, thereby fostering a more stable environment within the foreign exchange market.
Firstly, we focused on bolstering technological capabilities to enhance regulatory effectiveness. Off-site monitoring systems have been optimized. Subsequently, a collaborative approach was used, employing the national research and adjudicationcenter and off-site intelligent analysis platform to systematically investigate suspicious activities in key areas, enabling prompt and accurate risk detection.
Secondly, we have severely cracked down on illegal cross-border financial activities. Focusing on key areas such as underground banks, export tax evasion, and cross-border gambling, we have deepened cooperation between ministries and commissions through approaches including information sharing, data exchange, joint adjudication and enforcement, and cross-institution joint adjudication of cases. In this way, we have built a strong united force against illegal activities.
Thirdly, we have advanced the orderly reform of foreign exchange operations conducted by banks. In keeping with the spirit of the Central Financial Work Conference, we coordinated our approaches to business facilitation and risk prevention, issuing Trial Measures for Banks to Develop Foreign Exchange Business which establishes a whole-process framework for supporting bank foreign exchange business. These measures are based on risk assessment and risk classification, complemented by risk reporting, to enhance cross-border risk identification, warning and disposal.
Fourthly, we launched an "inspection-backed administration" campaign to enhance the quality and efficiency of special inspections. We have expanded the scope of special inspections to cover all banks, securities and insurance institutions, enhanced their depth, and adopted mechanisms such as "one case, double check", "case-based reverse investigation", and "inspection-backed rectification," highlighting governance at the source and eliminating the practice of simply imposing fines.
Lastly, we remained steadfast in our commitment to governance by law. We strictly implemented the rules on administrative enforcement notification, whole process enforcement records, and legal reviews of major law enforcement decisions. By tightening this institutional framework and strengthening enforcement oversight, we have effectively mitigated enforcement risks. Our aim is to foster a high-quality and professional foreign exchange inspection team characterized by loyalty, integrity, and accountability.
In order to effectively prevent and address cross-border financial risks, in 2023, our department maintained a high-pressure crackdown on illegal cross-border fund activities, with a specific focus on illegal activities such as underground banks, cross-border gambling, export tax evasion, as well as foreign exchange violations. Our main initiatives are as follows. Firstly, we strengthened cooperation with the police to combat underground banks. This collaboration resulted in the breaking of 120 underground banking cases, a new record. We also investigated and addressed more than 530 cases of illegal foreign exchange trading, evasion, and illegal arbitrage, with fines rising 87% year-on-year. Secondly, progress has been made in cracking down on tax and gambling cases. We actively participated in cooperative anti-tax evasion work, with mainly local branches contributing to cracking down on major tax evasion cases and over 80 cases of export tax evasion. Furthermore, we found leads from tax-related crimes that led to the discovery of underground banks, and we also made joint efforts to crack down on cross-border gambling fund chains, cross-border gambling cases and gambling-related underground banks.
China Forex: What are the emerging trends in foreign exchange inspections in 2024? And what corresponding work guidelines and strategies will be implemented?
HU Chunyu: The Central Financial Work Conference pointed out that finance is the lifeblood of the national economy. We must accelerate the construction of a financially strong country, improve the financial system, optimize financial services, prevent and resolve risks, and unwaveringly follow the path of socialist financial development with Chinese characteristics in the new era, promoting the high-quality development of China's finance. In this regard, the National Foreign Exchange Administration Work Conference emphasized that in 2024, foreign exchange administration work should be guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. The decisions and arrangements made at the Central Economic Work Conference and the Central Financial Work Conference shall be diligently implemented. We should be guided by the principles of seeking progress while maintaining stability, promoting stability through progress, and establishing the new before abolishing the old. The objective is to effectively balance high-quality development and robust security, steadily advance deep-level reforms, and foster high-standard opening-up in the foreign exchange sector. The conference underscored the importance of enhancing the integrated management of the foreign exchange market through the two-pronged "macro-prudential management with micro regulation" framework, and highlighted the pivotal role of the foreign exchange administration sector in supporting China's pursuit of high-quality development on its path to modernization.
Around this overarching deployment, in 2024, the Department will focus on comprehensively strengthening supervision and preventing and resolving cross-border financial risks. We are committed to maintaining law and order and taking decisive action when necessary. The trend is towards more accurate off-site risk identification, more forcible crackdowns on illegal cross-border financial activities, more robust supervision mechanisms for banks, more effective special inspections, and more standardized and orderly law enforcement practices. We will further improve the foreign exchange regulatory system and mechanism, strengthen comprehensive supervision in the foreign exchange field, and strive to build a high-quality and professional foreign exchange inspection team. In this way, we aim to firmly guard against the bottom line of zero systemic financial risk, and contribute to the objectives of balancing high-quality development with robust security and building a financially strong country.
Firstly, we will strengthen routine supervision. We will lawfully and comprehensively supervise foreign exchange operations and improve the foreign exchange administrative policy system. We will optimize off-site indicator systems, and fully utilize technological means to enhance regulatory efficiency. We will also promote institutional supervision, practice supervision, function supervision, penetrative supervision, and continuous supervision as a whole, so as to continuously improve professionalism, authority, and transparency of supervision processes. In addition, we will closely track and analyze changes in key areas, key businesses, and key entities to promptly identify and address any abnormalities.
Secondly, we will maintain a high-pressure crackdown on illegal cross-border financial activities. We will continue to coordinate efforts to combat underground banking, cross-border gambling and export tax evasion, expand the strength and coverage of interdepartmental cooperation, and intensify lead screening and cross-departmental adjudication.
Thirdly, in line with the "launch upon maturity" principle, we will prudently help banks redesign their foreign exchange business flows. By doing so, we will continuously improve the supporting policies for the reform of bank foreign exchange operation, ease the risk prevention burden of banks and improve the standards for post-event monitoring.
China Forex: The Supervision and Inspection Department has been committed to adopting an "off-site first" policy in recent years. Are there any specific measures for 2024?
HU Chunyu: In 2024, we will continue to apply technology-based off-site inspections, aiming at more accurate risk identification. The following are some specific measures.
The first is to improve the timeliness and effectiveness of abnormal channel analysis and lead screening. We will monitor domestic and international economic trends, conduct quarterly analyses of abnormal channels, and study key trends in cross-border fund flows. We will rely on the national research and adjudication center to regularly conduct centralized nationwide analysis in key and challenging ar