Article 1 These provisional procedures are formulated based on the Regulations on Foreign Exchange Administration of the People's Republic of China and other relevant rules to regulate purchase and sale of foreign exchange by the designated banks, define a supervisory framework for purchase and sale of foreign exchange by the designated banks for their own account and safeguard the stability of the foreign exchange market.
Article 2 The People's Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) as well as their branch offices are the regulatory authorities for the designated banks conducting the business of purchase and sale of foreign exchange. Market access and exit of the designated banks in conducting the business of purchase and sale of foreign exchange shall be jointly licensed by the PBC and SAFE while routine supervision over purchase and sale of foreign exchange by the designated banks, verification and adjustment of the allowable foreign exchange working position as well as the off-site surveillance of the above business shall be solely performed by the SAFE. On-site examination of the business of purchase and sale of foreign exchange shall be jointly executed by the PBC and SAFE. The SAFE may dismiss application of a financial institution for engaging in the business of purchase and sale of foreign exchange, and suspend or terminate the qualification of the designated banks found in violation of rules and regulations for conducting such business.
Article 3 Some of the terms used in these provisional procedures are defined as follows:
- "Designated banks" refers to Chinese and foreign-funded financial institutions authorized by the PBC to engage in the business of purchase and sale of foreign exchange. The Chinese financial institutions include policy banks, wholly state-owned commercial banks, joint-stock commercial banks and their branch offices as well as the city and rural commercial banks and other financial institutions licensed to deal in business of purchase and sale of foreign exchange. Foreign-funded financial institutions refer to wholly foreign-funded banks, branches of foreign banks and Sino-foreign joint-equity banks as defined in the Regulations of the People's Republic of China on Administration of Foreign-funded Financial Institutions.
- "Purchase from and sale of foreign exchange to customers" refers to the exchange between renminbi and convertible currencies by the designated banks for their customers.
- "Purchase and sale of foreign exchange for bank's own account" refers to the exchange between renminbi and convertible currencies by designated banks out of their own business needs.
- "Allowable foreign exchange working position" refers to the limit and allowable difference from the limit of foreign exchange funds verified by the SAFE and held and used exclusively by the designated banks for the purpose of purchase and sale of foreign exchange.
Article 4 Financial institutions may not engage in the business of purchase and sale of foreign exchange without authorization by the PBC.
Article 5 Designated banks shall observe these provisional procedures and other related regulations in conducting the business of purchase and sale of foreign exchange either for customers' or their own accounts, and shall set separate accounts for these two types of business for business management and reporting.
Article 6 Designated banks shall adjust their allowable foreign exchange working position to observe the prescribed limit on a timely basis through the inter-bank foreign exchange market following relevant rules, not through mixing with the capital and financial accounts positions without approval of the SAFE.
Article 7 Designated banks shall establish separate accounts for purchase and sale of foreign exchange for customers and for their own accounts, and shall distinguish transactions for observing working position limits through the market versus those among different arms of the same institution.
Article 8 Designated banks shall establish a system to keep the transaction invoices for no less than five years in line with business classification of purchase and sale of foreign exchange for the customers or for their own accounts.
Article 9 Designated banks shall report to the SAFE data of purchase and sale of foreign exchange and allowable foreign exchange working position as well as other statements and information required by the SAFE on timely and accurate basis.
Article 10 Designated banks shall report large value transactions in purchase and sale of foreign exchange to the regulatory authorities for record.
Article 11 The SAFE shall conduct qualification review of the persons in charge of the business of purchase and sale of foreign exchange (department managers or presidents in charge of the business) in designated banks through competence test or filling-in of questionnaires.
Chapter Two Market Access and Exit of Designated banks in Purchase and Sale of Foreign Exchange
Article 12 Financial institutions may apply to deal in the business of purchase and sale of foreign exchange when satisfying the following conditions:
- licensed by the PBC to be incorporated and engaged in financial business;
- maintaining a sound internal control system comprising of standard procedures to effect purchase and sale of foreign exchange, reporting arrangement for transactions of purchase and sale of foreign exchange, management system for allowable foreign exchange working position, transactions invoice management system, and independent accounting for purchase and sale of foreign exchange;
- having qualified staff who have received training by the SAFE and passed the competence test;
- maintaining a control system for receiving and quoting foreign exchange rate;
- maintaining electronic and telecommunication facilities needed for making real-time inquiry about documents filed with the customs office, reporting BOP statistics and data of purchase and sale of foreign exchange, and a premise suitable for conducting business of purchase and sale of foreign exchange;
- branch offices of financial institutions may engage in purchase and sale of foreign exchange after approved by the headquarters of the financial institutions or their immediate superior institutions;
- maintaining sound operation of foreign exchange business with effective internal control and taking remedial actions to correct irregularities in conduct of foreign exchange business timely as stipulated by the PBC or the SAFE;
- other conditions specified by the PBC and/or the SAFE.
Article 13 Financial institutions shall submit the following documents to the PBC and at the same time report to the SAFE for record when applying for business of purchase and sale of foreign exchange:
- an application report for conduct of purchase and sale of foreign exchange business;
- a feasibility study report on conduct of purchase and sale of foreign exchange business;
- names, resumes and qualification test certificate issued by the SAFE of the staff assigned to do purchase and sale of foreign exchange business;
- a brief introduction of the electronic and telecommunication equipment as well as the operation premise needed for conduct of purchase and sale of foreign exchange business;
- rules and procedures for conduct of purchase and sale of foreign exchange business and internal control system;
- other documents required by the PBC and/or the SAFE.
For branch offices of the financial institutions, a document of approval issued by their headquarters or immediate superior institutions for conduct of the business of purchase and sale of foreign exchange needs to be submitted apart from the above documents.
Article 14 Financial institutions shall be subject to the following approval procedures when applying for the business of purchase and sale of foreign exchange:
- applications filed by headquarters of the policy banks, the wholly state-owned commercial banks or the joint-stock commercial banks shall be approved by the PBC jointly with the SAFE;
- applications filed by branch offices of the policy banks, the wholly state-owned commercial banks or the joint-stock commercial banks, the urban and rural commercial banks, other Chinese financial institutions as well as foreign-funded banks shall be jointly approved by the branch offices of the PBC and SAFE. The branch offices of the PBC may authorize those central sub-branch offices based on their supervisory capability to approve applications filed by financial institutions within their jurisdiction for conduct of business of purchase and sale of foreign exchange, but shall have the local SAFE offices co-sign the approval document.
Article 15 For applications approved by the PBC but need to have the approval document co-signed by the SAFE, the SAFE shall affix its opinion of approval or disapproval and respond to the PBC within fifteen working days from the date of receiving the approval document.
Article 16 The local offices of the SAFE shall verify the electronic and telecommunication facilities defined in item (5) of Article 12 of these provisional procedures intended to be used by the designated banks licensed to deal in business of purchase and sale of foreign exchange before such business is officially launched.
Article 17 When applying for terminating the business of purchase and sale of foreign exchange, the designated banks shall submit to the PBC the following materials:
- an application indicating the reasons of intended termination of the business and the work-out procedures to deal with the unsettled claims and liabilities;
- an approval document issued by the board of directors or the head office or the superior institution (department) authorizing the termination of the business;
- other materials as required by the PBC or SAFE.
The PBC shall inform and copy to the SAFE its verdict on the application filed by the designated banks to terminate the business of purchase and sale of foreign exchange.
Chapter Three Management of Allowable Foreign Exchange Working Position
Article 18 The designated banks shall have their allowable foreign exchange working position verified and approved by the SAFE within thirty working days from the date of qualifying for business of purchase and sale of foreign exchange.
Article 19 The SAFE exercises a quota-based management system and daily review of the allowable foreign exchange working position maintained by the designated banks.
Article 20 Jurisdictions in verifying and approving allowable foreign exchange working position used for purchase and sale of foreign exchange shall be determined as follows:
- applications by the head offices of the wholly state-owned commercial banks, joint-stock commercial banks and policy banks shall be verified and approved by the head office of SAFE;
- applications by the city commercial banks, rural commercial banks, other Chinese financial institutions and foreign-funded financial institutions shall be verified and approved by the local branch offices of the SAFE, but the local branch offices shall report the verified allowable position to the head office of the SAFE for record.
Article 21 The SAFE verifies and approves the allowable foreign exchange working position for the designated banks on aggregate basis in line with the supervisory principles applied to legal entities, and shall not separately verify and approve the said allowable position for branch offices of the designated banks.
The head offices of the designated banks shall allocate and manage at their own discretion the allowable foreign exchange working position verified and approved by the SAFE among their branch offices on a consolidated basis, and shall report such an allocation to the local branch offices of the SAFE. The local branch offices of the SAFE shall be responsible for management of the allowable foreign exchange working position maintained by designated banks within their jurisdictions.
Article 22 Verification and adjustment of the allowable foreign exchange working position shall be based on the following measurements:
- capital or working capital base of the designated banks;
- the number of branch offices;
- average daily balance of purchase and sale of foreign exchange;
- largest daily sale of foreign exchange;
- largest transaction of purchase and sale of foreign exchange;
- reporting quality of statistics on daily allowable foreign exchange working position;
- macroeconomic factors including official foreign exchange reserves and the interest rates of domestic and foreign currencies;
- other measurements.
Article 23 Upon approval of the SAFE, the designated banks may use working capital denominated in renminbi to buy foreign exchange in the inter-bank market as their allowable foreign exchange working position.
The designated banks shall complete the transaction of purchasing foreign exchange in the inter-bank market using working capital denominated in renminbi within thirty working days from the date of approval by the SAFE, or the approval shall be invalidated automatically.
Article 24 A written application shall be filed with the SAFE when the designated banks need to adjust the allowable foreign exchange working position on account of substantial changes of transactions in purchase and sale of foreign exchange. The designated banks may not make adjustment of the allowable foreign exchange working position without approval of the SAFE.
Article 25 When the head offices of the financial institutions are qualified as designated banks, they shall apply with the China Foreign Exchange Trading System to participate in the inter-bank foreign exchange market; the branch offices of the designated banks may apply to become members of the inter-bank foreign exchange market only with proper authorization by their superior institutions (departments). For those branch offices of the designated banks qualified as members of the inter-bank foreign exchange market, they may balance their allowable foreign exchange working position either through the inter-bank foreign exchange market or the internal intra-bank system. Such a position may only be balanced internally through the intra-bank system if the branch offices are not qualified as members of the inter-bank foreign exchange market.
Article 26 The designated banks shall manage their allowable foreign exchange working position on daily basis within the limit prescribed by the SAFE, and shall file daily report of the position to the SAFE.
Allowable foreign exchange working position resulted from transactions between the designated banks shall only be balanced through the inter-bank foreign exchange market.
Article 27 The designated banks shall convert the balance of allowable foreign exchange working position of each business day into the US dollar. Any losses or profits resulted from such a conversion shall be dealt with under other foreign currency transaction accounts and shall not be calculated into the allowable foreign exchange working position.
Article 28 For designated banks with their allowable foreign exchange working position yet to be verified and approved by the SAFE, they shall exercise a "zero-position" management system under which the net position of foreign exchange of the current business day shall be balanced on the next business day through the inter-bank foreign exchange market.
Article 29 In case the designated banks voluntarily suspend their business of purchase and sale of foreign exchange or forced to do so by the PBC or SAFE because of involvement in business irregularities, they shall file an application within thirty working days from the date of business suspension with the SAFE to liquidate allowable foreign exchange working position remaining up to the day when the business is suspended upon verification and approval by the SAFE.
Chapter Four Management of Purchase and Sale of Foreign Exchange for Designated Banks' Own Accounts
Article 30 The designated banks shall sell their net foreign exchange profits in the inter-bank foreign exchange market within three months from the ending of each accounting year or within ten working days after the board of directors approves the profit distribution plan of the current accounting year, and shall report such a sale to the SAFE beforehand for record, unless otherwise stipulated.
Foreign banks not allowed to engage in renminbi business may retain their foreign exchange profits.
Article 31 Foreign banks engaged in renminbi business as authorized may use their net renminbi profits to purchase foreign exchange to be repatriated to the home country, but shall report such a transaction to the local SAFE branch offices for record.
Article 32 Designated banks shall entrust self-originated import transactions under trade account to companies authorized as foreign trade agents in line with relevant regulations, and may not make direct overseas payment.
Article 33 For self-originated overseas payment under service trade account, the designated banks may effect such a payment either directly through their foreign exchange accounts or using renminbi to purchase foreign exchange to make the payment in line with related rules.
Article 34 Designated banks shall use their own foreign exchange working capital to satisfy foreign exchange payment needs arising from transactions under capital and financial accounts as approved by the SAFE.
In case the customers fail to repay on time the funds advanced by the banks in conducting business of foreign exchange loans, international settlement and foreign exchange bankcard, the concerned banks shall use their own foreign exchange capital or working capital to cover the shortfall in line with relevant rules, but not with foreign exchange self-purchased or purchased from the customers.
Shortfalls in foreign exchange capital or working capital experienced by designated banks may be satisfied with purchase from the inter-bank foreign exchange market with approval of the SAFE.
Chapter Five Management of Purchase from and Sale of Foreign
Exchange to the Customers
Article 35 The designated banks shall conduct the business of purchase from, sale of and making payment to customers in foreign exchange in line with relevant regulations. Valid documents and business invoices shall be duly verified and stamped as required and further recorded for inquiry purposes.
Article 36 The designated banks shall quote the exchange rate of renminbi based on the daily reference rate and the floating band prescribed by the PBC, and conduct the business of purchase from and sale of foreign exchange to the customers.
Article 37 For those financial institutions not qualified as designated banks, they shall conduct the business of purchase and sale of foreign exchange through the qualified designated banks.
Article 38 Exchange between renminbi and foreign currencies by the money exchange offices for individuals shall be authorized by the designated banks. The designated banks authorized such transactions shall combine the daily transaction volume accordingly into their business statistics of purchase and sale of foreign exchange and settle any shortfalls through the inter-bank foreign exchange market in case their allowable foreign exchange working position limit is exceeded.
Chapter Six Penalties
Article 39 Designated banks shall be penalized in line with the Regulations on Foreign Exchange Administration and other relevant rules if found in violation of these rules and other related stipulations on purchase, sale and payment of foreign exchange.
The PBC shall disqualify designated banks from engaging in the business of purchase and sale of foreign exchange on any of the following accounts:
- the designated bank has been legally taken over by the PBC;
- the designated bank has been closed or proclaimed bankrupt according to the law;
- the foreign exchange business of the designated bank has been terminated by the PBC according to the law.
Article 40 The SAFE shall suspend or terminate the business of purchase and sale of foreign exchange by a designated bank apart from issuing penalties on it in accordance with the Regulations on Foreign Exchange Administration if any of the following activities is found:
- purchasing from, selling or paying foreign exchange to customers in cumulative values equivalent to more than US$1 million without presentation of required valid documents and business invoices;
- purchasing from, selling or paying foreign exchange to customers in cumulative values equivalent to more than US$5 million with incomplete required valid documents and business invoices;
- selling foreign exchange to customers in excess of values indicated by the valid documents and business invoices with cumulative turnover reaching over US$5 million;
- conducting the business of internal purchase and sale of foreign exchange without proper authorization by the SAFE;
- foreign exchange unlawfully purchased or sold accounting for more than ten percent of the annual aggregate value of purchase or sale of foreign exchange;
- unlawful transactions of purchase or sale of foreign exchange accounting for more than ten percent of the annual aggregate number of transactions of purchase or sale of foreign exchange;
- other activities in serious violation of administrative procedures on purchase and sale of foreign exchange.
Article 41 The SAFE shall suspend or terminate the business of purchase and sale of foreign exchange by a designated bank apart from issuing penalties on it in accordance with the Regulations on Foreign Exchange Administration if any of the following activities is found in violation of rules on management of allowable foreign exchange working position:
- the allowable foreign exchange working position prescribed by the SAFE has been exceeded for five or more consecutive working days without adjustment through the inter-bank foreign exchange market;
- the allowable foreign exchange working position prescribed by the SAFE has been exceeded for at least ten times in a quarter without adjustment through the inter-bank foreign exchange market;
- misreporting of statistics on allowable foreign exchange working position for at least four times in each of three consecutive months;
- other serious violation of administrative procedures on allowable foreign exchange working position.
Article 42 The designated banks that have failed to report relevant statements and materials in violation of the reporting arrangement on purchase and sale of foreign exchange or failed to report abnormal transactions to authorities for record shall be penalized by the SAFE in accordance with the Regulations on Foreign Exchange Administration and other relevant rules. Several times of such misreporting shall amount to suspension or termination by the SAFE of their qualification for business of purchase and sale of foreign exchange.
Article 43 For designated banks and money exchange offices found in violation of these rules and other stipulations on purchase, sale and payment of foreign exchange, those immediately held accountable for such a violation and their supervisors shall be punished by relevant authorities in accordance with the Regulations on Issuing Administrative Penalties for Financial Institutions and Persons Accountable for Violating Stipulations on Sale and Payment of Foreign Exchange and the Provisional Regulations on Issuing Administrative or Disciplinary Penalties for Irregularities in Foreign Exchange Transactions.
Chapter Seven Supplementary Provisions
Article 44 The PBC shall make stipulations on forward transactions of purchase and sale of foreign exchange and other derivative-based renminbi exchange transactions.
Article 45 The PBC is responsible for interpretation of these provisional procedures.
Article 46 These provisional procedures shall enter into effect on December 1, 2002 and shall prevail if running counter to any stipulations previously made. The Article 4 of the Rules for Implementing Regulations on Purchase, Sale and Payment of Foreign Exchange by Foreign-funded Banks issued by the PBC on June 18, 1996, the Announcement of the People's Bank of China on Introducing the System of Purchase and Sale of Foreign Exchange to Foreign-invested Enterprises released on June 20, 1996 and the Answers of the General Office of SAFE to Questions Arising in Authorizing Branch Offices of the Wholly State-owned Commercial Banks to Deal in Business of Purchase and Sale of Foreign Exchange (No.1 of 2002) shall repeal at the same time.
