Financial Services Association, March 2 (Reporter Guo Zishuo) Within a day, the Foreign Exchange Bureau successively disclosed two payment institution penalty documents.

On March 1, the official website of the State Administration of Foreign Exchange revealed that La Cala Payment Co., Ltd. (hereinafter referred to as La Cala) was warned by the Beijing Branch of the State Administration of Foreign Exchange for remitting foreign exchange into the country in violation of regulations, transferring domestic foreign exchange overseas in violation of regulations, and not submitting financial and accounting reports, statistical reports, etc. in accordance with the regulations. It was fined 138,800 yuan and the illegal proceeds of 1105.55 yuan were confiscated. On the same day, Shanghai Fuyou Payment Service Co., Ltd. (hereinafter referred to as Fuyou Pay) was confiscated by the Shanghai Branch of the State Administration of Foreign Exchange of 175,3913 yuan of illegal proceeds and a fine of 650,000 yuan for handling current account fund payments in violation of regulations.

Foreign exchange fines from the two payment institutions were made public on the same day, which is not common. A Financial Services Association reporter combed through and found that payment institutions were involved in only one or two foreign exchange business fines for the whole of 2023. Foreign exchange business fines have always been strict, and La Cala's fine multiplier this time is more than 100 times higher. Some industry insiders said that supervision of cross-border capital flows has always been strict, especially when it comes to illegal outflows and inflows of foreign exchange. It is not surprising that the cost of breaking the law is high.

Redefining priorities for real and legal transactions

Judging from the types of offenses indicated in the punitive documents, both institutions have stepped on a “red line” like thunder, which is a violation of “payment institutions should do their utmost to verify the authenticity and legality of the identity of market transaction subjects. Foreign exchange operations handled for market trading entities shall have a real and legal basis for transactions, comply with relevant national laws and regulations, and shall not provide services for illegal transactions in any form. The payment institution shall review the authenticity, legality and consistency of the transaction with the foreign exchange business.”

In addition to this, La Cala also violated some “current account foreign exchange management” and “information collection and reporting” regulations. Specifically, it involves “financial institutions operating foreign exchange settlement and foreign exchange sales services shall reasonably examine the authenticity of transaction documents and their consistency with foreign exchange payments in accordance with the regulations of the foreign exchange administration department under the State Council,” and “payment institutions shall also provide case-by-case foreign exchange purchase or settlement information processed through partner banks within a specified period of time in accordance with current foreign exchange settlement regulations. Cooperative banks shall submit sales and settlement statistics reports in accordance with current regulations.”

In response, Wang Pengbo, a senior financial analyst at Broadcom Consulting, told the Financial Federation reporter that although the fine amount paid by Fuyou exceeded 600,000 yuan, La Cala's was 138,000 yuan. However, compared to the amount of the fine, the penalty multiplier is also somewhat indicative. The penalty multiplier also reflects the strength of the penalty to a certain extent.

The penalty multiplier is one of the important punishment indicators. A Financial Services Association reporter checked foreign exchange regulations and found that some regulations clearly link the penalty multiples to illegal income. However, “5 times” is usually the maximum fine multiplier.

Currently, financial institutions that operate foreign exchange businesses beyond the scope of approval are ordered by the foreign exchange management authority to make corrections. If they have illegal proceeds, the illegal proceeds will be confiscated and a fine of not less than 1 times 5 times the illegal proceeds; if there is no illegal proceeds, a fine of not less than 100,000 yuan and not more than 500,000 yuan will be imposed. Furthermore, if there is an act of evading foreign exchange, the foreign exchange management authority shall order the return of the foreign exchange within a limited period of time, forcibly accept it, and impose a fine of at least 30% and not more than 5 times the amount evaded; if it constitutes a crime, criminal liability shall be prosecuted according to law.

In addition, there are also provisions where fines are not linked to illegal income, and fines are not low. Taking the basis of the penalties involved in the above institutions as an example, if a financial institution processes the receipt and payment of current account funds and fails to properly examine the authenticity of the transaction documents and their consistency with foreign exchange payments, the foreign exchange management authority shall order the correction within a limited period of time, confiscate the illegal proceeds, and impose a fine of not less than 200,000 yuan and not more than 1 million yuan.

Payment institutions focus on expanding and supervising the foreign exchange business

Since the launch of payment institutions in January 2015 to provide foreign exchange fund payment and foreign exchange settlement services for both parties involved in cross-border e-commerce transactions, the cross-border trade market has continued to heat up. A number of third-party payment institutions and cross-border payment service providers are also actively laying out the cross-border payment circuit. According to Broadcom's analysis and forecast, exporting cross-border payment solutions to banks and major customers is expected to become another major additional source of profit for cross-border payment institutions.

The State Administration of Foreign Exchange stated in November of last year that it is necessary to push forward the reform and opening up of the foreign exchange sector in an orderly manner and continue to promote cross-border trade and investment and financing facilitation policies. One of them clearly supports more banks and payment institutions to carry out settlement services for new forms of trade such as cross-border e-commerce. The following month, the General Office of the State Council issued a notice on “Certain Measures to Accelerate the Integrated Development of Domestic and Foreign Trade” (hereinafter referred to as “Certain Measures”) to support more eligible payment institutions and banks to provide foreign exchange settlement services for new business formats such as cross-border e-commerce.

At the same time as the business opens and expands, compliance regulations are also being followed up. The relevant person in charge of the State Administration of Foreign Exchange emphasized on January 26 that it is necessary to prevent the risk of cross-border capital flows and strengthen full regulatory coverage in the foreign exchange sector. Improve monitoring, early warning and response mechanisms for cross-border capital flows, strengthen macroprudential management and forecast guidance, prevent the formation of unilateral expectations and market overruns, effectively maintain the stability of the foreign exchange market and the country's economic and financial security, and maintain the bottom line of financial security under open conditions.

The person in charge mentioned above also pointed out that it is necessary to implement the “prickly” and angular requirements of supervision, strengthen supervisory coordination, comprehensively supervise foreign exchange operations in accordance with the law, strictly crack down on illegal and illegal foreign exchange activities, and maintain a healthy order in the foreign exchange market. Improve the cross-border transaction management mechanism that is “realistic in nature, diverse methods, due diligence and exemption, safe and efficient”, and steadily push forward the reform of the bank foreign exchange exhibition industry.