Crowded release of new AML rules

With the continuous development of onshore financial markets and the ever-intensifying requirements globally for anti-money laundering ("AML"), it has become increasingly imperative for China to improve its AML legal and regulatory frameworks to give further play to the role of AML in building up the modern financial system and deepening the two-way opening-up of the financial industry. In 2021, the National People's Congress, the Ministry of Commerce, the People's Bank of China ("PBoC") and other legislative and regulatory bodies introduced a series of AML-related laws and regulations that have a significant impact on AML regulatory supervision. These laws and regulations aim to strengthen and improve China's AML frameworks and control measures from the perspectives of cross-border business, risk assessment, due diligence and so on.

The crowded release of AML-related laws and regulations in 2021 reflects a general trend in the approach to AML from "rule-based" regulation to "risk-based" regulation, such that "pro forma" compliance can no longer meet existing regulatory requirements. In short, the AML laws and regulations (including consultation drafts) issued in 2021 mainly include:

  1. the Guidelines for the Self-Assessment of Money Laundering and Terrorist Financing Risks by Corporate Financial Institutions (《法人金融机构洗钱和恐怖融资风险自评估指引》), promulgated by PBoC and effective as of 15 January 2021;
  2. the Guidelines for Anti-Money Laundering and Counter-Terrorist Financing in Cross-Border Services of Banks (for Trial Implementation) (《银行跨境业务反洗钱和反恐怖融资工作指引(试行)》), jointly promulgated by PBoC and the State Administration of Foreign Exchange on 19 January 2021 and effective as of 18 February 2021;
  3. the Measures for Administration of Client Due Diligence and Maintenance of Clients' Identity Information and Transaction Records by Financial Institutions (Revision Draft for Comment) (《金融机构客户尽职调查和客户身份资料及交易记录保存管理办法(修订草案征求意见稿)》) (the "2021 Consultation Draft") jointly issued on 31 March 2021 for public comments by PBoC, the China Banking and Insurance Regulatory Commission ("CBIRC") and the China Securities Regulatory Commission ("CSRC");
  4. the Anti-Money Laundering Law of the People's Republic of China (Revision Draft for Comment) (《中华人民共和国反洗钱法(修订草案公开征求意见稿)》) released by PBoC on 1 June 2021 to solicit public comments; and
  5. the Measures for the Supervision and Administration of Anti-Money Laundering and Counter-Terrorist Financing of Financial Institutions (《金融机构反洗钱和反恐怖融资监督管理办法》) promulgated by PBoC on 15 April 2021 and effective as of 1 August 2021.

In addition, the Measures for Administration of Client Due Diligence and Maintenance of Clients' Identity Information and Transaction Records by Financial Institutions (《金融机构客户尽职调查和客户身份资料及交易记录保存管理办法》) (the "2022 Measures") were jointly promulgated by PBoC, CBIRC and CSRC, to be effective as of 1 March 2022. Once effective, the 2022 Measures will replace the existing Measures for Administration of Distinguishing Clients' Identities and Preserving Data on Clients' Identities and Transaction Records by Financial Institutions (《金融机构客户身份识别和客户身份资料及交易记录保存管理办法》) (the "2007 Measures"). Further, the 2022 Measures will take precedence over any other inconsistent regulatory provisions promulgated prior to the effective date of the 2022 Measures with respect to client due diligence and maintenance of clients' identity information and transaction records.

Interpretation of the key provisions of the 2022 Measures

Financial institutions serve on the front lines of monitoring and combating money laundering activities. Therefore, improving AML of financial institutions is a core issue in ensuring the steady operation of the financial system and safeguarding a fair and just market order, which is also of great significance in combating illegal activities and crimes and maintaining social stability. Under the increasingly severe context of money laundering crimes, stricter domestic and international AML standards and the strengthening of AML regulatory supervision and penalties, a particular flashpoint for AML within the financial sector is establishing AML internal control systems that are compatible with the business characteristics of banking, securities, futures and mutual funds industries. In light of this, we analyze key provisions of the 2022 Measures, which specify the AML obligations to be performed by commercial banks, securities firms, futures firms and fund management companies ("FMCs").

  1. Applicable scope of the 2022 Measures

In light of the development of the financial sector and the diversification of business types, Article 2 of the 2022 Measures expands the applicable scope of financial institutions to cover development financial institutions, consumer finance companies, lending companies, wealth management companies, non-banking payment institutions, bank card clearing institutions and other applicable bodies, and further refines the hierarchy for the application of rules. However, the 2022 Measures do not specify whether subsidiaries of securities firms, futures companies and FMCs are included in this applicable scope. We understand the subsidiaries of securities firms will be subject to the 2022 Measures by referring to the Official Reply of PBoC in Seeking Public Comments on the Measures for the Supervision and Administration of Anti-Money Laundering and Counter-Terrorist Financing of Financial Institutions (Revision Draft for Comment) (《中国人民银行关于<金融机构反洗钱和反恐怖融资监督管理办法(征求意见稿)>公开征求意见的反馈》) (the "PBoC Reply"), because "securities firms" licensed by CSRC by definition include the subsidiaries of securities firms. However, the 2022 Measures may not apply to the subsidiaries of futures companies because their main business is not specifically considered "financial" in nature. In addition, according to the PBoC Reply, FMCs will be required to undertake AML obligations for their subsidiaries; however, PBoC may study further the AML system, the allocation of administrative resources and other issues relating to FMC subsidiaries, and then decide at a later stage whether these subsidiaries will be separately included as AML obligors. Based on the PBoC Reply, FMC subsidiaries may be classified as "other institutions engaging in financial business as determined and announced by PBoC" as stipulated in the 2022 Measures. The requirements under the 2022 Measures will still apply by reference to FMC subsidiaries during the routine performance of their AML obligations.

Notably, the applicable scope of the 2022 Measures does not cover private fund managers (including institutions such as PFM WFOE, QDLP, QDIE and QFLP). According to the PBoC Reply, private fund managers are not included because: (i) the current definition and scope of "private fund manager" remain vague and may need further clarification from regulators; and (ii) in light of their large numbers, complex classification and limited administrative resources, it would be difficult from a practical perspective to unify regulatory requirements and substantially carry out AML work for private fund managers. PBoC intends to further study the potential money laundering risks of private fund products in conjunction with the relevant competent authorities.  

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