To enhance internal control and external supervision of banks, the State Administration of Foreign Exchange (SAFE) has recently printed and distributed a circular that it would carry out a special inspection of 7 banks for foreign exchange compliance. This special inspection is designed to identify the typical problems and hidden risks in banks' foreign exchange business, understand banks' deficiency in implementing foreign exchange administration policies and regulations, promote banks to enhance their foreign exchange compliance and curb foreign exchange incompliance and illegalities. The focus of this inspection will be on the rectification of problems identified in previous inspections, internal controls of banks, their implementation of service principles, and their foreign exchange compliance.

This inspection will be carried out in three phases. The first phase, starting from January 2015 and ending on February 9, is about self-check by banks and offsite inspection by foreign exchange authorities. Banks are required to conduct a full-scale self-check and foreign exchange authorities will carry out offsite inspection at the same time. The second phase, lasting from February 10 to mid-March 2015, will be focused on onsite inspection of some bank branches and sub-branches which are selected by the foreign exchange authorities. The third phase will be a bank rectification phase. Banks will be required to complete rectification of violations identified in their self-check and the inspection by foreign exchange authorities by the end of May 2015.

According to the Circular, banks are required to conduct self-check in their systems by building a level-based accountability system and introducing comprehensive measures without any ignorance, making sure their self-checks are fruitful; they also should report their violations and illegalities, identify causes, conduct rectification and build and improve a long-term mechanism on foreign exchange compliance.

To strengthen organization and leadership, the SAFE has established a special inspection leadership team to make decisions and offer guidance on key issues, and coordinate progress and problems to be solved during this inspection.