Industrial and Commercial Bank of China Limited (ICBC), Agricultural Bank of China Limited (ABC), Bank of China Limited (BOC), China Construction Bank Corporation (CCB), Bank of Communications Co., Ltd., China CITIC Bank Corporation Limited (CITIC) and China Merchants Bank Co., Ltd. (CMB):

To enhance internal controls and external supervision of banks, promote banks to enhance their foreign exchange compliance and curb foreign exchange incompliance and illegalities, the State Administration of Foreign Exchange (SAFE) decides to organize a special inspection of banks for foreign exchange compliance soon. The relevant particulars are hereby notified as follows:

I. Purposes of Inspection

(I) Identify the typical problems and hidden risks in banks' foreign exchange business and prevent and mitigate risks to make sure systematic and regional risks do not occur.

(II) Identify banks' deficiency in implementing policies and regulations on foreign exchange administration, and promote banks to enhance internal controls and their foreign exchange compliance.

(III) Focus on identifying banks' illegitimate cross-market, cross-industry and cross-border arbitrages, and evasion or violation of regulatory rules with innovative foreign exchange products such as financial derivatives transactions and emerging foreign exchange settlement and sales on behalf of customers.

II. Arrangements

This inspection will be carried out in three phases, namely, self-check by banks, offsite and onsite inspection by the SAFE, and rectification by banks.

(I) Between January 4 and February 9, 2015, the head office, branches and sub-branches of your bank are required to conduct a comprehensive self-check, and the SAFE will carry out offsite inspection in terms of the foreign exchange business.

(II) Between February 10 and mid-March 2015, the SAFE will conduct an onsite inspection on some branches and sub-branches of your bank based on the results of self-check and the SAFE's offsite inspection.

(III) Your bank is required to rectify the violations as identified in the self-check and the SAFE's inspection by May 31.

III. Contents of Self-check and Inspection

This self-check and inspection should focus on: 

(I) Rectification of violations identified in previous inspections. Has your bank carefully conducted rectification after the illegalities and violations regarding foreign exchange business were identified in 2013 and 2014? Have the rectification measures been implemented? Has your bank improved and enhanced internal controls regarding foreign exchange business in terms of organizational structure, internal control system, business process, performance appraisal mechanism and system building?

(II) Internal controls and implementation of principles for business expansion. The inspection will focus on whether the internal control system for foreign exchange business is sound enough to cover all the foreign exchange transactions; whether the internal control system is inconsistent with foreign exchange administration regulations and unable to effectively ensure the implementation of foreign exchange administration policies, or whether the internal control system is not promptly upgraded along with the changes in foreign exchange administration policies; whether internal controls for foreign exchange business are effectively implemented or regulated; whether the  principles for business expansion are effectively implemented; whether the implementation of principles for business expansion is standardized or refined in terms of the internal control system.

(III) Foreign exchange compliance. The SAFE will inspect the foreign exchange transactions your bank handled between January 1 and December 31, 2014, which will be dated back or extended if necessary. The inspection will focus on identifying the illegitimate cross-market, cross-industry and cross-border arbitrages, and evasion or violation of regulatory rules with innovative foreign exchange products such as financial derivatives transactions and emerging foreign exchange settlement and sales on behalf of customers.

Specifically the inspection will focus on:

1. Foreign exchange business under the current account

Compliance of your bank in handling foreign exchange business under trade in goods/services and trade finance.

2. Foreign exchange under the capital account

Compliance of your bank in handling foreign exchange business under the capital account including foreign exchange capital, external debt, foreign exchange loan, outbound direct investment, cross-border guarantee and individual capital account.

3. Foreign exchange sales and settlement for Individuals

Compliance of your bank in handling the receipts, payments, settlement, sales of foreign exchange and cash withdrawal as well as bank card operations for domestic residents and non-resident individuals.

4. Declaration of BOP and submission of relevant statements

The timeliness, accuracy and completeness of BOP declared and relevant statements submitted.

5. Other foreign exchange business compliance

IV. Requirements

(I) Your bank must pay high attention to the self-check. Specifically you are required to conduct a comprehensive self-check in your systems by building a level-based accountability system and introducing comprehensive measures without any ignorance, making sure the self-check is effective.

(II) Your bank must be serious about the self-check and voluntarily report the illegalities and violations discovered. Your bank is required to summarize the self-check results of the head office and branches and submit to the SAFE the self-check report and statistical form (see appendix) as well as clues if any suspected violation is identified by February 9, 2015. Meanwhile, the provincial branches of your bank are required to summarize the self-check results of the branches and sub-branches within their jurisdiction and submit the self-check report and statistical form to the local branches of the SAFE. The self-check report should contain the self-check implementation and contents, problems identified, causes of problems, rectification measures, time of rectification, responsible department, responsible person, etc. Whoever voluntarily reports the illegalities and violations in their self-check report will be given a lesser or mitigated punishment by the SAFE.

(III) Your bank should identify causes behind the problems and rectify them and build a long-term foreign exchange compliance mechanism. The head office and provincial branches of your bank are required to submit the rectification report to the SAFE and the local branches of the SAFE by May 31, 2015. The rectification report should contain the implementation results and progress of the rectification measures, etc.. 

(IV) The branches and sub-branches of your bank should cooperate with the local branches of the SAFE in offsite and onsite inspections, submit required materials and work with the SAFE in surveys, questions and inspections.

Please contact the Supervision and Inspection Department of the SAFE if you have any problem.

Contact person: Xu Haoxiong, 010-68402391; Zhang Cheng, 010-68402360.

Appendix: Form for Self-check of Foreign Exchange Compliance by ___ Bank

State Administration of Foreign Exchange

December 31, 2014