China orders banks to check for illegal activity in the Forex market

China’s Forex regulator, the State Administration of Foreign Exchange (SAFE) has ordered major state banks to check for possible illegal activity in the currency market, as it tries to clamp down on speculative money flows in and out of the country according to reports emanating from Reuters sources.

Banks are being asked to examine cross-border deals involving derivatives and other innovative currency products that may have violated its regulations, SAFE said in a statement posted on its website on Tuesday.

The press conference held today revealed the following: “From the beginning of the year (2014) to November, 1,710 cases of foreign exchange violations were investigated and dealt with, imposing and collecting administrative fines in the amount of RMB 400 million. Second, strengthening cross-departmental financial regulatory cooperation. The SAFE has worked with the Ministry of Public Security to crack down on foreign exchange illegalities, such as underground banks and foreign exchange margin trading.”

SAFE did mention FX margin trading as noted above, LeapRate has been covering any regulation regarding FX for retail traders coming out of China. What we have seen so far is that it looks like the Chinese are doing what they can to mitigate foreign soliciting of Chinese clients, and that “illegal” constitutes FX firms from the outside world soliciting in China and depositing money abroad.

China can’t do much about it once the funds are outside China, so for now it looks like SAFE and other authorities from Beijing may try as hard as possible to prevent retail FX activity from within China escaping the mainland until regulations are more set in stone.

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This audit will run from January to May, and banks involved include Industrial and Commercial Bank of China , Bank of China, Agriculture Bank of China and China Construction Bank , the regulator said.

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