New Guidelines on Foreign Exchange Transactions under Current Account Items

On 28 August 2020, the State Administration of Foreign Exchange ("SAFE") promulgated the Guidelines on Foreign Exchange Transactions s under Current Account Items (Edition 2020) ("New Guidelines"). The Guidelines took effect on the same day. The New Guidelines have eight chapters, i.e. foreign exchange transactions for trade in goods, foreign exchange transactions for trade in services, individual foreign exchange transactions under current account items, foreign currency banknote transactions, foreign exchange transactions under current account items of insurance institutions, foreign exchange transactions of payment institutions, other foreign exchange transactions under current account items, monitoring and administration.The New Guidelines comprehensively integrate the current laws and regulations regarding foreign exchange transactions under current account items. At the same time, 29 existing foreign exchange regulations, the contents of which have been combined into the New Guidelines, have been accordingly abolished.

The New Guidelines did not bring substantial amendments of the current foreign exchange policies for current account items. Compared to the Guidelines on Foreign Exchange Transactions under Current Account Items (Edition 2014) ("Old Guidelines"), certain procedures and application documents have been simplified, and more autonomy will be granted to enterprises and banks.

Below is an overview on some important changes.

1. Simplification of procedures and application documents

The SAFE and its branches and sub-branches shall implement the administration of registration on the Directory of Enterprises with Foreign Exchange Receipts and Payments for Trade (the "Directory") and release the Directory through the Foreign Exchange Monitoring System for Trade in Goods. Banks and payment institutions shall in principle not process foreign exchange receipts and payments for trade in goods for enterprises not included in the Directory. In this regard, the New Guidelines stipulate that small and micro cross-border e-commerce enterprises with an accumulated amount of annual foreign exchange receipts or payments for trade in goods of less than USD 200,000 or the equivalent (exclusive) may be exempted from going through the directory-based registration.

According to the New Guidelines, enterprises with actual business needs for foreign exchange receipts and payments for trade in goods shall submit an Application Form for Registration on the Directory of Enterprises with Foreign Exchange Receipts and Payments for Trade and their business license to apply to the foreign exchange authorities at their location for registration on the Directory. Compared to the old Guidelines, the Foreign Trade Operator Filing Receipt is not required as one of the application documents any more.

Further, according to the New Guidelines, the changes to the basic information of the enterprises as well as deregistration from the Directory do not need to be registered with the SAFE anymore. Instead, enterprises only need to make a report to the competent branch of the SAFE.

2. Banks and enterprises enjoy more autonomy

According to the New Guidelines, banks enjoy more autonomy than before. For example, under the principles of "know your customers", "know your business" and "due diligence", banks may determine by themselves what kind of transaction documents shall be checked, whether to go through the verification procedures for import declaration and whether to endorse the amount and date of foreign exchange receipts and payments and affix the business seal on the documentation etc.

• When an enterprise makes foreign exchange payments for trade in goods, the bank may independently determine the types of transaction documents to be examined according to actual business practices. Transaction documents shall include, but not be limited to, contract (agreement), invoice, import and export declaration form, entry and exit record-filing list, transport documents, bonded verification and endorsement list and other valid vouchers and commercial documents.
• When examining foreign exchange receipts and payments under current account items pursuant to the provisions, a bank may independently decide whether to endorse the amount and date of foreign exchange receipts and payments and affix the business seal on the documentation based on the internal control requirements and actual business needs and under the substantive compliance principle.
• When handling foreign exchange payments for trade in goods, banks may independently determine whether to go through the verification procedures for the corresponding electronic information on import declaration. Further, banks may waive the verification procedures if they can confirm the authenticity and legitimacy of the payment of foreign exchange according to the documents provided by enterprises.
• When handling foreign exchange receipt and payment transactions under current account items for domestic institutions, banks may examine paper documents or electronic documents. A bank shall, based on the extent of risks, determine the criteria and requirements for processing of foreign exchange payments and receipts for trade in goods via examination of electronic documents, select enterprises for examination of electronic documents independently and prudently, and confirm the veracity and compliance of receipts and payments.

From the perspective of enterprises, under the New Guidelines enterprises also have some autonomy. When processing foreign exchange receipts for trade in goods, an enterprise may decide independently whether to open an export revenue account to be verified. Foreign exchange income from trade in goods of an enterprise may first be deposited into the pending verification account for export revenue or deposited into the enterprise's foreign exchange settlement account under current account items or for settlement of foreign exchange.

3. Other highlights

The New Guidelines emphasize the authenticity of transactions under the current account items.

According to Article 7 of the New Guidelines, foreign exchange receipts and payments for trade in goods shall be based on true and legitimate transactions, and enterprises shall not fabricate trade background to handle foreign exchange receipts and payments business.

Further, according to Article 15 of the New Guidelines, when handling domestic foreign exchange loan business with the background of trade in goods, enterprises may not fabricate a trade background to obtain bank financing. When providing the aforesaid domestic foreign exchange loan services, banks shall take effective measures to prevent risks, strengthen the background review of trade in goods and confirm the authenticity and logical rationality of transactions.

4. Conclusion

The New Guidelines constitute a comprehensive integration of existing regulations on all kinds of foreign exchange transactions under current account items, simplified unnecessary procedures and application documents and granted more autonomy to banks and enterprises. In the future it will be more convenient for banks and enterprises to handle the relevant foreign exchange transactions by referring to such a comprehensive guide. Since no substantial amendments have been made to the current foreign exchange policies for current account items, the New Guidelines also contribute to maintain a stable and predictable foreign exchange regime.