FIs will be required to verify the identities of all ultimate beneficial owners of accounts opened and maintained for all customers.
The PBOC (People’s Bank of China), CBIRC (China Banking and Insurance Regulatory Commission), and CSRC (China Securities Regulatory Commission) have drafted new customer due diligence rules for financial institutions.
Under the new rules, financial institutions will be required to identify and verify the identities of all ultimate beneficial owners of accounts opened and maintained for all customers, as part of efforts to align domestic requirements with international standards on AML/CTF.
Under 2007 guidelines, financial institutions were only required to verify an account holder’s identity before processing transactions on their behalf.
The new rules place emphasis on the risk-based approach to customer due diligence. and requirements to preserve identity information and transaction records of customers.
Customer due diligence requirements are also raised for higher-risk business, such as transactions involving PEPs (politically-exposed persons) – both domestic and international – and new technologies.
“For customers with the highest level of money laundering or terrorist financing risk, financial institutions shall conduct an audit at least every six months,” the rules say.
The new rules will apply to nonbank financial institutions, including securities businesses, online payments firms, online lenders, and third-party distributors and agents.
This helps to address findings from the FATF (Financial Action Task Force) in its 2019 mutual evaluation of China. The report said AML/CTF measures at nonbank financial institutions needed to be improved.
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The FATF issued its first enhanced follow-up report in October 2020, re-rating China on two recommendations. China is now largely compliant on 18 of the 40 Recommendations; compliant on 7; partially compliant on 9; and not compliant on 6.
In recent months, China has issued AML guidelines for cross-border business, formalised requirements for payments firms, and revised rules to enhance the effectiveness of AML supervision. AML rules were also drafted for Beijing’s real estate sector and for microfinance institutions.
China is due to report back to the FATF in October 2021.