I. Background of Releasing the Administrative Rules on Anti-Money Laundering and Combating Financing Terrorism of Internet Financial Institutions (Trial)

In July 2015, the People’s Bank of China (hereinafter referred to as the PBC), together with 9 other ministries and commissions jointly issued the Guiding Opinions on Promoting Sound Development of Internet Finance (PBC Document No. 221 [2015]). It is stipulated that the PBC plays a leading role in supervising the fulfillment of anti-money laundering (AML) obligations by the institutions and formulating relevant regulatory rules. In April 2016, the General Office of the State Council issued the Implementation Plan for Special Rectification of Internet Financial Risks. Since the inception of rectification work, the overall risk level of Internet finance has dropped significantly, and the regulatory mechanisms and systems have been gradually improved. However, the task of risk prevention and resolution of Internet finance is still in a crucial stage. In order to regulate the AML and countering-financing terrorism (CFT) work of Internet financial institutions and effectively prevent money laundering and terrorist financing activities, the PBC, China Banking and Insurance Regulatory Commission (CBIRC) and China Securities Regulatory Commission (CSRC) formulated the Administrative Rules on Anti-Money Laundering and Combating Financing Terrorism of Internet Financial Institutions (Trial) (hereinafter referred to as the Administrative Rules).

II. Aims of Releasing the Administrative Rules

Firstly, it is aimed at establishing an AML supervision mechanism that combines supervision with self-discipline. It is specified that the coordinated supervision by the PBC and relevant supervisory institutions of the State Council shall be combined with the self-discipline management of the National Internet Finance Association of China (NIFA), so there is both responsibility fulfillment by each institution and cooperation with each other. Meanwhile, NIFA and other industry self-disciplinary organizations shall be given a full role to play in management, so as to encourage the institutions to strengthen internal control, enhance AML awareness, and improve regulatory effectiveness. Secondly, it is aimed at establishing a framework of regulatory rules effective for the Internet finance industry. The Administrative Rules make rules of principles on AML obligations for institutions. At the same time, it is stated that NIFA shall coordinate other industry self-regulatory organizations in formulating industry rules, so as to bridge supervision and self-disciplinary management.

III. Main Contents of the Administrative Rules

The Administrative Rules mainly regulate the AML and CFT of Internet financial institutions in the following three aspects.

1. Specifying scope of application. The Administrative Rules are applicable to institutions that are established upon approval or registration by competent authorities within the territory of the People's Republic of China and engaged in Internet finance business in compliance with laws and regulations.

2. Stipulating basic obligations. Firstly, internal control mechanisms for AML and CFT shall be established and improved. Institutions shall follow a risk-based approach while formulating and improving AML and CFT internal control systems in accordance with laws, rules, regulations, regulatory documents and industry norms. Secondly, customer identification shall be conducted effectively. Institutions shall collect necessary information in accordance with laws, rules, regulations, regulatory documents and industry norms, use information from reliable channels and take proper measures to identify and verify customer identities and to determine and timely adjust the risk level of customers. Should there be any doubt about the customer’s identity data, re-identification shall be done. Thirdly, large value and suspicious transactions shall be reported. Institutions shall comply with large value and suspicious transaction reporting requirements, establish and improve the monitoring system, customize transaction monitoring standards and customer behavior monitoring programs, and report suspicious transactions based on reasonable doubts. Fourthly, the terrorism-related list shall be monitored. Institutions shall conduct real-time monitoring of terrorism-related list. If there are reasonable doubts that a customer or his counterparty, funds or other assets are related to the list, institutions shall immediately submit a suspicious transaction report and freeze relevant funds or other assets in accordance with laws and regulations. Fifthly, customer identity data and transaction records shall be preserved. Institutions shall properly preserve the information, data and documents in relation to AML and CFT, ensuring that each transaction could be reproduced and relevant work be traced.

3. Stipulating supervisory duties. The Administrative Rules stipulates that institutions shall accept on-site inspection, off-site supervision and AML investigation by the PBC and its branches in accordance with laws and regulations, and be cooperative in supervision by relevant financial supervisory institutions of the State Council and their local offices in accordance with laws and regulations. In terms of regulatory penalties, it is stipulated that if violation of the Administrative Rules occurs, relevant institutions shall be ordered to make rectification within a time limit and get punished according to laws and regulations by the PBC and its branches and relevant financial supervisory institutions of the State Council and their local offices. Once they are suspected of crimes by violating relevant laws, administrative rules, regulations and the Administrative Rules, institutions shall be transferred to the judicial organs for criminal responsibility.