Chinese Payments and Sanctions Compliance

by Arin Ray, November 30, 2012
Industry Trends
Asia-Pacific

Abstract

A survey-based study by Celent and sponsored by Dow Jones Risk & Compliance explores the growing importance of the Chinese Renminbi in international payments, and bank activities and future plans on and around the use of Chinese Commercial Code (CCC).

In the report, Chinese Payments and Sanctions Compliance, Celent studies the growing use of the Chinese currency in international trade settlement and technological challenges associated with handling and monitoring international payments. The report focuses particularly on the use of Chinese Commercial Code in international payments involving China.

China’s economy has grown rapidly over the last decade to become the world’s second biggest economy, largely propelled by its international trade. Yet China’s currency accounts for a small proportion of international trade settlement. Chinese authorities are making concerted efforts to internationalize their currency. Their efforts are bearing fruit, as observed from the RMB’s increasing use in cross-border trade settlement. China is also among the highest recipients of remittances in the world.

“Along with the formal inflow of funds, the size of illicit fund flows is also significant in China. This makes money laundering risk inherent in international RMB transactions,” says Arin Ray, an analyst with Celent’s Securities & Investments Group and author of the report. “Adoption levels of best practices in anti-money laundering (AML) are moderate in Chinese banks at present.”

There are a number of issues that make AML operations challenging in the Chinese context. Celent conducted a survey among different banks to understand the specific issues involved in dealing with Chinese names in international transactions. Findings of the report include:

  • One major technological challenge in handling and monitoring international transactions lies in the area of use of Chinese names and Chinese characters and transliterating them for transaction monitoring purposes.
  • Chinese Commercial Code represents significant compliance risks. CCC is commonly used in international payments, but is not widely applied to AML. Only some leading global banks have advanced use of CCC and use them in multiple processes.
  • However, few banks are addressing this issue seriously at the moment as most banks await some industrywide standards and frameworks to emerge. In over half of the banks surveyed, CCC-related issues are handled manually by internal teams.
  • The current regulatory requirements regarding CCC are minimal. Authorities need to pay adequate attention and develop industrywide standards to make CCC viable.

This 32-page report contains 18 figures and 4 tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

Background

2

Introduction

3

Globalization of China’s Currency

5

 

RMB Internationalization

5

 

Remittance

8

AML Practices in China

11

Celent’s Survey

14

 

Objective of the Survey

14

 

Methodology

14

Survey Results

16

 

Profile of Respondents

16

 

Analysis of Market Trends

17

Conclusion

26

Leveraging Celent’s Expertise

27

 

Support for Financial Institutions

27

 

Support for Vendors

27

Related Celent Research

28

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