The State Administration of Foreign Exchange (SAFE) has recently issued the Guidelines on Code of Conduct for the Foreign Exchange Market (Huifa No. 34 [2021], hereinafter referred to as the Guidelines). The SAFE Deputy Administrator and Press Spokesperson Wang Chunying answered media questions on relevant content of the Guidelines.

Q: Could you brief us on the background of the Guidelines?

A: In recent years, countries around the world have generally strengthened the governance of the foreign exchange market, in order to promote it operate in a more standardized manner. For example, financial regulators of major economies, using the Bank for International Settlements as a platform, formulated the FX Global Code in 2017, and established a Global Foreign Exchange Committee to promote the implementation of the guidelines. China is also an important participant.

The SAFE attaches great importance to and actively promotes the standardized operation of the foreign exchange market. Under its guidance, the China Foreign Exchange Trade System organized market makers in the interbank foreign exchange market to formulate and issue the Guidelines on Professional Ethics and Market Practices in the Interbank Foreign Exchange Market in 2014. Under the joint instruction of the SAFE and the People’s Bank of China, in reference to the FX Global Code and based on the practice of China’s foreign exchange market, the Guidelines for China’s Foreign Exchange Market were released by the self-regulatory mechanism for the national foreign exchange market in 2017. The SAFE instructed the China Foreign Exchange Trade System to revise the Trading Rules of Interbank Renminbi Foreign Exchange Market in 2020. These laws and regulations mentioned above have played a positive role in promoting and standardizing the development of China’s foreign exchange market.

In order to further guide the standardized operation of the foreign exchange market, the SAFE formulated the Guidelines on the basis of summarizing the previous supervision experience and learning the opinions of relevant departments, market subjects and the public through full investigation. The Guidelines enriched the existing supervision and regulation system of the foreign exchange market, and promoted honest, fair, orderly and efficient operation of the foreign exchange market.

Q: Could you tell us the scope and subjects of the Guidelines?

A: The scope of application of the Guidelines includes the interbank market and the over-the-counter (OTC) market. The subjects of the Guidelines are defined as all parties involved in the foreign exchange market. The institutions engaging in foreign exchange transactions, China Foreign Exchange Trade System, Shanghai Clearing House, and the money brokerage companies are all incorporated into the concept of “market participants”. All the market participants shall abide by the code of conduct on an equal basis. Among them, banks and other financial institutions, as the main suppliers of financial services, are the core participants in providing foreign exchange market services from a professional perspective, and as a result they are the major supervision subjects of the Guidelines.

Q: Could you tell us the core content of regulation under the Guidelines?

A: The Guidelines focus on regulating transactions in the foreign exchange market, and the core content is transaction management and information management.

Market participants shall process customer trading instructions or orders in a fair, transparent and honest manner, properly eliminate or manage conflicts of interest, conduct proprietary foreign exchange transactions reasonably. They shall not transfer profits, engage in trading activities using non-public information, or engage in market manipulation or fraud.

Market participants shall effectively identify and protect sensitive information, exchange transaction information in a manner in accordance with regulations, properly preserve transaction information records and exchange information records, and perform information disclosure obligations to customers or the public.

Q: Could you tell us the impact of the Guidelines on banks and foreign exchange markets?

A: The issuance of the Guidelines is an important measure for the construction and governance of China’s foreign exchange market, and it plays a positive role in promoting the development of the foreign exchange market.

First, the Guidelines will facilitate the smooth and orderly operation of the foreign exchange market. The Guidelines are the crystallization of practices in the foreign exchange market, reflecting the needs of banks and other financial institutions. Since its establishment in 1994, China’s foreign exchange market has generally maintained stable and standardized operation. As early as 2014 and 2017, China issued the Guidelines on Professional Ethics and Market Practices in the Interbank Foreign Exchange Market and the Guidelines for China’s Foreign Exchange Market in the form of market self-regulatory codes. Based on practical experience in the market, the Guidelines upgrade the effective rules in the above self-regulatory codes into regulations to further provide legal guarantee for the standardized operation of the foreign exchange market.
Second, the Guidelines are conducive to further exerting the role of the foreign exchange market in serving the real economy. The  Guidelines put forward specific requirements for banks and other financial institutions to perform the principles of openness, fairness, justice and integrity in OTC foreign exchange transactions conducted by customers, which will have positive impacts on participants in China’s foreign exchange market and better serve the real economy.
Third, the Guidelines help China’s foreign exchange market in docking of mature rules in the international market. Benchmarking the FX Global Code and the latest practice of international financial regulatory reform, the Guidelines contribute to promoting the integration of China’s foreign exchange market management rules with international standard. Thus, it is of positive significance for China’s banks to participate in global competition and expand the opening-up of the financial market.

In recent years, banks have continued to promote various tasks in terms of system, equipment, personnel and other aspects in compliance with the self-regulatory requirements of the foreign exchange market, and consolidated the foundation of standardized operation. The Guidelines are generally based on market practices and experience and will not affect banks’ normal participation in foreign exchange transactions or their existing foreign exchange business with their customers.
Q: The Guidelines set up a transitional period for OTC foreign exchange transactions conducted by banks and other financial institutions. Could you tell us what are the main considerations?
A: The formulation of the Guidelines draws on the latest international regulatory experience, absorbs the self-regulatory standard on dealing with customers from the FX Global Code and the Guidelines for China’s Foreign Exchange Market. When conducting OTC foreign exchange transactions, it requires banks and other financial institutions to handle customer transaction orders fairly, protect customer sensitive information, and must not take advantage of market position of comparative advantage, or take improper behavior to harm the interests of customers.

According to the opinions solicited in the early stage, banks and other financial institutions still need to make some preparations for the implementation of the Guidelines for customers’ OTC foreign exchange transactions, for instance, retaining exchange records related to the transactions of enterprises and other customers. The transitional period can facilitate banks and other financial institutions to carry out relevant preparations.