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22 January 2019
The State Administration of Foreign Exchange (SAFE) recently found 600 websites guilty of illegally providing foreign exchange (FX) margin trading services. As a result, SAFE:
'FX margin trading' generally refers to the investment of funds as a margin deposit, the amount of which can be expanded at a certain leverage ratio and subsequently invested in an FX trading market. The leveraging nature of FX margin trading provides investors with the freedom to control a large portion of the market while using less capital to trade.
The high yields associated with such high-risk investments have led many countries to introduce strict regulations, particularly in view of the increasing number of websites that offer FX margin trading services. Some of these websites have been launched offshore, with operators claiming that they:
Other institutions may masquerade as consulting companies or training institutions that actually provide FX trading services.
In China, entities must obtain the relevant licences from the competent financial regulatory authorities before engaging in any financial activities. Regulations regarding FX margin trading date back to 1994, when the China Securities Regulation Commission (CSRC), SAFE, the State Administration for Industry and Commerce (SAIC) and the Ministry of Public Security (MPS) issued a joint notice stating that it is illegal for:
Subsequently, in 2008 the Banking Regulatory Commission (CBRC) issued a notice providing that banking financial institutions cannot conduct, directly or indirectly, any FX margin trading business unless regulations are issued stipulating otherwise.
In 2017, in response to the increasing number of illegal websites engaging in non-permit financial products leveraged trading, the National Internet Finance Association made the following stipulations on its website:
In 2018 the People's Bank of China (PBOC), the MPS and SAFE once again jointly indicated that no institutions have been permitted by the PBOC, the CBRC, the CSRC, SAFE or their respective branches to conduct FX margin trading business in China.
In China, the legal attitude towards FX margin trading services is clear:
Under the Administrative Regulations on Foreign Exchange (revised in 2008), it is illegal to trade FX (directly or indirectly), resell FX or illegally act as an intermediary for FX trading without authorisation when the amount of FX involved is large. Organisations or individuals which do so may:
Under the Interpretation of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Criminal Cases of Fraudulent Purchase of Foreign Exchange and Illegal Foreign Exchange Trading, where FX trading occurs in an institution other than a designated FX bank or the China Foreign Exchange Trade System (or sub-centres thereof) and disturbs the order of the financial markets, the party carrying out the trading may be convicted for undertaking illegal business operations.
For further information on this topic please contact Wu Jiejiang at Jingtian & Gongcheng by telephone (+86 10 5809 1000) or email (firstname.lastname@example.org). The Jingtian & Gongcheng website can be accessed at www.jingtian.com.
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