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    IMF Publishes Technical Notes on FMIs and AML/CFT in China Under FSAP

    June 26, 2018

    IMF published two technical notes on China as part of the Financial Sector Assessment Program (FSAP). One technical note addresses systemic oversight of financial market infrastructures (FMIs) while the other note assesses the anti-money laundering and combating the financing of terrorism (AML/CFT) framework in the country.

    Technical note on FMIs. China’s landscape for Financial Market Infrastructures (FMIs) is one of the largest and most complex in the world. It consists of a range of payment, clearing and settlement systems, including several interbank payment systems, securities settlement systems and central counterparties (CCPs). FMIs in China have been analyzed from a supervision, oversight, and systemic risk management perspective.Since the previous FSAP, the supervision and oversight of FMIs has strengthened through the adoption of the CPSS-IOSCO Principles for FMIs (PFMI); the full implementation of the PFMI is the next step. The mission found weaknesses in the legal framework for FMIs regarding finality and netting of transactions, which potentially expose FMIs and their participants to significant credit and liquidity risks. Cyber risk has been identified by authorities as an important supervisory topic in relation to FMIs. The mission also recommends that China should develop recovery and resolution planning in line with international guidance. Finally, resilience of FMIs can be strengthened through the provision of central bank services to all solvent, systemically important FMIs.

    Technical note on AML/CFT. This technical note sets out the findings and recommendations made in the FSAP for China in the area of anti-money laundering and combating the financing of terrorism (AML/CFT). It summarizes the findings of a targeted review of the progress of China in addressing vulnerabilities with respect to the anti-corruption framework as it relates to money laundering and the supervision of financial institutions, with a focus on the banking sector. The People’s Bank of China (PBC) has taken a number of measures to strengthen its supervisory arrangements. A significant development is the initial implementation of a risk-based approach to supervision by requiring institutions to undertake self-assessments and by developing its own internal methodology for prioritizing institutions for supervisory oversight. However, there is room to strengthen the existing arrangements. In developing its supervisory priorities, PBC should increase its focus on group-wide risk. PBC and the sector supervisors should strengthen their cooperation to ensure the effectiveness of overall supervisory activities. PBC is also encouraged to expedite the roll out of its internal risk assessment mechanisms to banks across the country. Finally, the authorities should strengthen the sanctions that can be imposed on financial institutions for breaches of the Anti-Money Laundering Law 2007 to make them more dissuasive, especially for the large banking institutions.

     

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    Keywords: Asia Pacific, China, PMI, Banking, FSAP, FMI, AML/CFT, IMF

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