HSBC and Standard Chartered targeted in China foreign exchange crackdown

HSBC and Standard Chartered confirmed on June 28 they were among banks targeted in a crackdown by China's foreign exchange regulator on speculative capital inflows. The two banks said they had recently been inspected by the State Administration of Foreign Exchange (SAFE) and had taken action to ensure they complied with China's forex rules.
SAFE said on June 26 that it would crack down on fraudulent export transactions that disguise the movement of speculative funds after finding "some problems" in commercial banks' foreign exchange dealings. HSBC confirmed it was inspected by SAFE in March and April this year.
"A number of issues were identified, principally relating to the compatibility of HSBC's systems with the required regulatory reporting processes," the global banking giant said in a statement. "HSBC has been engaged in constructive discussions with SAFE since the inspections in order to take the necessary steps to meet SAFE reporting requirements," it said. Standard Chartered said it too had taken "appropriate actions" according to the findings of a SAFE audit.
"We consistently seek to act in compliance with the laws and regulations of the country," it said. A SAFE statement earlier this week said 29 banks, 19 of them domestic, had been disciplined for "assisting speculative foreign capital to enter China's stock and real estate markets disguised as trade or investment."
It said the funds had had a "definite" impact on China's macro-economic conditions, pressuring the central bank's monetary policy operations and international balance of payments. "Commercial banks themselves have sometimes not complied with procedures in dealing with foreign exchange transactions and some data submitted by banks are not up to the regulator's requirements," Deng Xianhong, SAFE's deputy director, said.
An official at SAFE said he could not immediately confirm the names of the banks involved. The authorities in China have become alarmed as the stock market and economy has boomed in the past few years, with the economy awash in money that has increasingly driven speculative investment in many asset classes.
Beijing has steadily tightened monetary policy and used administrative tools to cool the economy and its overheating elements, with the banking sector coming increasingly into focus.
Last week, China's banking regulator reprimanded and fined eight domestic banks for lending 3.14 billion yuan (410 million dollars) to two state-run enterprises that illegally invested the funds in land and stocks. The regulator said it was still looking into other banks' operations.