Tougher new banking rules suspended in sensible 'compromise'

It is unusual for the authorities to suspend a new rule on such a short notice.

On January 26, the People's Bank of China, China's central bank, released a document on its official website demanding that financial institutions carry out tougher due diligence starting from March.

On February 21, or one week before the implementation of the rule, the central bank said the process will be suspended due to some "technical reasons" and did not set a timetable.

The decision seemed to come all of a sudden, but it did not. There has been a wave of public feedback after media reports highlighted one clause in the lengthy document.

They highlighted that when any customer's cash transactions surpass 50,000 yuan (US$7,924), or a foreign currency equivalent to more than US$10,000, financial institutions should verify the identity of the customer and register the sources or purpose of the funds.

It caused a public stir despite the fact that there are not many people nowadays going to banks to conduct such a large cash transaction. More often, people transfer money via their digital accounts.

So what kind of customer prefers cash transactions? In the opinion of Dong Ximiao, a researcher at Merchants Union Consumer Finance Co Ltd, money launderers and people involved in telemarketing scams are more likely to do so because cash is anonymous and more difficult to track.

That explains why the central bank has issued such a new policy. It is intended to protect people.

The bank has carried out pilot implementations in Hebei Province since July 2020, demanding identification of a bank customer who borrows or lends more than 100,000 yuan.

Unexpected by authorities may be people's misunderstanding of the new rule. Since it was made public, many people have been writing posts online, expressing fears of trouble when they deposit or withdraw money in the future.

"What if someone refuses to cooperate, will the banks confiscate the money?" some people wrote. There is no answer in the current document about the new rule.

Others debated that "it is not about money, it is about privacy" and said the authorities have taken it for granted that people will accept the rule for its intended good purpose.

In its latest notice, the central bank cited that some small and medium-sized financial institutions have to revise and improve their internal management systems for the new rule and conduct training to meet the specific standards and requirements.

"Bear in mind that the implementation of the measures has been suspended," the central bank said.

For any new rules to succeed, good implementation is indispensable, although good design of the rule also lays the foundation.

For the next step, the central bank may need to spend some time further explaining the rules – why it is important to change, what if people refuse to provide personal information, and how to verify the information.

It takes time, but it is valuable to convince people they are worthwhile.