Payment Lesson from Other Countries – China & Hong Kong

September 2013

Contents Introduction of RMB Business Challenges Encountered Solutions What We Have Learnt Recent Trends in RMB Payments 2

Introduction of RMB Business • The Scopes of RMB business can be divided into TWO parts: Cross-border Business (Since 2004) • Cross-border (Hong Kong & China) Payments • Certain restrictions for personal customers • Payments under Current & Capital accounts for corporate customers • Cross-border correspondent bank services Offshore RMB Business (Since 2010) • Without any RMB cross-border flows between China and Hong Kong • Treated like a foreign currency in Hong Kong 3

Introduction of RMB Business • Explosive growth in RMB offshore market 4

From: HKMA, Sept 2013

Introduction of RMB Business • Explosive growth in RMB offshore market 5

From: HKMA, Sept 2013

Challenges Encountered • Various restrictions exist Cross-border Personal Payments Aggregate daily limit – RMB80,000 Same name remittances allowed only Cross-border Corporate Payments Must be either current or capital accounts Transaction background must be examined Offshore Payments Strict limitations on offshore payments at the launch of RMB business 6

Challenges Encountered • Local payment system in China involved – C hina N ational A dvanced P ayment S ystem • A local payment system in China • Different payment message type (CMT vs SWIFT MT) • System in Chinese 7

Challenges Encountered • Local payment system in China involved – All cross-border payments must be processed by the RMB Clearing Bank at the beginning

CMT A bank in China Different formats and Chinese characters may be included

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A bank in Hong Kong

Solutions • Regulatory relaxations – Various measures announced by the People’s Bank of China and the Hong Kong Monetary Authority to further complete the RMB business 9

Solutions • Regulatory relaxations 2009 2010 • PBoC – Introduced cross-border trade business • PBoC – Allowed banks in China to provide RMB corresponding bank services for foreign banks • HKMA – Allowed FIs in Hong Kong to engage in RMB business in accordance with the banking practice in other currencies • HKMA – Removed the restrictions on offshore RMB payments 2013 • PBoC – Allowed banks in China to credit the payments to the beneficiary prior to verify the transaction background 10

Solutions • System enhancements & developments – The RMB Clearing Bank • Complied a set of rules for straight processing on RMB cross-border payments • Chinese characters conversion – Introduction of RMB RTGS in 2007 • The only offshore RTGS system denominated in RMB • A replica of HKD RTGS • A wide range of clearing and settlement functions 11

Solutions • Persistent communications with monetary authorities – Renminbi Services Committee in the Hong Kong Association of Banks provides a forum to discuss industry-wide issues arising out of the provision of RMB banking services in Hong Kong – Communications between the Renminbi Services Committee and the PBoC and HKMA help improving the RMB payment practice 12

What We Have Learnt Regulations take time to evolve System manipulations Effective channels with regulatory entities 13

Recent Trends in RMB Payments • Allow foreign banks to join the local clearing network directly – CIPS: C hina I nternational P ayment S ystem • PBoC announced the development of CIPS in 2011 • CIPS is most likely to operate in CHIPS way, but need to fulfill the regulations set by PBOC or SAFE • Allowing 50 to 100 Chinese and international major banks to become members, to settle and clear RMB payments through CIPS directly • Other financial institutes in the world can establish corresponding bank relationships with the CIPS members for clearing and settlement RMB payments through CIPS 14

Recent Trends in RMB Payments • Allow foreign banks to join the local clearing network directly – Payment systems in certain provinces allow banks outside China to join directly • Shenzhen Finance Settlement System (SZFSS) – Allow banks in Hong Kong to join the SZFSS, to settle Renminbi payments between Hong Kong and Shenzhen directly 15

Recent Trends in RMB Payments • Focus started to shift Personal Cross-border Payments Cross-border trade settlement payments Offshore payments 16

Recent Trends in RMB Payments • Focus started to shift 17

From: HKICL, Sept 2013

Recent Trends in RMB Payments • Focus started to shift – With the expanded RMB business scopes, more and more products & services have been developed and provided for customers – The daily RMB clearing value reached to 250 billion in 2012 18

Contact Us Ms. Christine Fan • Public Institutions Business Head, Financial Institution Department • Tel: +852 3510 8265 • Email: [email protected]

Mr. Tom Chen • Deputy Head, Corporate Banking Product Development Department • Tel: +852 3510 8300 • Email: [email protected]

Mr. Ken So • Executive Director, Corporate Banking Product Development Department • Tel: +852 3510 8903 • Email: [email protected]

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