The Strictest New Rules for Local and Foreign Capital Settlement Services from the Central Bank - The Violator will be Banned by Industry
Source: http://www.nbd.com.cn/ View: 205 Date: 2015-07-08

For the frequent risk incidents appeared in Local and Foreign Capital Settlement Services, recently, the Central Bank has published the strictest management notice in market in history - “The Notice on Strengthening Outsourcing Management of Local and Foreign Capital Settlement Services from Bank” (“The Notice”). “The Notice” indicates that will take measures such as forbidding entering to service outsourcing industry for relative offenders and institutions.

According to report’s observation, “The Notice” regulates outsourcing management of local and foreign capital settlement services from some aspects including choosing outsourcing service, practically implementing inspection obligation of specially engaged commerce, making outsourcing business autonomy to show the power and determination of the Central Bank.

Industrial view: the new rules directly targets industrial ills

"The Notice” requires settlement institutions should forbid and take effective measures to avoid outsourcing service institutions to make over or subcontract businesses via agreement; don’t take works such as certificate approval, agreement singing-up, settlement business delivery of specifically engaged commerce over outsourcing service institutions; don’t transfer settlement funds of specifically engaged commerce to outsourcing service institutions or practically control settlement account.

One of industrial insiders indicates that the new rule directly targets the heavy violate phenomenon of “private settlement” currently. Now, because many “private settlement” outsourcing institutions have core business of local and foreign capital settlement service, then there exists huge safe hidden trouble of capital between merchants and consumers.

Besides regulating settlement business, the strictest in new rule is the punishment measure. “The Notice” indicates that if capital from specifically engaged commerce, the cardholders and card issuers has been loosen because of outsourcing service institutions, the settlement institutions will be undertaken leading compensation responsibility in full. Meanwhile, to construct and perfect reporting incentives mechanism of violated behaviors for settlement institutions and outsourcing service institutions. “The Notice” also indicates that will forbid relative personnel and institutions entering into outsourcing service market, if they fake or alter commercial resources; store, steal or leak sensitive information of card; implement, participate or help malignant violation behaviors such as fraud, cashing out, and money laundering of bank card.

Industrial insiders believe that the Central Bank hopes commerce, social public and all people in settlement chain to participate, to monitor and report then to accomplish targets of regulating market.

For settlement institutions, the punishment will be also strict. “The Notice” regulates to increase punishment power and take direct punishment for relative violation institutions and the directors, high level managers and other managers who have direct obligations.

Commit crime means have intelligent characteristics

In fact, “The Notice on Strengthening Bank Card Management” published by the Central Bank in last years has indicated regulations and management of relative outsourcing businesses.

Therefore this strictest measure is to mainly change serious phenomenon in settlement market.

Jinghui Tan, director of Payment Tool Management of Payment and Settlement Department said before, in 2014, pre sale risks gathering in some locations, the leak of users’ name and password on CSEN, Xicheng illegally stored sensitive information of cardholders all of them brought information leaking risks and brought huge hidden trouble for capital safety from cardholders.  ATM of some commercial banks illegally stored sensitive information of bank card that gained by personnel of outsourcing institutions then faked and steeled capital. Part bank card were unauthorized because POS of some commercial institutions leaked bank card information. And some settlement systems from non-bank institutions illegal stored sensitive information of cardholders then the cards were unauthorized overseas. “The commit crime means from criminals appear constantly intelligent and professional trends” Jinghui Tan said. Especially the huge violation behaviors from outsourcing service institutions of settlement institutions also intensified troubles in market and continuously expand risks in market.

According to data provided from China UnionPay, after direct connection of institutions and banks, settlement market divided into two sets of price systems that bring many merchants to arbitrage then make troubles in market of UnionPay cards. Besides that, new type of violation behaviors frequently appears. For example, “widespread fraud”----batch of faking business licenses, shop pictures and other resources; “Qieji”----to change other institutions into owned merchants without authorization via “upgrading POS” or “reducing discount”; “Erqing”-----settlement institutions transfer merchants’ capital into account via the third-party institutions or private settlement when doing settlement business, not into account via direct settlement. “Systematic alter trade”-----settlement institutions open bank card delivery on accepted terminal of same merchant via technology, integrate several sets of delivery and distribute into code of multi-merchant or multi-channel.

According to survey from Payment and Settlement of Department, settlement institutions and their many outsourcing service institutions have different qualities. They see relative regulatory as joke, don’t fully implement those policies then lead appearance of risks. Those businesses from partly non-bank institutions tend to occupy market, so they have very weak awareness of regulatory and risks. And approvals of outsourcing institutions’ qualification only in form or no examination are still problems in market.

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