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HSBC, Standard Chartered confirm China forex probe

HSBC and Standard Chartered confirmed yesterday 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 Tuesday 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," the bank 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 macroeconomic 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," SAFE Deputy Director Deng Xianhong (鄧先宏) said.

Chinese authorities have become alarmed as the stock market and economy have 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 overheated industries, with the banking sector coming increasingly into focus.

Auditors have found misconduct affecting 15.5 billion yuan (US$2 billion) at three of China's biggest banks, the country's auditor general reported.

The National Audit Office report, issued late on Wednesday, added to an embarrassing string of revelations of mismanagement at China's state-owned banks at a time when many are raising money from foreign investors.

The latest investigation found violations of law or regulations at Bank of China Ltd (中國銀行), the country's No. 2 commercial lender, Bank of Communications Co (交通銀行) and Merchants Bank Co (招商銀行), Auditor General Li Jinhua (李金華) said in a report to the national legislature.

A copy was posted on the agency Web site.

Violations included lending money for real estate development in defiance of government efforts to slow speculation in the industry, the report said. It did not single out any bank employees or say whether the mishandled money was recovered.

Last week, China's banking regulator reprimanded and fined eight domestic banks for lending 3.14 billion yuan (US$410 million) to two state-run enterprises that illegally invested the funds in land and stocks.

Investigations at other banks have revealed embezzlement, employees taking bribes to approve improper loans or violations of regulations on the size and purpose of loans.
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