China’s Central Bank Stresses Need for Domestic Storage of Cross-Border Financial Message Information Amid U.S. and European Concerted Sanctions Against China

China’s central bank said Tuesday that it is necessary to store cross-border financial message information within the country and use it based on internal risk control and regulatory needs. The move by the Chinese central bank coincides with the imposition of sanctions on Chinese officials by the U.S., Europe and other Western countries in concert.

A Q&A posted on the central bank’s website noted that the above measures are conducive to achieving penetrating supervision and coordinated monitoring of cross-border offshore data to better identify and manage operational and financial risks associated with core services.

“The main purpose of establishing a local network centralization point is to enhance the stability, resilience and security of user network transmission and ensure continuous processing of cross-border financial information services.” The central bank said a number of central banks around the world have made similar arrangements to conduct compliance prudential analysis through the establishment of data warehouses.

Meanwhile, users can establish a stable, resilient and secure connection to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) backbone by accessing a local network centralization point to prevent abnormalities such as network disruptions.

The Central Bank of China said that the special nature of cross-border payment business, with long transaction chains and many nodes, and the inability of a single institution to have a complete picture of the end state and the full picture of the business, and the fragmentation and non-transparency of business information, is not conducive to financial institutions to grasp the situation of cross-border business within the group in real Time, nor is it conducive to supervisory authorities to carry out regulatory work.

The move by China’s central bank coincided with the coordinated imposition of sanctions on Chinese officials by the U.S. and Europe, and China was quick to counter it. At a meeting between Russian and Chinese foreign ministers on Tuesday, the Russian foreign minister said that both Russia and China consider the European and Western sanctions unacceptable.

Assessing the possibility of Russia being forced to disengage from SWIFT, Russian Federation’s presidential press secretary Dmitry Peskov said that the appetite for sanctions against Russia by countries opposed to it, especially the United States, continues to grow, so no kind of threat can be ruled out, the Xinhua-run Reference News Network said Tuesday, citing Russian media.

The report of Guoxin Securities pointed out that SWIFT is a standardized system for transmitting information between banks, which itself is a politically neutral international organization, but has been repeatedly “blackmailed” by the U.S. and kicked out some countries or banks from the system. Therefore, the countries or institutions under sanctions will have difficulties in cross-border payment settlement, and their economic operation will be greatly affected.

As an institution located in Belgium, SWIFT needs to comply with the laws of Belgium and the EU, and the US cannot directly instruct SWIFT in principle; therefore, the US needs to convince the EU to enact relevant laws, so that SWIFT can stop providing services to certain clients.

Take Iran as an example, the EU imposed sanctions on Iran in 2012, including the requirement that financial information service providers should not provide services for Iranian banks under EU sanctions, so SWIFT complied with EU laws and stopped providing services for Iran.

Last July, Xu Qiyuan, a researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, wrote an article pointing out that it is extremely unlikely that the U.S. will impose financial sanctions on Hong Kong, China and mainland China through SWIFT, but it is entirely possible for individual financial institutions to be subject to local, moderate and precise sanctions, and this possibility is on the rise.

SWIFT and Chinese-funded institutions set up a joint venture financial gateway company

SWIFT has established a joint venture with four Chinese-funded institutions to provide financial gateway services to users, including establishing and operating a local network centralization point for financial messaging services and establishing and operating a local data warehouse, among other services, the Chinese central bank said.

According to the information of Qixinbao, Financial Gateway Information Service Co., Ltd. was established in Beijing in January this year with a registered capital of 10 million euros. 55% of SWFIT is its largest shareholder, 34% of the General Clearing Center of the Central Bank of China, 5% of Cross-border Interbank Payment Clearing Co.

The legal representative of the company is Huang Meilun, who is the president of SWIFT China; the chairman is Cheng Shigang, who is the deputy secretary general of the China Payment Clearing Association; and Mu Changchun, director of the Central Bank’s Digital Currency Research Institute, is one of the directors.

The CBC press release shows that the financial gateway serves as a gateway between the financial information network inside China and outside China, and provides agreed services to SWIFT users in a unified manner.

Its main elements are, firstly, to establish and operate a local network centralization point for financial messaging services to provide users with a stable, resilient and secure connection to the SWIFT backbone; and secondly, to establish and operate a local data warehouse within China for data storage of cross-border transaction messages as well as post-event monitoring and analysis.