On 26 Jun 2025, the HKMA issued a circular superseding its 2010–2012 guidance on CNY conversions under the RMB Cross-border Trade Settlement Scheme, mandating banks to ensure genuine trade-linked conversions, implement enhanced KYC procedures, maintain balanced positions, and retain detailed records. The update aligns HKMA requirements with PBoC regulatory guidance and addresses industry feedback on operational challenges.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Background and Purpose
On 26 Jun 2025, the Hong Kong Monetary Authority (HKMA) issued a circular clarifying and updating the regulatory framework for Currency Conversion Arrangements involving Onshore RMB (CNY) under the RMB Cross-border Trade Settlement Scheme, superseding previous HKMA circulars (2010, 2011, 2012) following consultations with the People’s Bank of China (PBoC) and industry feedback on alignment issues and operational challenges.
Key Regulatory Requirements
Banks must ensure CNY conversions arise from genuine and reasonable needs linked to underlying RMB trade settlement activities, implement robust KYC and due diligence procedures to prevent ineligible use, maintain balanced CNY purchase/sale positions with basic squaring, and retain comprehensive transaction records for regulatory scrutiny. Banks are required to monitor timing and sequence between RMB cross-border settlements and CNY conversions, design internal review mechanisms for trade transactions, and promptly report misuse to the HKMA and PBoC. Non-compliance may result in position unwinding or business suspension.
Effective Date and Supersession
This circular takes immediate effect, superseding the 2010, 2011, and 2012 HKMA circulars referenced in the footnote. Banks must comply with the updated requirements when conducting CNY conversions for merchandise, service trade, and current account transactions involving the Mainland, aligning with evolving PBoC guidance on cross-border fund flows.
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