China Goes After Forex Industry As It Targets WFOEs

May 28, 2019
China Goes After Forex Industry As It Targets WFOEs May 28, 2019 Riya Joshi

Forex operators around the world are feeling the heat as governments across the world have targeted the FX industry by imposing stringent regulations. The latest country to join the crackdown is China.

As the trade conflict between China and the US continues, Chinese reserves domestic and foreign capital are taking a hit.

To protect itself, China is looking to stop the outflow of foreign currency and is taking new steps to prevent this from happening. Forex brokers are going to be significantly impacted with the latest announcements from Beijing.

International forex brokers that operate in China through their Wholly Foreign-Owned Enterprises (WFOE) are now going to face problems. The Chinese State Administration of Foreign Exchange (SAFE) is focusing their efforts on them. The latest bulletin from SAFE has mentioned that a financial penalty will be imposed on Shenzhen Xinke Business Consulting Co., a WFOE that has connections to TF Global Markets.

The penalty is set at RMB 1.18 million ($170,000). The reasons for the fine are said to be related to the company’s forex transactions. Chinese law requires that individuals and corporations report any forex transactions made by the company to the authorities. This is related to the limit that Chinese people have on their forex withdrawals and purchases. They can withdraw a total of $15,400 each year, while they can only purchase up to $50,000.

The strict capital control laws that have been enforced by the government has given the authorities an opportunity to exert pressure on forex brokers and force them out of the country.

High Levels of Pressure

Brokers are feeling the heat and they think that that it is all a shakedown attempt by government officials. This is just the culmination of the pressure being applied over the past few years. The forex industry in China is facing many difficulties due to the steps taken by the state and central government in recent years. The pressure is not being imposed on certain forex companies but on the entire industry.

In a statement, Tunc Akyurt, GKFX CEO and a major trader, said

We have some local partners we have been working closely within China for years. We are aware there is some special attention from the Chinese government on this industry in recent times.

In response to the pressure being applied, a number of forex brokers have decided to change tactics. FXCM, a large player in the Chinese market has moved its sales and operations to its offices outside China. Other companies are responding by changing their regional strategies so that they can meet the new regulations in each region.

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