China's central bank and top financial regulators have jointly issued draft rules that would tighten anti-money laundering (AML) compliance for high-risk clients while easing requirements for low-risk cases, marking a significant evolution in the country's financial crime prevention framework.

The draft Measures for the Administration of Customer Due Diligence and Preservation of Client Identity Information and Transaction Records — now open for public comment until Sept. 3 — would apply to six broad categories of institutions, including banks, securities firms, insurers, trust companies, non-bank payment providers, and other licensed entities designated by the People's Bank of China (PBOC).

Under the proposed rules, financial institutions must align their due diligence (CDD) procedures with the risk profile of each client. Low-risk customers, such as long-term account holders with small transaction volumes, could see simplified onboarding and transaction checks, while high-risk clients — including politically exposed persons, entities in high-risk jurisdictions, and beneficiaries of complex trust structures — would face enhanced scrutiny.

“Customer due diligence is not just about identifying a client — it's about understanding their activities, objectives, and risk exposure,” said Dong Ximiao, chief researcher at Merchants Union Consumer Finance and deputy director of the Shanghai Institution for Finance & Development. He described CDD as a “continuous, dynamic process” and called the draft a critical step in strengthening China's AML defenses in line with international standards.

The new measures explicitly prohibit financial institutions from offering services to unidentified clients, opening anonymous or pseudonymous accounts, or processing transactions for customers using stolen identities. For cross-border transfers exceeding RMB 5,000 or US$1,000 (or the equivalent in other currencies), remitters' identities must be verified.

Tian Lihui, dean of the Institute of Financial Development at Nankai University, said the tiered approach could reduce compliance costs for low-risk cases while precisely targeting money laundering risks in higher-risk scenarios. “It preserves the safety baseline while accommodating the needs of inclusive finance,” he noted.

The rules also drop a controversial requirement from earlier regulations that banks record the source and purpose of funds for individual deposits or withdrawals exceeding RMB 50,000. Zeng Shengjun, senior researcher at the Greater Bay Area Institute of Finance Research, said this change should “improve capital flows and encourage consumption” without materially weakening AML safeguards.

For multinational banks, insurers, and asset managers operating in China, the proposed framework will require upgraded risk assessment models, more robust data verification systems, and at least 10 years' retention of client and transaction records after a relationship ends — with a strong push toward secure electronic storage.

Industry analysts caution that while system overhauls, staff training, and expanded data procurement may raise short-term compliance costs, standardization and automation should lower operational risks and costs over time. As global AML regimes converge, China's alignment with Financial Action Task Force (FATF) standards could simplify compliance for firms managing cross-border client portfolios.