The Shanghai headquarters of the People's Bank of China (PBOC) has issued the Pilot Implementation Measures for Upgrading Free Trade Account Functions in the Shanghai Free Trade Zone, marking a significant step toward facilitating cross-border capital flows for qualified enterprises. The new framework is designed to enhance operational efficiency, risk management, and compliance for institutions serving international trade and finance activities in the zone.

The upgraded Free Trade Account (FTA) functions aim to allow freer cross-border receipt and payment of funds, providing corporates with more flexible and efficient mechanisms to manage international transactions. Qualified enterprises—particularly those registered in the Lingang New Area—can now leverage FTAs to streamline foreign currency and renminbi inflows and outflows under a standardized framework.

Financial institutions participating in the pilot must:

• Establish internal controls and dedicated service teams to support high-quality cross-border financial operations.

• Select and onboard eligible pilot enterprises based on regulatory criteria, submitting due diligence and implementation plans to the PBOC Shanghai office.

• Implement systematic reporting for account registration, data collection, international balance of payments submissions, and cross-border RMB payment information.

Institutions must also strengthen monitoring, risk assessment, and early-warning mechanisms to prevent abnormal capital flows. Compliance obligations include anti-money laundering (AML), anti-terror financing (CFT), and anti-tax-evasion measures, aligned with existing regulatory requirements.

The upgraded FTA system presents several opportunities for foreign market participants:

• Improved Access to Liquidity: FTAs provide a regulated channel for efficient inbound and outbound fund flows.

• Operational Certainty: Standardized reporting and risk protocols reduce transaction uncertainty for foreign enterprises and financial intermediaries.

• Integration with Shanghai’s Financial Ecosystem: Eligible corporates can leverage local banks’ pilot services to facilitate trade financing, RMB settlement, and offshore investment flows.

• Enhanced Risk Management: Early-warning mechanisms and stricter monitoring improve visibility over cross-border capital movements, enhancing compliance confidence for international partners.

For banks, asset managers, and corporates engaged in China-related cross-border operations, these measures clarify the operational, compliance, and reporting framework, effectively lowering barriers to utilizing Shanghai FTAs for international finance and trade purposes.