Newsletter
AMENDMENTED RULES FOR FINANCIAL BUSINESS WITH MAINLAND
To implement the financial reform and to attract Taiwanese businesses to use the offshore bank-ing units (OBUs) of local banks to meet the re-mittance and credit needs of their mainland sub-sidiaries, on 2 August 2002 the Ministry of Fi-nance (MOF) promulgated amendments to the Rules Governing Permission of Financial Busi-ness Transactions Between Taiwan Area and Mainland China Area.
The old rules allowed only the overseas branches and OBUs of Taiwanese banks to conduct fi-nancial business with mainland institutions. The amended rules now allow designated foreign exchange banks in Taiwan, and the Director-ate-General of Postal Remittances and Savings Banks (DGPRSB), to conduct certain foreign exchange business with mainland institutions.
The permitted scope of financial business is also broadened: banks' OBUs and overseas branches can now engage themselves in lending business and the factoring of receivables. But to reduce the associated risks, the amended rules require financial institutions to adopt risk management measures, including client qualification restric-tions, credit investigation, restrictions on types of collateral, and limits on the total levels of lending and factoring business. With respect to foreign exchange business conducted by designated for-eign exchange banks and the DGPRSB, the amended rules list the types of inward and out-ward remittances permitted, and provide that foreign exchange business conducted should be in accordance with the relevant rules of the Central Bank of China (CBC).
With regard to the documentation required for an application to conduct cross-strait financial business, the amendments additionally require information on financial soundness, dispute resolution procedures, credit security and risk management plan. After permission to conduct cross-strait business is granted, branches of fi-nancial institutions need to regularly report their cross-strait operations to their head office, which must in turn file reports with the regulatory au-thority and the CBC. Because the concern of cross-strait political risk and capital outflow are relatively minor if institutions set up representa-tive offices on the mainland through their over-seas subsidiaries, the amended rules allow over-seas subsidiaries of Taiwanese banks to set up representative offices in the mainland.
In consideration of the possible effects on fi-nancial markets of changes in the cross-strait political situation, the rules empower the MOF (subject to the Executive Yuan's approval) to restrict or ban Taiwanese banks' cross-strait fi-nancial transactions under the rules, in order to stabilize domestic financial markets.
The MOF states that while the amended rules moderately extend the permitted scope of cross-strait financial business in response to the needs of domestic banks and business, they, by requiring measures such as credit security and risk management, also increase the transparency of cross-strait fund flow, and enhance the gov-ernment's ability to regulate cross-strait financial activities. The MOF hopes that the new rules will provide a sound framework to encourage businesses to use Taiwanese banks for their funding needs, and thus attract funds back into Taiwan.