Newsletter
The FSC stipulated the "Rules for Offshore Banking Unit Conducting Financial Derivatives Businesses"
In the past, the Financial Supervisory Commission (FSC) regulated the financial derivatives business conducted by the Offshore Banking Unit ("OBU") per its letter, Ref. No Jin-Guan-Yin-Wai-Zi-10250000860 dated 11 April 2013 ("Letter"). However, the FSC issued a letter, Ref. No Jin-Guan-Yin-Wai-Zi-10200293010, on 27 December 2013, abolishing the Letter and stipulating the "Rules for Offshore Banking Unit Conducting Financial Derivatives Businesses" ("Rules").
The procedure of applying for approval of the competent authority and the rules for dealing Credit Default Swaps and Credit Default Options under the Rules are the same as those stipulated in the Letter; however, certain matters are separately provided in the Rules as follows:
1. Restrictions on the business scope and counterparty are expressly provided in the Rules
Unless approved by the competent authority, the financial derivatives business conducted by OBUs should not involve New Taiwan Dollar and the counterparties should be limited to customers outside the territory of the R.O.C. and the financial institutions inside the territory of the R.O.C. as defined in paragraph 2 of Article 4 of the Offshore Banking Act.
2. Relax the determining thresholds of customers
According to the Letter, an OBU conducting financial derivatives business other than dealing with Credit Default Swaps or Credit Default Options shall divide their counterparties into "professional customers" and "retail customers''. However, Article 4 of the Rules does not provide such determining thresholds of professional and retail customers; instead, it provides that an OBU conducting financial derivatives business shall set customer eligibility standards, anti-money laundering compliance guidance, Know You Customer guidelines, customer-specific suitability analysis procedures and the range of available products based on its internal and risk control. The abovementioned rules may proceed after the board of directors of a local bank adopts the same or the head office or regional center of a branch of a foreign bank adopts the same.
3. Ease restrictions on the range of products available to retail customers who are individuals outside the territory of the R.O.C.
According to Article 33 of the Directions for Banks Conducting Financial Derivatives Business and the provisions of the Self-Regulatory Rules for Banks Conducting Financial Derivatives, there are certain restrictions on the types of products that banks may offer to individual retail customers. However, according to Article 4 of the Rules, an OBU conducting financial derivatives business is not subject to Article 3, paragraph 2 of Article 25, paragraph 2 of Article 28, paragraph 4 of Article 30 and Article 33 of the Directions for Banks Conducting Financial Derivatives Business; therefore, it may be construed that the OBU shall no longer be subject to such Self-Regulatory Rules for Banks Conducting Financial Derivatives.