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Chapter 3 Management of Foreign Exchange Business
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〈Know Your Customers〉
Article 29
Banking enterprises engaging in the foreign exchange business shall first
verify the identity or primary registration data of the customer, and ensure
that supporting documents comply with the regulations.
When a banking enterprise engages in the foreign exchange business, the
operation of customer due diligence, record keeping, and reporting of cash
transactions and suspicious transactions on money laundering or terrorist
financing shall comply with the Money Laundering Control Act and other
applicable regulations; the reporting on the property, or property interests
and location of the property or property interests of designated individuals,
legal persons or entities shall comply with the Terrorism Financing Prevention
Act and other applicable regulations.
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〈Conducting Business on behalf of OBU〉
Article 30
An authorized bank may, within the scope of foreign exchange business
approved by the Bank, accept the designation of the offshore banking
unit (OBU) of the same bank to handle its OBU business in accordance
with the Offshore Banking Act, the Offshore Banking Act Enforcement
Rules, and other relevant provisions.
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〈Foreign Exchange Derivatives Involving NTD Exchange Rate〉
Article 31
When an authorized bank engages in foreign exchange derivatives business involving
NTD exchange rate, the following rules shall apply:
1.NTD deliverable foreign exchange forward (DF):
(1)Based on genuine needs for foreign exchange receipts or disbursements, and
the same need shall not be involved in multiple contracts.
(2)When entering into contracts or processing settlements with clients, either
the transaction documents supporting genuine needs for foreign exchange
receipts or disbursements, or a written approval from the competent
authorities shall be verified.
(3)Term: determined according to practical needs for foreign exchange receipts
or disbursements.
(4)When the contract is rolled over, the price shall be set based on the
current market exchange rate rather than the rate of the original contract.
2.NTD foreign currency swap (FX swap)：
(1)FX swap means simultaneously carrying out two foreign exchange transactions
in identical amount but in opposite directions and having different value
dates.
(2)Counterparties and documents: No documents are required for domestic legal
entities; for foreign legal entities and natural persons, documents of
approval issued by the competent authorities shall be verified.
(3)In the settlement of foreign exchange swap, the banking enterprise shall
confirm whether the customer has filled out a Declaration Statement in
accordance with the Regulations for Declaration and whether the customer has
entered information under the "Nature of Foreign Exchange Receipts and
Disbursements or Transactions" of the Declaration Statement according to the
nature of the actual transaction, and also notes it as a "foreign exchange
swap". In addition, the "remittance classification and code number" provided
by the Department of Foreign Exchange of the Bank shall be indicated on the
foreign exchange memo, and included in the daily transaction report along
with the Declaration Statement.
(4)The swap transaction amount need not be included in the annual aggregate
settlement amount as specified in Subparagraph 3, Paragraph 1, Article 4 of
the Regulations for Declaration.
(5)When the contract is rolled over, the price shall be set based on the
current market exchange rates rather than the rates of the original
contracts.
3.NTD non-deliverable foreign exchange forward (NDF):
(1)Counterparties are limited to other domestic authorized banks and each
authorized bank's overseas branches, head office (parent bank) and branches
of head office (parent bank).
(2)The format, content, and accounting of contracts shall be segregated from
those of delivery forward (DF) business.
(3)Contracts under this item shall not be rolled over or terminated before
maturity.
(4)Net cash settlement shall be applied uniformly upon maturity.
(5)Margin trading is not allowed for NDF transactions.
(6)Without the approval of the Bank, contracts shall not be structured to
combine with other derivatives products, NTD or foreign currency principals,
or other businesses and products.
(7)For NTD non-deliverable forwards of US$5 million or above, the Department of
Foreign Exchange of the Bank shall be notified immediately by telephone.
4.NTD exchange rate option:
(1)Counterparties are limited to domestic and foreign legal entities.
(2)An option may be settled by net settlement or gross settlement, but the
settlement method shall be specified in the contract.
(3)The currency used for option premium and settlement when the option is
exercised may be either in the denominated foreign currency or NTD, but
shall be specified in the contract.
(4)Only "plain vanilla" options may be transacted. Without the approval of the
Bank, contracts shall not be structured to combine with options or other
foreign exchange derivatives products, NTD or foreign currency principals,
or other businesses and products.
5.NTD cross currency swap (CCS):
(1)Counterparties are limited to domestic and foreign legal entities.
(2)For cross currency swaps involving the exchange of principal both at
inception and maturity, domestic legal entities are not required to submit
transaction documents. Both the principal and interest need not be included
in the annual aggregate settlement amount as specified in Subparagraph 3,
Paragraph 1, Article 4 of the Regulations for Declaration.
(3)For other types of cross currency swaps, the bank shall ask its customer to
submit documents evidencing actual demand at the time of transaction, the
transaction amount shall be included in the annual aggregate settlement
amount as specified in Subparagraph 3, Paragraph 1, Article 4 of the
Regulations for Declaration. However, if the foreign exchange receipts and
disbursements or transactions are for the export or import of goods,
providing services, or other uses approved by the competent authorities,
they need not be included in the aforementioned annual aggregate settlement
amount.
(4)In the settlement of a cross currency swap transaction, the banking
enterprise shall examine whether the customer has filled out a Declaration
Statement in accordance with the Regulations for Declaration and whether
the customer has entered information under the "Nature of Foreign Exchange
Receipts and Disbursements or Transactions" of the Declaration Statement
according to the nature of the actual transaction, and also has noted "cross
currency swaps transaction" on the Statement. In addition, the "remittance
classification and code number" provided by the Department of Foreign
Exchange of the Bank shall be shown on the foreign exchange memo, and
included in the daily transaction report along with the Declaration
Statement.
(5)The exchange of principal or interest for each term in the future is deemed
as a foreign exchange forward contract, and shall be reported on the daily
foreign exchange forward transaction report when entering into contract.
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〈Foreign Exchange Derivatives Not Involving NTD Exchange Rate〉
Article 32
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Authorized banks shall comply with the following rules when engaging in the
foreign exchange derivative transactions not involving NTD exchange rate:
1.Foreign currency margin trading:
(1)Shall not be conducted with foreign currency loans.
(2)Without the approval of the Bank, authorized banks shall not conduct
transactions under this subparagraph by the discretionary account service
nor "joint account". Regulations governing the discretionary account service
will be separately prescribed by the Bank.
(3)Authorized banks shall not accept term deposits or other collaterals under a
third party's name as the collateral for foreign currency margin trading.
2.In carrying out foreign exchange forward and swap transactions between foreign
currencies, when the contract is rolled over, the price shall be reset based on
the current market exchange rate rather than the original contract rate.
3.In carrying out foreign exchange swaps and cross currency swap transactions
between foreign currencies, the appropriate "remittance classification and code
number" shall be indicated on the other relevant transaction certificates and
included in the daily transaction report at the time of settlement.
4.Credit default swap and credit default option:
(1)Counterparties shall be limited to legal entities who are also professional
customers.
(2)Where the counterparty is a domestic customer, unless the competent
authority agrees it could be a protection seller, the domestic customer
should be the protection buyer in a credit derivatives transaction.
(3)Where a domestic customer is the protection seller in a credit derivatives
transaction, the reference entity shall meet the requirements set out by its
competent authority and shall not be a government or company in Mainland
China Area or any company directly or indirectly owned by which with at
least 30% shares.
(4)Where the authorized bank itself is the protection seller and the reference
entity is an interested party, the terms of the transaction shall not be
more favorable than those offered to other counterparties in the same
category, and shall comply with the relevant regulations.
(5)Where the products under this subparagraph are combined into a structured
product, the counterparties shall be limited to professional institutional
investors and foreign legal entities who are also professional customers.
5.Where the contracts under this subparagraph are combined into a structured
product, restrictions and rules applicable to individual products and
underlyings shall be followed.
6.An authorized bank shall not switch the foreign exchange derivatives business
originally offered by itself to providing information and consulting services
on offshore financial derivatives.
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Unless it is otherwise provided by the Bank, foreign exchange derivative products not involving NTD exchange rate offered by an authorized bank shall not be linked to the
following:
1.Asset securitization related securities or products.
2.Unlisted individual stocks, stock indices or exchange-traded funds in Mainland
China Area.
3.Securities privately placed domestically or abroad.
4.Certificates of beneficial interest that are issued overseas by domestic
securities investment trust enterprises and are not listed for trading on a
securities market.
5.Any Taiwan stock index compiled by a domestic or foreign institution and
related financial products, but this restriction shall not apply to an index
compiled by TPEX or TWSE, either singly or in collaboration with another
institution.
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〈Other Rules for Foreign Exchange Derivatives Business〉
Article 33
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For authorized banks that intend to offer a foreign exchange derivative product
that is not yet approved by the Bank, the Bank may, if deemed necessary, specify
separately in the letter of approval matters of compliance for such product, or
authorize the "Taipei Foreign Exchange Market Development Foundation" ("the
Foundation") to coordinate with "R.O.C. Bankers Association" ("Bankers
Association") to draw up guidelines for the product with respect to the product
eligibility criteria, scope of transaction and other related matters, and report
those guidelines to the Bank for approval. The same procedure shall be followed
for any changes thereto.
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An authorized bank shall act in accordance with these Regulations, and in
addition, other applicable rules and the guidelines mentioned in the preceding
paragraph when conducting the foreign exchange derivatives business.
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〈Obligation to Disclose Interest Rates〉
Article 34
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For foreign currency deposit business, an authorized bank shall follow
international business practice in determining and posting its own minimum
deposit interest rates. The applicable interest rates for maturities not
posted shall be negotiated between the authorized bank and its customer
with reference to other posted rates with similar maturities. Interest
rates that are subject to negotiation shall be announced publicly.
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The announcement in the preceding paragraph shall be displayed in
the business hall, and also posted on a publicly accessible website
or disclosed to the general public through other means.
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〈Matters of Compliance for Automatic Teller Machines〉
Article 35
Authorized banks that set up foreign currency automatic teller machines shall
limit the accumulated cash withdrawals to an equivalent of USD 10,000 per
account per day.
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〈Issuance of Foreign Currency Negotiable Certificates of Deposits〉
Article 36
Authorized banks shall issue foreign currency Negotiable Certificates of Deposits
in book entry form. The Bank will prescribe separately relevant matters of
compliance, method of issuance and reporting requirements.
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〈Obligation to Disclose Exchange Rates〉
Article 37
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The exchange rates used for foreign exchange transactions between a banking
enterprise and a customer may be solely determined by the banking enterprise.
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The NTD exchange rate for a single foreign exchange transaction with
a customer for an amount of less than US$10,000 shall be posted at
the banking enterprises' business premises before 9:30 AM on each
business day.
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〈Acceptance and Identification of Foreign Currency Cash〉
Article38
Banking enterprises that engage in the purchase and sale of foreign
currency cash shall exchange foreign currency cash according to their
quoted prices and shall enhance the ability to identify counterfeit
foreign currency notes, and handle counterfeit notes in accordance
with the Regulations Governing the Handling of Counterfeit and Altered
Foreign Currency Notes and Coins.
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〈Foreign Currency Settlement Business〉
Article 39
A foreign currency settlement bank authorized by the Bank shall comply with
the following provisions when conducting foreign currency settlement business:
1.Unless with permission of the Bank, a foreign currency settlement bank shall
not, at its own discretion, suspend the business during the period of
operation; it shall forthwith inform the Bank if it is unable to operate
normally or it suspends/ terminates the participation of participants in the
foreign currency settlement system (hereinafter referred to as participating
entities).
2.A foreign currency settlement bank shall readily provide the Bank with
relevant information as required by the Bank and deliver statistical reports
to the Bank periodically.
3.A foreign currency settlement bank shall set a fee schedule and report it to
the Bank for record; the same provision applies when a foreign currency
settlement bank changes its fee schedule.
4.A foreign currency settlement bank shall setup operational guidelines for
agreements with participating entities and report the same to the Bank for
record. For participating entities that violate the terms of the contract with
a foreign currency settlement bank and disrupt the smooth operation of the
foreign currency settlement system, the foreign currency settlement bank shall
take actions pursuant to the terms of the contract and report those violations
to the Bank according to the circumstances of violations.
5.A foreign currency settlement bank shall not refuse the Bank's request to
examine its businesses or review related data.
6.Where a foreign currency settlement bank provides intraday overdraft pledged
by certificates of deposits issued by the Bank, central government bonds or
other collateral of participating entities, it shall establish related
operating procedures and report them to the Bank for record.
7.A foreign currency settlement bank shall agree with clearing institutions and
participant entities not to revoke payment instructions once settled.
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〈Foreign currency trust business〉
Article 40
When an authorized bank concurrently conducting the trust business engages in
the businesses provided in Article 17 and Article 17-1 herein, the authorized
bank shall abide by the following provisions, unless it is otherwise stipulated
or approved by the Bank:
1. The delivery and return of trust assets and the receipts and payments of
other related funds shall be made in foreign currency or foreign currency
denominated property.
2. The receipts and payments of trustee related funds shall be effected through
a foreign currency trust asset account opened by the trustee at an authorized
bank.
3. The utilization of trust assets shall comply with the provisions set forth by
the competent authority and be limited to foreign currency denominated
products, and in addition, shall not involve or be linked to NTD interest
rate or exchange rate index.
4. Reports shall be submitted in accordance with the Bank-prescribed format.
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〈Issuance of Foreign Exchange Bank Debentures〉
Article 41
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When an authorized bank issues foreign exchange bank debentures, the authorized
bank shall retain funds raised therefrom in foreign currency, and if necessary,
convert the funds into NTD by means of swap or CCS transactions. The authorized
bank shall also submit reports to the Bank according to the Bank-prescribed
format.
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Unless it is otherwise provided by the Bank, foreign exchange bank debentures
issued inside the ROC by an authorized bank that has been approved by the Bank
to engage in foreign exchange derivatives business may be linked to a derivative
or a structured note. However the derivatives that the bank debenture is linked
to shall be limited to those already approved by the Bank under Article 12 herein
and may not be linked to NTD exchange rate, a credit event, or underlyings
provided in Subparagraphs 1~5, Paragraph 2 of Article 32 herein.
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The provisions of Paragraph 1 hereof do not apply to an authorized bank that
issues foreign exchange convertible bank debentures, foreign exchange
exchangeable bank debentures or other foreign exchange bank debentures involving
equity outside the ROC shall follow the Regulations Governing Issuance of Bank
Debentures by Banks, Regulations Governing the Offering and Issuance of Overseas
Securities by Issuers and other provisions of the Bank.
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〈Operation during Non-standard Business Hours〉
Article 42
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To engage in foreign exchange business during non-standard business hours,
an authorized bank shall comply with the following rules:
1.The amount of each foreign exchange settlement shall be limited to NTD
500,000 or its equivalent in foreign currency; and
2.Foreign exchange transactions conducted during non-standard business
hours shall be included in the same-day or next-day "Daily Transaction
Report" and "Daily Foreign Exchange Position Report" in accordance with
its description of operations submitted or the Bank’s regulations.
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The provisions of Subparagraph 1 of the preceding paragraph shall apply
mutatis mutandis to the business of purchase and sale of foreign currency
cash and traveler's checks conducted by non-authorized banks during
non-standard business hours, and to the outward and inward remittance
business conducted by Chunghwa Post during non-standard business hours.
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Transactions conducted by non-authorized banks under the business
mentioned in the preceding paragraph during non-standard business
hours shall be included in the same-day or next-day "Daily Transaction
Report."
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〈Interbank Transactions〉
Article 43
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An authorized bank may purchase or sell foreign exchange on the foreign
exchange market or with the Bank, and may also hold long or short positions
within the limits set by itself.
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An authorized bank participating in the interbank foreign exchange market
shall comply with the rules formulated by the Foundation with reference
to international customs after coordination with Bankers Association and
reporting to the Bank.
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〈Total Transaction Position〉
Article 44
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An authorized bank shall set its total position limits for transactions between
NTD and foreign currency, which shall be submitted along with the resolution of
the board of directors (approval documents issued by the head office or regional
headquarters of a foreign bank) to the Department of Foreign Exchange of the Bank
for prior consent.
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The combined position of NTD non-deliverable forwards and NTD exchange rate
options shall not exceed one-fifth of the afore-mentioned total position
limit.
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〈Foreign Exchange Risk Management〉
Article 45
An authorized bank shall draw up its position limits such as "transaction
positions for individual currencies" and an "overnight position for each
trader". All its units shall abide by these position limits and carry out
audits regularly.
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〈Reporting of Foreign Exchange Position〉
Article 46
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Authorized banks shall fill out "Foreign Exchange Position Daily Reports"
for all foreign exchange transactions involving NTD on a daily basis, and
submit the reports to the Department of Foreign Exchange of the Bank on
the following business day. Foreign exchange positions reported by an
authorized bank shall be consistent with those recorded on its internal books.
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Authorized banks shall report the estimated foreign exchange positions for
the day to the Department of Foreign Exchange of the Bank by telephone at
the end of each business day.
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〈Reporting of Large Transaction Data〉
Article 47
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When authorized banks engage in NTD spot, forward, swap or cross currency swap
transactions with customers, or when Chunghwa Post engages in NTD spot
transactions with customers, and when such transaction reaches the following
amount, they shall check and verify relevant supporting documents in accordance
with Article 31 herein and Article 5 of the Regulations for Declaration, and
transmit data to the Bank’s Foreign Exchange Data Processing System in
accordance with the following provisions:
1.When engaging in NTD spot purchase or sale with the value equal to or over an
equivalent of USD 1 million with a company, limited partnership or firm
(excluding transactions from the export or import of goods processed with
shipping documents), or with the value equal to or over an equivalent of USD
500,000 with an individual or an association, data shall be transmitted
immediately on the contract day.
2.When engaging in NTD forward purchase or sale with the value equal to or over
an equivalent of USD 1 million, data shall be transmitted before 12:00 noon
on the next business day following the contract day.
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When the overseas branches of domestic authorized banks engage in NTD non-
deliverable forwards with onshore and offshore legal entities, offshore financial
institutions and overseas branches of other authorized banks as approved by the
competent authority and the value of transaction is equal to or over an
equivalent of USD 1 million, transaction data shall be transmitted to the Bank's
Foreign Exchange Data Processing System before 12:00 noon on the next business
day following the contract day.
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〈Connection with Foreign Exchange Data Processing System〉
Article 47-1
A banking enterprise shall connect with the Bank’s Foreign Exchange Data
Processing System by one of the means below and comply with the Directions
concerning Financial Institutions Using the Bank’s Foreign Exchange Data
Processing System :
1. If the banking enterprise opts to develop its own server for the
server-to-server connection, it shall follow the inter-agency specifications
for the connection operation of the Foreign Exchange Data Processing System.
2. If the banking enterprise opts to use the Bank’s Foreign Exchange Data
Reporting System, it shall follow the user manual of the Foreign Exchange
Data Reporting System software and comply with the Directions Concerning
Financial Institutions Using the Bank’s Foreign Exchange Data Reporting
System.
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〈Submission of Reports〉
Article 48
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When submitting reports and forms prescribed in these Regulations,
banking enterprises shall attach relevant supporting documents and
appendices.
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The Department of Foreign Exchange of the Bank may request banking
enterprises to fill out additional reports and forms if necessary.
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The relevant timetable for the banking enterprises to transmit reports
to the Department of Foreign Exchange of the Bank is as follows:
1.Authorized banks and Chunghwa Post:
(1)Daily Report: Before 12:00 noon of the following business day.
(2)Monthly Report: Within ten days after the end of each month.
2.Non-authorized banks, credit cooperatives, and credit departments of
farmer's or fishermen's associations shall submit daily reports on
purchase and sale of foreign currency cash and traveler's checks to
the Department of Foreign Exchange of the Bank before 12:00 noon on
the following business day.
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The formats, contents, filling instructions of the reports prescribed
in the preceding three paragraphs and submitting methods of the reports
and its attachments shall conform to the Directions Governing Banking
Enterprises in Conducting Foreign Exchange Business separately provided
by the Bank as well as other relevant regulations.
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〈Examination〉
Article 49
To examine reports and forms submitted by banking enterprises, the Bank may,
if deemed necessary, dispatch personnel to inspect the relevant account
books and documents of banking enterprises, or may request banking enterprises
to provide truthful financial reports or other relevant information within a
prescribed period of time.
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