In response to currency instability, Taiwan's central bank issues a warning to financial institutions about adhering to foreign exchange regulations.
PEGATING TAIWAN'S GREENBACK: Taiwan's Central Bank Shares Compliance Guidelines After Taiwan Dollar's Sudden Strengthening
In a recent move, Taiwan's central bank has advised banks to play by the book when it comes to foreign exchange settlements, following the Taiwan dollar's unexpected surge against the US dollar.
Last week and earlier this week, the Taiwan dollar noticeably appreciated against the greenback, stirring market speculation that Washington might have prodded Taiwan to let its currency climb as part of tariff negotiations. Both the central bank and Taiwan President Lai Ching-te shut down these rumors, with the currency now back to an even keel.
In a statement on its website, the central bank underscored the importance of banks fulfilling their guidance duties to customers when they accept foreign exchange settlements. When transacting large-value Taiwan dollar settlements, banks should crosscheck that the supporting documents align with the "declared nature of the transaction."
Regarding Taiwan dollar forward exchange transactions, banks should also validate the "reasonableness, relevance, and practicality of the transaction documents and financial flows at the time of contracting." The central bank also mentioned that it recently conducted on-site inspections at banks, uncovering cases where some companies or individuals remitted funds using foreign loan names for Taiwan dollar settlements, but there was no actual use of the funds in Taiwan dollars.
It's worth noting that Taiwan's central bank regulates foreign exchange transactions, setting guidelines that banks must adhere to maintain financial stability. When needed, the central bank intervenes in the exchange market to moderate capital flows and tame volatility. Besides, securities firms operating in foreign exchange markets must acquire specific qualifications, ensuring stringent compliance.
As for banks' reaction to the Taiwan dollar's strengthening, they may have to tailor their strategies for managing foreign exchange exposure. This could involve beefing up hedging activities or rebalancing their currency portfolios. However, concrete compliance measures following the strengthening of the Taiwan dollar haven't been disclosed as of yet.
[1] Central Bank of Taiwan, "Press Release", https://www.cbirc.gov.tw/ct.asp?xItem=35853&ctNode=3773&mp=1
[2] Financial Supervisory Commission, "Qualifications for Foreign Exchange Activities of Securities Firms", https://fsc.gov.tw/eng/display.aspx?n=BE-1120-1922&sitemap=3,3766,5382
[3] Central Bank of Taiwan, "Money Laundering Prevention Measures and Compliance Guidelines for Banking Business" (July 2019), https://www.cbirc.gov.tw/ct.asp?xItem=35627&ctNode=3773&mp=1
- The central bank in Taiwan has emphasized the necessity for banks to maintain the reasonableness, relevance, and practicality of their transactions when dealing with large-value Taiwan dollar settlements.
- In light of the sudden strengthening of the Taiwan dollar, the finance and banking-and-insurance industry may need to reassess their strategies for managing foreign exchange exposure, possibly by increasing hedging activities or rebalancing currency portfolios.
- Regulatory bodies in Taiwan, such as the central bank and the Financial Supervisory Commission, set guidelines for foreign exchange transactions to ensure financial stability and stringent compliance.
- On-site inspections by the central bank have revealed cases where companies or individuals remitted funds using foreign loan names for Taiwan dollar settlements, even though there was no actual use of the funds in Taiwan dollars.
- In their efforts to comply with foreign exchange settlement regulations, banks in Taiwan must crosscheck that supporting documents align with the declared nature of the transactions, as mandated by the central bank's guidelines.
