OBU Urged to Undertake Customer Due Diligence

Last year, multiple banks improperly sold TRF (Target Redemption Forwards), with one-stop-shop services offering small- and medium-sized enterprises (SMEs), banks not only opened accounts in Offshore Banking Unit (hereinafter OBU) for those SMEs that did not qualify as professional juridical persons, but also prepared false financial statements and records of the boards of directors for them. The Financial Supervisory Commission (FSC) imposed nearly NT$100 million in fines for these operational irregularities.

To prevent banks from falsifying customer classifications, the FSC has adjusted the rules governing how banks sell TRF to stipulate that a bank employee cannot perform both customer classification and product recommendation. Meanwhile, the FSC demanded the BAROC to tighten control of OBUs’ self-regulation. Hence, BAROC is urging the OBU to rigorously perform customer due diligence in accordance with the related guidelines and compliance matters in their internal control and audit systems.

Three actions are now prohibited:
1. Intermediating between an one-stop-shop services provided agency and clients, including assisting an agency to carry out foreign company establishment registration for clients and jointly holding meetings to speculate on structured and derivative products with professionals. 2. Leaking client information to an agency. 3. Recommending clients to an agency as a way of directly or indirectly benefiting, whether monetarily, in connection with property, or any other benefit.

In addition to the above regulations, other forbidden actions include clients’ identity verification, suspension, or termination of commission with clients. For example, for offshore clients that have not had any activity for long periods or are otherwise dormant, or for whom it is impossible to confirm good standing or those who are reluctant to provide materials for identification, banks may choose to suspend or terminate transactions with offshore clients.

Also, in principle, where the validity of an existing juridical person of an offshore company has been affected by either an amendment of laws and regulations or the change of registered location, the accounts of such offshore company may be revoked.
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