What Is an Offshore Banking License?

Offshore Finance refers to the financing activities carried out by financial institutions located in a country but not connected to the country's financial system and not regulated by the country's financial regulations. For example, a trust and investment company that is headquartered in the Bahamas, but whose business activity is to absorb US dollars from European residents or other non-U.S. Residents, and then invest these funds in European or non-U.S. Residents Offshore financial activities. Strictly speaking, offshore finance is also an asset-finance channel that is not regulated by the authorities domestic banking laws, regardless of whether these activities occur inside or outside the country. For example, the US's International Banking Facility (IBF) and Tokyo's offshore financial market business activities are all offshore finance.

Offshore finance

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Offshore Finance refers to financial institutions that are located in a country but have no connection with the country's financial system and are not regulated by the country's financial regulations.

Offshore banks, also known as offshore units, are located in

Regarding the difference between the offshore financial market and the traditional international financial market, from the nature of the market, the traditional international financial market is essentially a domestic market, because it is regulated by the laws of the country in which the market is located, and it operates the currency and interest rate of the country in which the market is located. The system also implements the interest rate of the host country. The offshore financial market is a stateless and completely international market. It is not subject to the currency laws of any country. It mainly operates foreign currencies and implements a unique international interest rate structure. From the perspective of lending relationships, the lending relationships in traditional international financial markets are between domestics and foreigners, that is, domestic people's funds provide foreigners with loans in their own currency and are characterized by net domestic capital export; while offshore financial market borrowing The relationship is between foreigners and foreigners, that is, the use of non-resident deposits to provide non-residents with foreign currency deposits, and is characterized by the source of foreign funds.

Generally speaking, to form an offshore financial market in a city or region, these conditions must be met:

The first is to relax financial controls and foreign exchange controls, allowing free inflows and outflows of cross-border capital, reducing restrictions on interest rates and financial transactions; exempting foreign currency deposit reserve requirements; and second, having a generous tax policy to provide tax relief and other benefits. Measures, such as requiring the reduction or exemption of interest withholding tax, income tax, local tax, and stamp duty; etc. The third is to maintain the stability of the political situation and economy of the country or region where it is located. Policy changes and legal amendments must be highly transparent and economically stable background. It is necessary to have a sound financial legal system to protect the market secrets of both parties to the financial transaction. The fourth is to have a sound financial infrastructure, experienced and efficient financial institutions, a large number of financial professionals and advanced international communications equipment. Residents provide efficient financial services. Fifth, they have a favorable economic and natural geographical location, a global network of international financial markets, and a relatively concentrated concentration of multinational companies and multinational financial institutions in their cities or regions.

The development of offshore financial services and the rapid expansion of offshore financial markets have promoted the development of international banks and the growth of international credit and international financing. However, as offshore deposits are not subject to the various restrictions of domestic laws and regulations in various countries, they The country's money supply, banking controls and the implementation of monetary policy have all had certain effects.

The first phase of the pilot reform of the foreign exchange system was the approval of Shenzhen for offshore financial services. In May 1989, China Merchants Bank was approved to start offshore banking in Shenzhen. Later, Shenzhen Development Bank (Ping An Bank), Guangdong Development Bank and its Shenzhen Branch, Industrial and Commercial Bank of China and Agricultural Bank of China Shenzhen Branch successively obtained offshore banking licenses. Due to the financial crisis in Southeast Asia, all regulatory agencies stopped in 1999.

Until June 2002, the People's Bank of China issued a document authorizing China Merchants Bank and Shenzhen Development Bank to fully restore offshore operations, while allowing the Bank of Communications and Shanghai Pudong Development Bank to set up offshore operations. The offshore financial market started in Shanghai.

But so far, the Central Bank has only issued offshore banking business licenses to the above four Chinese banks, and they have been prudently supervised in accordance with the "pilot" and "trial" standards.

Shanghai is the second experimental field selected by the State Administration of Foreign Exchange. After allowing Shanghai to conduct offshore financial services, in October 2005, the State Administration of Foreign Exchange issued the "Notice on Issues Related to the Management of Foreign Exchange Funds of Multinational Corporations in Pudong New Area". (In the industry, it is called "Urajikujo").

"Compared with the pilot projects in Shenzhen and Shanghai, the approved Binhai New Area plan is a real comprehensive reform, not an improvement. This will accumulate comprehensive experience in China's foreign exchange system reform." Qian Sheng said at a recent press conference: "Offshore financial services, Binhai New Area is already underway, many foreign banks are already doing it, and Chinese banks are doing it for Chinese banks, mainly for the expansion of domestic SMEs. Convenience in foreign trade. The scale of the city's current offshore financial business is about $ 100 million per year, and the scope of development is not very wide. "

The policies provided by the three central governments are not the same, the content of the trials are different, and the accumulated experience required is different.

According to people in Binhai New Area, the State Administration of Foreign Exchange attaches great importance to this comprehensive pilot and is very cautious. The State Administration of Foreign Exchange has basically participated in the demonstration and formulation of these programs throughout the entire process.

The reason why the Binhai New Area was chosen as a pilot for reform of the foreign exchange system is because Binhai New Area, like most cities in China, has a weak but basic financial base. The pilot here may be better than piloting in areas such as Shenzhen and Shanghai with strong foundations. Accumulate more universal experience.