SAFE Regulates Domestic Banks Engaged in FDI

The State Administration of Foreign Exchange recently issued a notice regarding the foreign exchange regulation for domestic banks which are engaging in FDI, effective from September 1, 2010.

Domestic banks involved in foreign investment should first get approval from the banking supervising department or other relevant authorities, and then bring the materials required by Article VII of the foreign exchange regulations of domestic institutions engaging in FDI to the local branch of the State Administration of Foreign Exchange to process the FDI registration.

The new regulation covers foreign investment in the following areas:

• The establishment of overseas branches (excluding offices)
• The establishment of overseas subsidiaries
• The purchase of equities of foreign institutional
• Other FDI projects approved by relevant authorities

The notice also clarifies the process of exchange settlement. Foreign investment profits of domestic banks should be included in the foreign exchange profits of the bank and managed together in accordance with related regulations, they cannot be managed separately.

Furthermore, the notice stipulates that when a domestic bank transfers all or part of its shares of a foreign institution from FDI, to another domestic institution, the payment should be made in renminbi. Both parties will need to register with their local foreign exchange bureau.

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