Top Chinese Banker Criticizes Extra-Territorial Effect of FATCA and Dodd Frank

Liu Xiangmin, deputy director general of legal affairs at People's Bank of China, has roundly criticised the FATCA regulations introduced by the U.S., on the basis that they impose unfair costs on foreign banks and cause difficulties with conflicts with local laws.  According to a report first published by Reuters, he said that the U.S. should find a better way to tackle tax evasion than FATCA.

The comments were made during the Thomson Reuters Pan-Asia Regulatory Summit, where Liu was giving a speech on the foreign impact of financial regulation. He also noted the challenges posed to foreign banks by some of the regulation contained in the Dodd-Frank Act, such as the Volcker Rule, which bans banks from engaging in proprietary trading and will apply to many foreign banks if they have a branch in the U.S.

"The Volcker Rule seems to be intentionally designed to apply to a broad range of foreign institutions in order to level the playing field for U.S. entities subject to the rule."

Liu said governments should find a more effective way to regulate international finance.

He added "While it is understandable to address the cross-border externalities or spill-over effects with national legislation, a more effective and acceptable regime would call for better co-ordination between home and host-country regulators ..... An extra-territorial effect should be carefully evaluated and limited, so as to minimise the undue burden on foreign financial institutions" .

Liu's comments echo the sentiments expressed by many finance industry participants in other jurisdictions, who are angry at the costs being pressed upon them by the U.S.