Financial Crime World

Title: CFTC Resolves Conflict between US and Taiwan Laws for ADM Investor Services’ Taiwan Branch

June 16, 2023

The Commodity Futures Trading Commission (CFTC) has announced a resolution to a legal conflict between its regulations and Taiwan laws concerning ADM Investor Services, Inc. (ADMIS), a US-registered futures commission merchant with a branch in Taiwan.

Background

ADMIS’ Taiwan branch is registered as a futures broker in Taiwan. However, the branch’s structure has presented a challenge regarding the compatibility of CFTC regulations on holding customer funds and Taiwan laws. Specifically, the US Commodity Exchange Act and CFTC regulations mandate how ADMIS should manage its Taiwan customers’ funds in the US. In contrast, Taiwan law requires ADMIS branch to deposit customer funds with authorized Taiwan banking institutions.

ADMIS’ Taiwan branch is subject to the following requirements:

  • CFTC regulations: Deposit customer funds into segregated accounts in the US.
  • Taiwan laws: Deposit customer funds only at authorized Taiwan banking institutions.

CFTC’s Resolution

Commissioner Robert L. Dorcy praised the work of CFTC Market Participants Division staff for finding a solution that balances both regulations. This approach ensures economic growth and cross-border activity in the derivatives markets, which could prevent market fragmentation.

Key elements of the solution include:

  • ADMIS can maintain its Taiwan branch operations while meeting CFTC requirements.
  • Authorized Taiwan banking institutions will act as custodians for ADMIS’ Taiwan customers’ funds, allowing the funds to be held in both the US and Taiwan.

Quotes from Commissioner Dorcy

“This resolution, a first-of-its-kind, is a testament to our nimble regulatory approach, ensuring that US-registered entities can operate in Taiwan while maintaining our strong commitment to robust customer protection.”

Taiwan laws require ADMIS’ Taiwan branch to deposit its customers’ funds only at authorized Taiwan banking institutions. Moreover, Articles 70 and 71 of the Taiwan Futures Trading Act dictate that the branch must segregate and deposit these funds into designated customer margin accounts. ADMIS’ Taiwan branch stated that Article 42 of the Financial Supervisory Commission’s (FSC) Regulations also obligated them to deposit Taiwan customer funds received for trading US futures contracts into the designated customer margin accounts in authorized FSC Taiwan banking institutions.

Precedent and Implications

This CFTC resolution sets a positive trend when navigating cross-jurisdictional issues in derivatives markets without hindering market access or customer protection. By finding a balance between regulations, economic growth, and market efficiency can be ensured.