April 19, 2018

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Banking Law in Asia

Legal systems across Asia show great degrees of variance. However, there are some similarities across nations with regard to the modes and aims of regulation. In this article, we will compare banking law and its regulation in China, Japan, and South Korea.

Banking law in China

The Chinese banking industry is dominated by four key players, namely the Bank of China, the China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China. All four banks are owned by the state and have been granted the rights of commercial banks by the Commercial Bank Law of the People’s Republic of China.

There are also three predominantly state-owned banks established for the purposes of policymaking. The Agricultural Development Bank of China, the China Development Bank, and the Export-Import Bank of China provide loans for specific purposes.

China’s banking system is still very much in a transitional phase. In line with its membership at the World Trade Organization, laws have been enacted to enable foreign banks to operate in China. While these laws are designed to allow a seamless integration into the Chinese banking landscape, restrictions still exist and only selected banks may operate in China.

Banking law in Japan

Under the Banking Act, the main regulatory body in Japanese banking law is the Financial Services Agency. The Bank of Japan is also plays a regulatory function by conducting inspections and scrutinizing the overall stability of the banking and monetary system. In general, regulation in Japan is tight and heavily dependent on legislation.

The requirements pertaining to due diligence in Japan are very high, and legislation such as the Prevention of Transfer of Criminal Proceeds and the Foreign Exchange and Foreign Trade Act impose a high standard of care on banks. Japan also offers banking consumers high levels of protection under the Depositor Protection Law and the Deposit Insurance Act.

Banking law in South Korea

South Korean banking law has seen immense change in the recent years, with the Bank of Korea Act having been passed in just 2011.  The act expands greatly the regulatory powers of the Central Bank of Korea. It also expands the role the Central Bank of Korea plays in maintaining financial stability throughout the nation, and grants it increased rights to data and due diligence.

The Banking Act attempts to prevent unfair practices and to provide guidelines on how to structure a bank or financial institutions. However, the level of protection granted to consumers and institutions is much less specific and extensive than in Japan.

It is clear that banking law is far from homogeneous across Asia. While Japan has a very detailed set of legislation offering protection to institutions and consumers, as well as stringent regulatory requirements, South Korea is beginning to follow suit with reforms to its national legislation. China, on the other hand, is still easing into commercialization of its banking industry and it will be some time before its system comes to resemble that of Japan and South Korea.