Taiwan's financial supervisory body issued regulations Tuesday on mainland banks' operations on the island, two months after China and Taiwan signed a memorandum of understanding on financial cooperation.

The regulations will not go into effect until the Economic Cooperation Framework Agreement is signed.

Mainland banks that meet the criteria outlined in the regulations can now set up representative offices in Taiwan and upgrade them to branches after two years, though the ECFA may stipulate exceptions. They can also hold a minority stake in a Taiwanese bank to form a partnership, though they are limited to handling single deposits over NT$1.5 million.

Mainland banks that want to enter Taiwan must have experience running branches in OECD countries and are subjected to Taiwanese laws and financial regulations. Currently, five mainland banks meet the criteria: Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, and China Merchants Bank.

Besides banks, mainland insurance companies and stock dealers received the green light as well. Currently, three insurers are eligible to set up representative offices, while another two are qualified to form joint ventures with Taiwanese risk companies.

Mainland securities and futures companies can form joint ventures with only one Taiwanese firm. Like banks and insurers, experience in overseas practices is required.

The FSC also provided detailed regulations for Taiwanese financial institutions on their entry into the mainland. Thirteen of Taiwan's 15 financial holding companies are qualified to seek partnerships in the mainland. Fourteen Taiwanese banks can upgrade their representative offices in the mainland to branches, including Chinatrust Commercial Bank of Taiwan, who is confident enough skip the local branch and has applied to be a direct subsidiary.

Financial analysts in Taiwan are still concerned about the outcome of the ECFA negotiations but confident that the mainland banks' participation will benefit the local financial market, such as helping local institutions become more familiar with the renminbi and preparing them for future competition across the Taiwan Strait.

Taiwanese stock brokers say giving clearance for mainland financial institutions is a historical trend but also point out that the Taiwanese market is too limited to attract more mainland investment. But some financial chiefs are optimistic about their operations, saying that their market shares are unlikely to be affected by mainland companies.