Newsletter
NEW RULINGS ON FINANCIAL ASSET SECURITIZATION
In an interpretation issued in December 2005, the Financial Supervisory Commission (FSC) stated that when a bank intends to invest in securities during the course of financial asset securitization, the types of security must comply with the Di-rections Governing Limitations on Types and Amounts of the Securities in which a Commer-cial Bank May Invest; or, the Directions Gov-erning Limitations on Types and Amounts of the Securities in which an Industrial Bank May In-vest, and the various restrictions under the Banking Act and other related legislation. But if the balance of such securities is transferred or entrusted to another entity on the day of the in-vestment, and the bank's risk is not increased by the transaction, compliance with the relevant securities investment limits may be calculated according to the net book result for the day, fol-lowing settlement of the transaction. If the bank on the same day both acquires and disposes of the beneficiary securities in accordance with the securitization arrangements, the monetary value of the transactions need not be counted towards the relevant securities investment limit.
The above ruling was issued by the FSC in re-sponse to a request from Lee & Li when handling a mortgage loan securitization for Hsinchu In-ternational Bank in 2005. The transaction structure required the arranging institution to take up the entire senior tranche of the benefici-ary securities on the settlement date, and on the same day to transfer them to an offshore spe-cial-purpose company, as the basis for the off-shore SPC to issue overseas bonds. According to unofficial comments made by an FSC official, this ruling would apply not only to residential mortgage loan securitization, but also to other types of financial asset securitization.
In an order issued in January 2006, the FSC stated that henceforth the following securities may be made the subject of financial asset secu-ritization if they achieve certain credit ratings and meet other conditions:
Domestic corporate bonds and financial de-bentures (including subordinated bonds and debentures, but not including those linked to shares), beneficiary securities and as-set-backed securities within the meaning of the Financial Asset Securitization Act, and real estate asset trust beneficiary securities within the meaning of the Real Estate Securi-tization Act.
Domestic preferred shares.
Foreign government bonds, foreign corporate bonds (but not those linked to shares), foreign securitization securities, and foreign capi-tal-guaranteed structured bonds.