AMENDMENTS TO THE FINAN-CIAL HOLDING COMPANY ACT

01/01/2009

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On 30 December 30 2008, the Legislative Yuan passed an amendment bill of the Financial Holding Company Act (the "Amendment").  The Amendment was promulgated by the President on 21 January 2009.  Its major points are as follows:
Ÿ	Amendment to the shareholding reporting obligation
	1.	5% shareholding required to report
		The Amendment imposes reporting obligations on shareholders holding 5% of voting shares of a financial holding company.  A person or a group of persons, individually or jointly, holding more than 5% of the voting shares of a financial holding company should report to the Banking Bureau of the Financial Supervisory Commission (FSC) within 10 days of their acquisition of shares.  If there is any subsequent change(s) in their shareholding, which results in their shareholding in the financial holding company to decrease or increase by 1% or more of the total voting shares, such change must also be reported.  A shareholder holding more than 5% of the voting shares of a financial holding company before the Amendment shall report its shareholding to the FSC within 6 months of the implementation of the Amendment.
		Before the Amendment, the threshold of shareholding reporting obligations is 10%.  It is expected that the new rules will increase the difficulty for hostile takeover.
	2.	Sanction
		If a person or a group of persons fails to report its shareholding percentage or fails to obtain a prior approval from the competent authority for holding more than 10%, 25% or 50% shareholding of a financial holding company, the excess shareholding shall have no voting rights and the competent authority may ask the shareholder to dispose of the excess shareholding within a limited period.
		Before the Amendment, the competent authority may only limit the voting rights of the excess shareholding.
	3.	Range of "a group of persons"
		Before the Amendment, "a group of persons" include an individual, his/her spouse, and the relatives by blood within the second degree of the relationship and the companies in which the individual or his/her spouse is acting as the responsible person.
		The Amendment has expanded the scope of the "group of persons" to include the related parties of an individual /juristic person.  The related parties to a person are defined as:
		a.	as to an individual:
			(i)	his/her spouse and relatives by blood within the second degree of the relationship;
			(ii)	a company in which the person set out in subparagraph (1)(i) holds more than one-third (1/3) of its voting shares or capital; or
			(iii)	a company or foundation in which the person set out in subparagraph (1)(i) acts as a chairperson or president, or a majority of the directors are the persons set out in subparagraph (1)(i).
		b.	as to a juristic person:
			(i)	its chairperson and president, and the spouse and relatives by blood within the second degree of the relationship of such chairperson and president;
			(ii)	a company in which the juristic person and the persons set out in subparagraph (2)(i) hold more than one-third (1/3) of its voting shares or capital; or a company or foundation in which the person set out in subparagraph (2)(i) acts as a chairperson or president, or a majority of the directors are the persons set out in subparagraph (2)(i); or
			(iii)	affiliates of the juristic person.
		In addition, if any third parties who hold the shares for a person or a group of persons pursuant to trust, mandate or other agreement, contract or authorization, such should also be included when considering the range of "a group of person".
Ÿ	Amendment to allow banking subsidiary to make investment
	Before the Amendment, the banking subsidiary if intending to make an investment should make such investment through the financial holding company.  Under the Amendment, the banking subsidiary of a financial holding company may now make investment(s).
Ÿ	Amendment to require prior approval for capital decrease and cross selling by subsidiaries
	Prior approval from the FSC is now required for both the capital decrease by, and the cross-selling, among subsidiaries of a financial holding company.
Ÿ	Amendment to the restriction on investment by FHC in non-financial investees
	1.	FHC is now allowed to act as responsible person of non-financial investees with approval of FSC
		Before the Amendment, a financial holding company should not participate in the management of its non-financial investees.  Now, a financial holding company may act as the director, supervisor or manager of such investees if with the prior approval from the FSC.  The FSC has the authority to approve the management participation by the financial holding company on a case-by-case basis.
	2.	Investment restriction on non-financial investees amended
		Before the Amendment, the aggregate amount for a financial holding company to invest in non-financial enterprises may not exceed 15% of such financial holding company's paid-in capital.  The calculation basis is now amended from paid-in capital to net worth given that the net worth would more appropriately reflect the business operation of a company.  In addition, to diversify investment risk and implement the segregation policy between financial industry and other industries, the Amendment further provides that a financial holding company and its subsidiaries may not jointly hold more than 15% of the voting shares of a non-financial enterprise, except where:
		a.	the regulations governing respective subsidiaries of a financial holding company provide a higher shareholding percentage restriction; or
		b.	the non-financial institution enterprise is not a TSE-listed or GTSM-traded company and among the financial holding company and its subsidiaries, only the venture capital subsidiary is involved in the investment within a certain investment amount.
Ÿ	Amendment to the detailed reporting obligations on transactions of related parties
	Previously, a financial holding company and its subsidiaries must report, within one month of the end of the second and fourth quarter, to the FSC the aggregate amount or ratio of their credit extension, guarantee or other transactions in connection with a person (individual or corporate) or a group of persons (including such person's spouse, and the relatives by blood within the second degree of the relationship and the companies in which such person or his/her spouse is acting as the responsible person) or a group of companies (as defined as affiliates under the Company Act).
	The Amendment now imposes the obligation to be on a quarterly basis.  Instead of referring to "other transactions" under Article 45 of the Financial Holding Company Act, the Amendment now expressly defines the "transaction" as set forth below:
	1.	facility extension;
	2.	guaranty or endorsement for short-term bills;
	3.	re-sale of bills or notes;
	4.	investment in or purchase of securities issued by any of such persons;
	5.	derivatives transaction; and
	6.	any other transactions as designated by the competent authority.