AMENDMENTS TO REGULATIONS GOVERNING CROSS-STRAIT FINANCIAL ACTIVITIES, SECURITIES AND FUTURES TRANSACTIONS, AND INSURANCE ACTIVITIES

05/01/2010

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On March 12, 2010, the Executive Yuan passed amendments to the Regulations Governing Approval of Financial Activities Between the Taiwan Region and the Mainland Region, the Regulations Gov-erning Approval of Securities and Futures Transactions Between the Taiwan Region and the Mainland Region, and the Regulations Governing Approval of Insurance Activities Between the Taiwan Region and the Mainland Region. The above amendments were issued by the Financial Supervisory Com-mission (FSC) and became effective on March 16, 2010. However, certain provisions regarding mainland banks owning shares in local financial institutions under the Regulations Governing Ap-proval of Banks to Engage in Financial Activities Between the Taiwan Region and the Mainland Re-gion have not been implemented. The effective date of such provisions will be contingent on the status of the negotiation concerning the Economic Cooperation Framework Agreement ("ECFA") between the two sides. The major amendments are as follows:
The Major Amendments to the Regulations Governing Approval of Financial Activities Between the Taiwan Region and the Mainland Region
l	Added provisions with respect to establish representative offices, branches, and banking subsidiaries (collectively, affiliated entities) and cross-stakeholding between local banks and mainland banks
	1.	Local Banks and financial holding companies
		(1)	Options for establishing an affiliated entity in the mainland region/owning shares in a mainland financial institution
			(a)	A local bank (including its overseas banking subsidiary) may establish a representative office, a branch, or a banking subsidiary or own shares in a mainland bank, and may operate businesses in the mainland region by adopting any two of the above three options.
			(b)	A local bank may enter the mainland market either through itself or through its overseas banking subsidiary (but not both). Likewise, a financial holding company may enter the mainland market either through its local banking subsidiary or through its overseas banking subsidiary (but not both).
			(c)	A bank or financial holding company may own shares in no more than one (1) financial institution in the mainland region.
		(2)	The requirements for establishing an affiliated entity in the mainland region/owning shares in a mainland financial institution
			In addition to compliance with provisions in respect of legal compliance and financial ratios, local banks are required to have experience in establishing affiliated entities and operating businesses in Organization for Economic Cooperation and Development ("OECD") member countries to establish business places and/or own shares in a financial institution in the mainland region. In addition, where the financial holding companies own shares in a financial institution in the mainland region, the group capital adequacy ratio of such financial holding company should be 110% or above and its double leverage ratio should not be higher than 115%.
		(3)	Risk management
			(a)	Control of outward remittance: the total amount of operating capital and investment for a local bank to establish branches or banking subsidiaries or to own shares in a mainland financial institution, in the aggregate, should not be higher than 15% of the net value of such bank. Where a financial holding company owns shares in a financial institution in the mainland region, the total amount of such investment should not be higher than 10% of the financial holding company's net value.
			(b)	The major source of funds for a credit extension business should be secured in the mainland region: the percentage of funds secured in the mainland region (including de-posits and interbank loans) for a mainland branch of local banks to engage in a credit ex-tension business should be higher than 50%.
	2.	Mainland banks
		(1)	Options for establishing affiliated entities in Taiwan/owning shares in a Taiwanese financial institution
			Mainland banks (including overseas PRC-funded banks) may establish representative offices or branches or own shares in a Taiwanese financial institution. However, mainland banks can only choose to either establish no more than one (1) branch, or own shares in no more than one (1) Taiwanese financial institution (but not both).
			A mainland bank may enter the Taiwan market either through itself or through its overseas banking subsidiary, but not both. In addition, unless otherwise provided by the ECFA between the two sides, where the option of owning shares in a Taiwanese financial institution is adopted, the mainland bank (or its overseas banking subsidiary, as appropriate) may only own shares in a local bank or financial holding company.
		(2)	The requirements for establishing Taiwan branches/owning shares in a Taiwanese financial institution
			In addition to compliance with provisions in respect of legal compliance and financial ratios, to enter the Taiwan market, mainland banks are required to have experience in establishing branches and operating businesses in OECD member countries and to meet the requirements that asset quality or capital of such mainland bank should have a top international ranking. Unless otherwise provided by the ECFA between the two sides, mainland banks which propose to establish a Taiwan branch are required to own a Taiwan representative office which has been established not less than two (2) years.
		(3)	Risk Management
			(a)	Restriction on the business scope: the business scope of Taiwan branches of mainland banks should be approved by the FSC. Taiwan branches of mainland banks are permitted only to receive each time deposit in a minimum amount of at least one million and five hundred thousand New Taiwan Dollars (NT$1,500,000).
			(b)	Requirement of financial conditions: the Taiwan branches of mainland banks should comply with the regulations in respect of liquidity and source of funds stipulated by the FSC. Also, the net value of such Taiwan branch should not be less than two thirds of its operating capital. The Taiwan branches of mainland banks which do not meet the above requirement of net value are required to make up the deficiency within the period stipu-lated by the FSC.
l	Relaxed restrictions on offshore banking units to engage in a credit extension business with China-based Taiwanese business people
	Where branches established in a jurisdiction other than Taiwan or the PRC by banks in the Taiwan region (or its offshore banking units (OBUs)) engage in a credit extension business, the scope of their clients are limited to (a) approved investors in accordance with Paragraph 1 of Article 35 of Act Governing Relations Between Peoples of the Taiwan Region and the Mainland Region (i.e., China-based Taiwanese business people); (b) the mainland branch offices of legal entities estab-lished in a jurisdiction other than Taiwan or the PRC; and (c) mainland subsidiaries where more than 50% of the total number of outstanding shares or the total amount of capital of such subsidiary are held by legal entities in a jurisdiction other than Taiwan or the PRC. The legal entities established in a jurisdiction other than Taiwan or the PRC exclude legal entities established in a jurisdiction other than Taiwan or the PRC but established by mainland individuals, mainland legal entities, mainland groups, or other mainland institutions.
l	Expanded scope of cross-strait credit cards and debit cards business conducted by local financial institutions
	After obtaining approval from the FSC, the financial institutions in the Taiwan region may conduct credit cards and debit cards businesses with mainland institutions which engage in the business of credit cards, cross-bank information exchange for debit cards, and funds settlement. The scope of the businesses which can be conducted by the above local financial institutions include collecting bills through credit/debit cards, providing services in connection with the authorization or settle-ment of credit/debit card transaction, and other businesses approved by the FSC.
The Major Amendments to the Regulations Governing Approval of Securities and Futures Transactions Between the Taiwan Region and the Mainland Region
l	Local securities and futures institutions
	1.	Options for establishing representative offices in the mainland region/owning shares in a mainland securities and futures institution
		Securities firms, securities investment trust enterprises, and futures commission merchants (collectively, securities and futures institutions) in the Taiwan region may establish represen-tative offices in the mainland region and own shares in a mainland securities and futures in-stitution, i.e., the original structure remains unchanged.
	2.	Risk management
		The total investment amount for local securities and futures institutions to own shares in a mainland securities and futures institution, in the aggregate, should not be higher than 40% of the net value of such local securities and futures institution.
l	PRC-funded securities and futures institutions
	1.	Options for establishing representative offices in Taiwan/owning shares in a Taiwanese securi-ties and futures institution
		(1)	Mainland securities and futures institutions (including overseas PRC-funded securities and futures institutions) may establish representative offices and own shares in local securities and futures institutions. Each mainland securities and futures institution may establish no more than one (1) representative office and own shares in no more than one (1) Taiwanese securi-ties and futures institution.
		(2)	A mainland securities and futures institution may enter the Taiwan market either through it-self or through its overseas subsidiary (but not both).
		(3)	The shares investment in a local securities and futures institution listed on the Taiwan Stock Exchange (TSE) or traded on the Gre-Tai Securities Market (GTSM, over-the-counter market) owned by (i) any one or (ii) all PRC-funded securities and futures institutions combined should not be higher than 5% and 10%, respectively. The above 5% and 10% stake thresholds will be increased to 10% and 15%, respectively, if such shares investment is in a local secu-rities and futures institution not listed on the TSE or traded on the GTSM.
	2.	The requirements for establishing Taiwan representative offices/owning shares in a Taiwanese securities and futures institution
		In addition to compliance with provisions in respect of legal compliance and financial soundness, to enter the Taiwan market, mainland securities and futures institutions are also required to have experience in establishing overseas affiliated entities.
The Major Amendments to Regulations Governing Approval of Insurance Activities Between the Taiwan Region and the Mainland Region
l	Added provisions with respect to local insurance agents or brokers establishing affiliated entities and owning a stake in a mainland insurance enterprise
	1.	Options for establishing mainland affiliated entities/owning shares in a mainland insurance en-terprise
		Insurance agents, brokers, and adjusters (collectively, the insurance businesses) in Taiwan re-gion may establish representative offices, branches, subsidiaries, and own shares in a mainland insurance enterprise.
	2.	Risk management
		The total amount of operating capital and investment for local insurance businesses to establish branches, subsidiaries and own shares in a mainland insurance enterprise, should not be higher than 40% of the shareholders' equity of such enterprise.
l	Added provisions with respect to a mainland insurance enterprise establishing Taiwan representative offices and owning shares in a Taiwanese insurance enterprise
	1.	Options for establishing representative offices in Taiwan/owning shares in a Taiwanese insurance enterprise
		(1)	A mainland insurance enterprise (including an overseas PRC-funded insurance enterprise) may establish representative offices and own shares in a local insurance enterprise. Each mainland insurance enterprise may establish no more than one (1) representative office and own shares in no more than one (1) Taiwanese insurance enterprise.
		(2)	A mainland insurance enterprise may enter the Taiwan market either through itself or through its overseas subsidiary (but not both).
		(3)	The shares investments in a local insurance enterprise listed on the TSE or traded on the GTSM owned by (i) any one or (ii) all PRC-funded insurance enterprises combined should not be higher than 5% and 10%, respectively. The above 5% and 10% stake thresholds will be increased to 10% and 15%, respectively, if the shares investments are in a local insurance enterprise not listed on the TSE or traded on the GTSM.
	2.	The requirements for establishing representative offices in Taiwan/ owning shares in a Taiwanese insurance enterprise
		In addition to compliance with provisions in respect of legal compliance and financial soundness, to enter the Taiwan market, mainland insurance enterprises are also required to meet certain credit rating requirements as prescribed by the FSC.
Control over PRC-funded financial institutions to own a stake in a Taiwanese financial institution
l	Mainland banks
	The aggregate amount of investment by a mainland bank in a single local bank or financial holding company should not be higher than 5% of the total amount of outstanding voting stock or capital of such bank or financial holding company, nor higher than 10% of the total amount of outstanding voting stock or capital of such bank or financial holding company after adding the investment amount of investors from the mainland region (including QDII).
l	PRC-funded securities and futures institutions and insurance enterprises
	The shares investment in a local securities and futures institution (or insurance enterprise, as appli-cable) listed on the TSE or traded on the GTSM owned by (i) any one or (ii) all PRC-funded secu-rities and futures institutions (or insurance enterprises, as applicable) combined should not be higher than 5% and 10%, respectively. The shares investment in a local securities and futures institution (or insurance enterprise, as applicable) not listed on the TSE or traded on the GTSM owned by (i) any one or (ii) all PRC-funded securities and futures institutions (or insurance enterprises, as applicable) combined should not be higher than 10% and 15%, respectively. However, where the shares in-vestment in a mainland life insurance enterprise owned by a Taiwanese life insurance enterprise is permitted to exceed 50% in accordance with the ECFA between the two sides, the FSC may grant a special approval for the above investment ratio.
l	Restrictions on PRC-funded financial institutions fromdirectorship on the boards of local financial institutions
	PRC-funded financial institutions should apply to the FSC for approval to dispatch PRC individuals to act as directors in local financial institutions.