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On 16 December 2010, the Financial Supervisory Commission (FSC) issued the "Rules Governing Investment in PRC Enterprises by Banks, Financial Holding Companies and Their Affiliates" ("Rules"), which took effect on the same date. The Rules aim to complete the regulatory basis for investments made by ROC banks, financial holding companies and their affiliates (collectively, "ROC Investors"). In 16 March 2011, the Rules were amended to ease restriction on the number of PRC financial related businesses each ROC Investor is allowed to invest.
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The Rules divide PRC enterprises into financial institutions, financial related businesses and venture capital enterprises and others (collectively, "Invested Enterprises"). Each type of ROC Investors (as listed in the table below), is subject to different regulations by the type of Invested Enterprises, investment amount and application procedures. Major provisions of the Rules are summarized as follows:
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| ROC Investors |
Invested Enterprises |
Number of Invested Enterprises & Investment Amount |
Bank,
third-area subsidiary bank, and
financial holding company
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Financial Institutions |
One |
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Any subsidiary wholly owned by a bank or a financial holding company
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Lease finance enterprises and other financial related businesses approved by the FSC
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No restriction on the number of Invested Enterprises.
The voting shares held by the relevant ROC Investor in each Invested Enterprise should be 25% or more.
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| Any subsidiary wholly owned by an industrial bank |
Venture capital enterprises, lease finance enterprises and other financial related businesses approved by the FSC
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No restriction on the number of Invested Enterprises.
The voting shares held by the relevant ROC Investor in each Invested Enterprise should be 25% or more.
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| Any subsidiary in which a bank holds more than 50% of the voting shares |
Others |
The relevant ROC Investor should not own more than 5% of the outstanding shares or of the total paid-in capital in each Invested Enterprise. |
| Any subsidiary in which a financial holding company holds more than 50% of the voting shares |
The relevant ROC Investor should not own more than 15% of the outstanding shares or the total paid-in capital in each Invested Enterprise. |
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The Rules also set forth the respective investment caps for a bank and a financial holding company in the PRC as follows:
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Bank - 15% of the Net Worth of the Bank
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In addition to equity investment, a bank can invest in the PRC by directly establishing a branch or subsidiary bank in the PRC. The Rules expressly provide that the cumulative allocated operating capital and total amount of the following investments should not exceed 15% of the bank's net worth at the time of application:
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1. |
where a Taiwan bank or its third-area subsidiary bank applies to establish a branch or subsidiary bank, or make equity investment in the PRC; and
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2. |
where the investment was made by any subsidiary in which the bank holds more than 50% of the voting shares or has contributed more than 50% of the paid-in capital.
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Financial Holding Company - 10% of the Net Worth of the Financial Holding Company
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The Rules expressly provide that the cumulative allocated operating capital and total amount of the following investments made by a Taiwan financial holding company should not exceed 10% of the financial holding company's net worth at the time of application:
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1. |
where a financial holding company applies to make equity investment in the PRC; and
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2. |
where the investment was made by any affiliate directly or indirectly controlled by the financial holding company (excluding a Taiwan bank, a subsidiary that the bank holds more than 50% of its voting shares and a third-area subsidiary bank).
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