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“Regulations Governing Applications of Banks (Including Offshore Banking Units) for Concurrent Operations in Underwriting and Proprietary Trading of Bonds, Beneficiary Securities and Asset-Backed Securities”
2021.7.21
Concurrent Operations in underwriting and proprietary trading of bonds, beneficiary securities and asset-backed securities issued in accordance with the Financial Asset Securitization Act and Clauses of the Real Estate Securitization Act conducted by banks (including offshore banking units) shall be governed by the Regulations. To matters not specified herein, other relevant laws and regulations shall apply:
1. Banks (including offshore banking units) applying for engaging in concurrent operations of the business shall submit a business plan and documents stating the approval of the board of directors for operations in the aforementioned business (foreign bank branches in Taiwan shall provide authorization documents from the head office or regional center) to the FSC and obtain permission in accordance with the “Standards Governing the Establishment of Securities Firms”. Before commencing operations, they shall complete the registration in the online reporting system of the Banking Bureau of the FSC.
2. The aforementioned business plan shall include the following items:
(1) Description of business activities.
(2) Operating procedures.
(3) Internal control system (including seating segmentation, control and management procedures for price sensitive information, access control, document control and management, and firewall mechanisms).
(4) Specific measures for risk management.
(5) Personnel assignment and equipment evaluation.
3. The amount of capital that the banks (including offshore banking units) operating this business concurrently are required to allocate or exclusively set aside shall meet requirements specified in the “Standards Governing the Establishment of Securities Firms”. Regulations in Article 13 of the Regulations Governing Securities Firms stating that the total debts to other parties shall not be more than 6 times its net worth and the total amount of its current liabilities shall not exceed the total amount of its current assets shall be processed in accordance with Article 36, Article 43, and Article 44 of the Banking Act. In addition, Article 28, Paragraph 1 of the Banking Act and Article 5 of the "Regulations Governing Business Scope and Risk Management for Banks Engaging in Trust or Securities Business" shall be strictly followed.
4. Banks (including offshore banking units) operating this business concurrently shall calculate the limits on the sum of positions they hold for more than one year due to underwriting businesses, positions they hold for conducting proprietary trading, and the balance of their investments in securities based on the following regulations:
(1) Domestic banks: Domestic banks shall include the aforementioned sum in the control and management for the limits on investments in accordance with the FSC's "Directions Governing Limitations on the Types and Amounts of the Securities in which a Commercial Bank May Invest" in order to meet regulations in Article 74-1 of the Banking Act.
(2) Foreign bank branches in Taiwan: Foreign bank branches in Taiwan investing in securities shall submit the internal rules governing the types, aggregate and single issuer investment ceilings approved for investment by the board of directors (or units or personnel authorized by the board of directors) to the competent authority for approval and comply therewith; Any amendment to such rules shall be handled in accordance with the above-mentioned procedures. After receiving the approval of the competent authority, the said types and ceilings with respect to the securities for investments prescribed by the competent authority based on Article 74-1 of the Banking Act shall apply mutatis mutandis to foreign banks. Foreign bank branches in Taiwan shall include the aforementioned investment positions into the investment limits approved by the FSC for control and management.
5. Banks (including offshore banking units) operating concurrently proprietary trading in bonds shall be applicable to the following regulations regarding limits on bond positions it holds that do not involve equity and are not acquired through underwriting. They shall not be subject to restrictions in Article 19, Paragraph 1, Subparagraphs 1 and 2 of the Regulations Governing Securities Firms, Article 9 of the "Rules Governing the Proprietary Trading of Foreign Bonds by Securities Firms" of Taipei Exchange, Article 79 of the Taipei Exchange Rules Governing Securities Trading on the TPEx, Article 11 of the Taipei Exchange Rules Governing Bond Repurchase and Reverse Purchase Transactions on Over-the-Counter Markets, and the Jin-Guan-Zheng-Quan-Zi Order No. 10703249552 of the FSC dated July 31, 2018 regarding the restrictions on foreign securities positions held and aggregate derivatives transactions engaged by securities firms.
(1) The balance of bonds sold through repurchase agreements shall not exceed 30% of the calculation basis of the bank; the balance of bonds purchased through reverse purchase agreements shall be exempted from the limits.
(2) The total cost of bonds issued by any single domestic or foreign company held by a bank shall not exceed 10% of the calculation basis of the bank.
6. The calculation basis specified in the preceding point refers to:
(1) Domestic banks: The calculation basis refers to a bank’s finalized net worth as of the end of the previous fiscal year and subtracting the following items. However, a bank that increase cash capital during the fiscal year are permitted to include the additional capital in the calculation basis, and shall use the day when they have obtained the capital attestation certificate as the calculation baseline date. If a bank issues cash dividends during the fiscal year, the value of those dividends shall be subtracted from the net worth of the bank on the ex-dividend date:
i. If a bank holds the shares of another bank for more than one year, the original acquisition cost shall be subtracted. However, investment in foreign subsidiaries shall not be subject to this requirement.
ii. The original acquisition cost of the shares of other enterprises other than banks in which the bank has made an investment after approval by the competent authority or in accordance with other regulations shall be subtracted.
(2) Foreign bank branches in Taiwan: The calculation basis refers to twice the foreign bank’s finalized net worth as of the end of the previous fiscal year including the net worth of all branches and offshore banking unit of the foreign bank in Taiwan at the end of the previous fiscal year. The aforementioned net worth refers to the balance after adding the following items:
i. Where the net worth of a foreign bank branch changes due to the inward remittance of the operating funds, outward remittance of earnings or a merger in the current year, such changes shall be included in the calculation of the branch's net worth in the previous fiscal year and determined after obtaining the review report of a certified public accountant.
ii. A foreign bank's branch in Taiwan may include 50% of the loan loss provision and reserves against liability on guarantees appropriated in accordance with regulations. The competent authority may adjust the amounts for calculation based on economic and financial conditions and actual demand.
7. Where banks (including offshore banking units) operating this business engages in trading foreign securities for its own account with offshore affiliates:
(1) The transaction limit shall not be subject to restrictions in Article 31-3, Paragraph 2, Subparagraph 3 of the Regulations Governing Securities Firms, and shall comply with the following provisions:
i. The total balance of transactions and trading with a single offshore affiliate shall not exceed 10% of the calculation basis of the bank.
ii. The total balance of transactions and trading with all offshore affiliates shall not exceed 20% of the calculation basis of the bank.
(2) Where a bank acquires non-equity corporate bonds issued by a foreign subsidiary bank in which it holds more than 50% of the shares and sells the bonds on the same day, it may be exempted from restrictions in Article 5 of the "Directions Governing Limitations on the Types and Amounts of the Securities in which a Commercial Bank May Invest". The bank shall also establish operating procedures for transactions as well as risk management and auditing procedures.
8. Where banks (including offshore banking units) operating this business concurrently operates equity-type products, they shall process transactions in accordance with related regulations in the Securities and Exchange Act.
Banks that operates underwriting of securities concurrently shall be applicable to restrictions regarding related-party transactions in Article 26 of the Regulations Governing Securities Firms. However, such restrictions shall not apply if the issuer issues regular corporate bonds or financial bonds that do not involve equity and the targets of sales meet definitions for professional investors specified in the Taipei Exchange Rules Governing Management of Foreign Currency Denominated International Bonds.
Where a bank serves as the underwriter for bonds issued by an affiliate company of the same group or serves as its financial consultant that assists the sales of securities, the bonds sold to professional investors on the day of acquisition may be exempted from restrictions in Article 5 of the "Directions Governing Limitations on the Types and Amounts of the Securities in which a Commercial Bank May Invest". The bank shall also establish operating procedures for transactions as well as risk management and auditing procedures.
9. Banks (including offshore banking units) operating this business shall establish risk management policies and internal control systems for product suitableness approved by the board of directors. They shall also ensure that business units fully understand and implement these policies.
The risk management policy specified in the preceding paragraph shall include at least the scope of transactions, limits on overall risks and risks for individual positions, limits on risk exposure for the same affiliated group, and levels of approval. The risk management unit shall regularly review the status of risk exposure and report to the board of directors
The product suitableness policy in Paragraph 1 shall at least include know your customer, customer classification, product classification, product suitableness, control and management of the marketing process, risk disclosure (offshore banking units are not applicable to the Financial Consumer Protection Act and maximum potential losses), bank risk control and management, internal controls and internal audit systems. They shall also regularly provide product sales information to the FSC and institutions designated by the FSC.
10. Where any of the following conditions apply to banks (including offshore banking units), they may not apply for concurrent operations of this business:
(1) Where the bank’s ratio of regulatory capital to risk-weighted assets equity in the period prior to the application date fails to reach standards established in the Banking Act;
(2) Where the bank fails to set aside sufficient loan loss provision;
(3) Where the bank has accumulated losses in the fiscal year prior to the application date;
(4) Where the bank's non-performing loans ratio in the quarter prior to the application date was higher than 3%;
(5) Where the bank received more than one fine or penalty for violation of banking regulations in the fiscal year prior to the application date. However, this restriction shall not apply if such incidents have been subject to specific improvements recognized by the competent authority.
11. This Order shall become effective immediately. The Jin-Guan-Yin-Wai-Zi Order No. 10801097470 issued by the Financial Supervisory Commission on July 10, 2019 shall be abolished immediately. |