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Official Letter
FINANCIAL SUPERVISORY COMMISSION
Issue Date: February 5, 2024
Issue No.: Jin-Guan-Yin-Wai-Tzu No.1120273822
Level of Urgency:
Confidentiality Class & Release Condition or Confidentiality Period:
Attachment:
Subject:
If branches of foreign banks within the jurisdiction of the Republic of China (hereinafter referred to as Taiwan) incorporate Bail-in provisions into deposit agreements, as per the Bank Recovery and Resolution Directive (BRRD) of the European Union (EU) or other similar regulations in their home countries, it contradicts the legislative intent of Taiwan's laws and the Banking Act, which aim to safeguard depositors. Please adhere to the following instructions.
Explanation:
1. Article 1 of the Banking Act outlines the legislative intent of safeguarding depositors' rights. Article 123 extends the applicability of Chapters 1 to 3 and Chapter 6 to foreign banks, thereby applying regulations concerning issues specified in Article 61-1, Article 62, and Article 62-1 to Article 62-8 mutatis mutandis to branches of foreign banks in Taiwan. Additionally, Article 64-1 stipulates that if a bank or a financial organization is run poorly and there is a need to cease its operation and liquidate its debts, deposit debts shall precede non-deposit debts.
2. The Bail-in provisions of EU banks (Bail-in Provisions) incorporate the civil contracts of these banks relating to credits and debts governed by the law of a third country, requiring creditors to acknowledge the effectiveness of Bail-in provisions. This extends the public authority of relevant EU resolution authorities to write down or convert the debts of troubled EU financial institutions into the civil contracts of their overseas branches. Given that the applicability of public law is typically based on the principle of territoriality, when there is a concern that a foreign bank is unable to meet its debt obligations or poses risks of harm to depositors’ (or creditors') interests, regardless of whether due to significant deterioration in business or financial status at the headquarters or at the branch/subsidiary in Taiwan, the branch/subsidiary in Taiwan must be dealt with these matters in accordance with the relevant provisions of the Banking Act mentioned above. The Bail-in provisions are clearly at risk of conflicting with the Banking Act.
3. To safeguard depositors' rights and ensure Taiwan's financial stability, the inclusion of Bail-in provisions in deposit agreements by your bank, as per the BRRD of the EU or similar regulations in your home country, conflicts with the authority granted to Taiwan's competent authority under the Banking Act to execute resolution measures. This also runs counter to the prioritization of deposit debts over non-deposit debts and breaches the legislative intent of safeguarding depositors as stipulated by Taiwan's laws and the Banking Act. Therefore, the Bail-in provisions in deposit agreements shall not be implemented within Taiwan's jurisdiction.
4. If your bank has incorporated Bail-in provisions into deposit agreements, please submit a written report to the Financial Supervisory Commission (FSC) detailing your bank's approach for adjustment and the timeline for implementation. |