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Clarifications on Article 45 of the Financial Holding Company Act
(21 July 2005)
Order Ref. Jin-Kuan-Yin-(VI)-0946000571
The following clarification is made concerning Article 45 of the Financial Holding Company Act:
1.The following transactions other than credit extension carried out by a financial holding company or any subsidiary thereof with a counterparty set out in Article 45 of the Financial Holding Company Act are deemed in compliance with paragraph 1 of the same article if it has adopted relevant internal operations guidelines, if a resolution has been passed by at least three-quarters of all of the directors present at a board of directors meeting attended by at least two-thirds of the directors, granting blanket authorization to the management to carry out such transactions in a manner that complies with such guidelines, and if such transactions are made on terms not more favorable than offered to other similarly situated persons:
(1) Interbank transactions:
(i) Interbank loans (including in new Taiwan dollars and in foreign currencies).
(ii) Financial derivatives (for financial derivatives in the nature of credit, the potential loss estimated based on credit risk shall be secured by deposit of sufficient collateral, and shall be included in the amount of credit for control purposes, as is the case in extending credit to interested parties; the conditions imposed on the collateral shall accommodate the duration of the trading contract and the liquidity of the reference asset, and the collateral shall be limited to cash, government bonds, Central Bank negotiable certificate of deposits, Central Bank savings bonds, treasury bills, and bank certificates of deposit).
(2) The following transactions that are listed on the market and conducted with open market prices:
(i) Remittances, foreign exchange, deposits, and foreign currency trading.
(ii) Primary and secondary market transactions in short-term bills and secondary market securities transactions in government bonds, financial bonds, and corporate bonds.
(3) Allocation of handling fees, service fees, or commissions deriving from cross-selling engaged in among subsidiaries of a financial holding company.
(4) Insurance product transactions in which the insurance premiums have been filed with the competent authority under the prior-approval, file-and-use, or use-and-file system, and other transactions in which the prices or rates have been filed with the competent authority or a financial trade association under the prior-approval, file-and-use, or use-and-file system or otherwise for which there is a standard, uniform fee schedule.
(5) A single transaction in an amount not more than NT$1 million (to be determined, in the case of a contractual act in the nature of an outright purchase or sale, by the total contract amount, or, in the case of a contract stipulating payment of commissions or fees, by the total amount of commissions or fees paid under the contract).
(6) A single lease contract transaction in which the total annual interest equivalent, as translated into annual total rents or rent deposits, does not exceed NT$5 million.
(7) Purchases and buybacks of collective trust fund beneficial securities and securities investment trust fund beneficiary certificates (excluding closed-end funds) issued by a counterparty set out in Article 45 of the Financial Holding Company Act; the management shall compile transaction records and the profit/loss status for each transaction and submit the same on a quarterly basis to the board of directors for recordation. However, where another act or regulation provides otherwise, such other provision shall govern.
(8) Secondary market transactions in financial asset securitization products and real estate securitization products (other than real estate investment trust beneficial securities) that are publicly placed or offered under the Financial Asset Securitization Act or the Real Estate Securitization Act; the management shall compile transaction records and the profit/loss status for each transaction and submit the same on a quarterly basis to the board of directors for recordation (except for those beneficial and asset-backed securities that have a maturity of one year or less).
(9) Transactions by a banking subsidiary concurrently engaged in trust business, carried out in the course of employing trust assets or trust money in compliance with the Regulations Governing Collective trust Funds or the Regulations Governing Collective Management and Utilization of Trust Funds, and transactions by a securities investment trust subsidiary in the course of employing fund assets in compliance with the Regulations Governing Securities Investment Trust Funds.
(10) Transactions by a securities subsidiary, if a recommending securities firm for emerging stocks, via the Emerging Stock Computerized Price Negotiation and Click System for the purposes of quotation and fulfillment of must-buy, must-sell obligations.
(11) Transactions related to the handling of non-performing loans of financial institutions by an authorized impartial third party recognized by the competent authority pursuant to the Regulations Governing the Recognition of Impartial Third Parties And Their Public Auction Procedures.
2.With respect to any transaction, other than a credit extension, carried out by a financial holding company or a subsidiary thereof with a counterparty set out in Article 45 of the Financial Holding Company Act, if any of the following circumstances exists, it may be exempted from the provisions of paragraph 1 of that article in relation to the requirement of the resolution by at least three-quarters of all directors present at a board of directors meeting attended by at least two-thirds of the directors, and from those of paragraph 4 in relation to transaction limit:
(1) Where the government is a responsible person or major shareholder of a financial holding company, and the enterprise falls into the category of a counterparty set out in Article 45, paragraph 1, subparagraph 2 of the Financial Holding Company Act by reason that the government is a responsible person or major shareholder of the financial holding company; however, the limit set out in that article shall still apply where the enterprise is also a responsible person or major shareholder of that financial holding company, or where any circumstance set out in Article 45, paragraph 1, subparagraph 2 applies to the enterprise by reason of non-government private sector shares or natural-person relationship.
(2) Where a banking subsidiary concurrently conducting trust business does not have the power to decide the utilization of trust assets; however, the limit set out in Article 45 of the Financial Holding Company Act shall still apply where a financial holding company or any subsidiary instructs a trustee in a fiduciary relationship to carry out transactions other than credit extension with a counterparty set out in that article.
3.The scope of the term "subsidiary" as used in Article 45 is the counterparties specified in Article 4, subparagraph 4, of that Act.
4.The scope of "responsible person", "responsible person of a financial holding company", and "an enterprise in which [a responsible person or major shareholder of a financial holding company] acts as a responsible person" as used in Article 45, paragraph 1 shall be determined as follows:
(1) The scope of "responsible person" as used in Article 45, paragraph 1 includes directors, supervisors, general manager, assistant general managers, deputy assistant general managers, managers, and persons in an equivalent position.
(2) Where a juristic-person shareholder of a financial holding company is elected, either in its capacity as a juristic person or via its representative, as a director or supervisor of that company, the responsible persons of the financial holding company, in addition to such juristic person, also includes the chairperson, any natural person duly appointed to exercise the duties on behalf of the juristic person, and any representative elected as a director or supervisor on behalf of the juristic person.
(3) The expression "an enterprise in which a responsible person or major shareholder of a financial holding company acts as a responsible person" as used in Article 45, paragraph 1, subparagraph 2 means an enterprise in which a responsible person or major shareholder of a financial holding company acts as a responsible person within the meaning of Article 8 of the Company Act.
5.The expression "investment in or purchase of securities issued by any of the persons mentioned in the preceding paragraph" as used in Article 45, paragraph 2, subparagraph 1 does not extend to shares held in an investee enterprise by a financial holding company or any subsidiary thereof pursuant to Articles 36 and 37 of the Financial Holding Company Act or otherwise pursuant to the provisions of any other act.
6.The expression "third parties having an interest relationship [with any of the persons mentioned in the preceding paragraph]" as used in Article 45, paragraph 2, subparagraph 6 includes the spouse and blood relatives within the second degree of kinship of the persons set out in Article 45, paragraph 1, subparagraphs 1 to 4, and any enterprise in which the person or his or her spouse serves in a position of director, supervisor, or general manager.
7.The transaction limit provided in Article 45, paragraph 4, is determined in principle by net amount, subject to the following provisions:
(1) For transactions, other than a credit extension, between a banking subsidiary of the financial holding company and the financial holding company and any enterprises in which the financial holding company makes an investment under Article 36, paragraph 2, subparagraphs 1 to 7 of the Financial Holding Company Act, only the following transactions are calculated into the amount limit:
(i) Trading, leasing, and creation of superficies on, real estate, to be calculated based on acquisition cost; excluded are transactions that, as under Point 1, are deemed in compliance with Article 45, paragraph 1 of the Financial Holding Company Act.
(ii) Securities held for its own account, to be calculated based on acquisition cost; excluded are transactions that, as under Point 1, are deemed in compliance with Article 45, paragraph 1 of the Financial Holding Company Act and equity transactions arising from adjustment of organization or shareholding structure made under Article 31 of the Financial Holding Company Act.
(2) Transactions between a banking subsidiary of the financial holding company and any interested parties other than both the financial holding company and enterprises in which the financial holding company makes an investment under Article 36, paragraph 2, subparagraphs 1 to 7 of the Financial Holding Company Act shall be calculated into the amount limit, except for the following transactions that need not be calculated:
(i) Transactions that, as under Point 1, are deemed in compliance with Article 45, paragraph 1, of the Financial Holding Company Act.
(ii) Equity transactions arising from adjustment of organization or shareholding structure made under Article 31 of the Financial Holding Company Act.
(3) The limit on transactions in financial derivatives is calculated based on the potential future exposure from trading counterpart credit risk, and the amount used by a banking subsidiary in calculating the transaction limit shall not be lower than the capital requirements set out in the "Explanation of Methods for Calculating the Equity Capital and Risk-Weighted Assets of Banks" or the "Explanation of Methods for Calculating the Equity Capital and Risk-Weighted Assets of Bills Finance Companies."
8.The term "all related persons" as used in Article 45, paragraph 4 includes the persons set out in Article 45, paragraph 1, subparagraphs 1 to 4 of the Financial Holding Company Act, and parties having an interest relationship as set out in Article 45, paragraph 2, subparagraph 6 thereof.
9.These provisions shall take effect from the date of issuance.
10.The 19 March 2004 Ministry of Finance Order Ref. Tai-Tsai-Rong-(I)-0938010391 shall be repealed from the date of issuance of these provisions.
In the event of any discrepancy between this English translation and the original Chinese text, the original text will take precedence. |