| 1 |
Financial Supervisory Commission’s Principles for Reviewing Transfer of Significant Ownership or Controlling Interests in Banks
The Financial Supervisory Commission (FSC) has effectively implemented the Core Principles for Effective Banking Supervision published by the Basel Committee in relevant financial regulations and systems. Point 4 of the Core Principles that says: “Banking supervisors must have the authority to review and reject any proposals to transfer significant ownership or controlling interests in existing banks to other parties”, i.e. the authority to review major shareholders, has been put into effect in Article 25 of the Banking Act and Article 16 of the Financial Holding Company Act. Pursuant to the aforementioned clauses in the Banking Act and the Financial Holding Company Act, any holding of more than 15% of a bank’s shares or more than 10% of a financial holding company’s shares by the same person or same affiliated person must be reported to the competent authority for prior approval, where the competent authority will review the eligibility (i.e. fit and proper) of the shareholder. The eligibility review includes the applicant’s source of funds, absence of adverse record, and the ability to enhance the sound operation of the bank or the financial holding company. See Annexes 1 and 2 for details.
If a financial holding company plans to invest in a bank or another financial holding company, it shall, in accordance with the Principles for Reviewing the Investment Application of Financial Holding Companies According to the Financial Holding Company Act (Annex 3), meet the requirements for financial integrity, capital soundness and regulatory compliance, and in addition, submit documents evidencing shareholder eligibility, where the competent authority will examine whether the applicant meets the fit and proper criteria so as to implement the aforesaid principles set out by the Basel Committee.
As for the question of whether the automatic approval mechanism for the investment activities of a financial holding company runs counter the aforementioned supervisory principles, the FSC indicates that according to Article 36 of the Financial Holding Company Act, the review period for the application to invest in finance related enterprises is 15 days. The automatic approval mechanism aims to shorten the review period for compliant and financially sound financial institutions under the principle of differentiated management. Financial holding companies eligible for the automatic approval system must meet the criteria set out in the aforesaid review principles and their financial conditions and capital adequacy must conform to higher thresholds (see Annex 4 for review form). That is, the automatic approval system merely shortens the review time without exempting the applicant from any of the qualification requirements for major shareholders.
Given the changes in financial environment, the FSC, for supervising more effectively the transfer of significant ownership or controlling interests in banks or financial holding companies, has called a number of meetings inviting the industry, government agencies and academia to discuss the amendment to Article 16 of the Financial Holding Company Act and Article 25 of the Banking Act to prevent the same person or same affiliated person from evading the review using new types of financial instrument or other forms of ownership agreement. Thus the amendment is geared towards specifying the manner of holding alone or jointly by the same person or same affiliated person and possible patterns of joint holding. The FSC is also considering the requirement for prior approval by the competent authority if the ownership in a bank or a financial holding company exceeds 10%, 25%, 50%, or 75%, the scope of reporting by the same person or same affiliated person, no voting rights for shares held without the prior approval of the competent authority, and the disposal of such shares within a prescribed time period if required by the competent authority. The FSC welcomes inputs and feedback to the proposed drafts and the Principles for Reviewing the Investment Application of Financial Holding Companies According to the Financial Holding Company Act, which will be used as reference in the drafting of the amendment. |