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Amendment of the “Operational Principles Governing the Investing Activities of Financial Holding Companies”
The Financial Supervisory Commission, Executive Yuan (hereinafter called the “FSC”) passed a resolution on draft amendment of the “Principles of Management of Reinvestment of Financial Holding Companies” on October 4, 2007 and it will promulgate and implement the draft amendment recently.
The aforesaid draft amendment is the product of the common opinions arrived by the FSC, while these common opinions, being with respect to “strengthening the regulations on application of reinvestment by financial holding companies,” were based on the “Meeting of Sustainable Development of Economy in Taiwan.” It was formulated after the discussion of the representatives from the field of manufacturing, the official circles and the academic circles – these were officials from fourteen financial holding companies, the related associations and the Central Bank of the Republic of China (Taiwan) and scholars and experts, who were invited for a discussion by the FSC. The contents of the principles includes the review procedures of the operations related to reinvestment applications, follow-up shareholding plans of and timelines; and in order to conform to the substantial objectives of the Principles, the title of the “Principles for Review of Reinvestment Applications by Financial Holding Companies Pursuant to the Financial Holding Company Act” was therefore changed to the “Principles of Management of Reinvestment of Financial Holding Companies.”
The draft amendment has a total of nine points and the key points of the amendment are as follows:
1. A financial holding company shall propose a plan showing that it will become the biggest shareholder of the invested enterprise(s) and will make the invested enterprise(s) become its subsidiary(ies): List a plan and an integration scheme, a financial plan, and the method of purchase with respect to the financial holding company becoming the biggest shareholder of the invested enterprise(s) and making the invested enterprise(s) become its subsidiary(ies) as the application documents. (Item 5, Subparagraph 2 of Point 3 of the draft amendment)
2. Strengthen capital management to reduce the number of disputes as regards a financial holding company setting up in advance by means of a subsidiary(ies): A provision on the scheme of dealing with the issue that, whether an insurance subsidiary shall sell or continue to keep the investment position of its invested enterprise pursuant to Article 146-1 of the Insurance Act, was added to the draft amendment; the provision provides that, if the insurance subsidiary plans to keep the investment positions of the invested enterprise, it shall submit application documents pursuant to Article 146-6 of the Insurance Act. (Item 7, Subparagraph 2 of Point 3 of the draft amendment)
3. Strengthen the review of sources of investment funds and internal staff’s and related parties’ declarations with respect to transaction information about securities that possess the nature of stock ownership and in connection with share derivatives of the invested enterprise. When a financial holding company files a major message at the Market Observation Post System, it shall not only file the causes of the occurred facts, but it shall also specify the information related to transactions as regards derivatives and securities that possess the nature of stock ownership in the column, “Other Items.” (Subparagraphs 10 and 11 of Point 3 of the draft amendment)
4. A provision providing that a financial holding company is to submit an explanation of the pledged share ratio of its substantial shareholders (directors and supervisors) was added to the draft amendment: If the pledged share ratio of the entire directors, supervisors and substantial shareholders of the financial holding company for the most recent six (6) months, in average, reaches fifty percent (50%) or up, an individual director, an individual supervisor and an individual substantial shareholder who holds the pledged share ratio for fifty percent (50%) or up shall submit the scheme with respect to coping with the assumed situation that the raise of interest rates or the decline of stock prices results the turnover of funding, and provide the scheme to the financial holding company for meta-analyzing its impact on the operations of the company. (Subparagraph 14 of Point 3 of the draft amendment)
5. The original Point 4 concerning the automatic approval system of the reinvestment of a financial holding company was deleted: Although the adoption of the automatic approval system is beneficial to differential management, with respect to the scenario that the reinvestment of a financial holding company is a major policy decision for the said company, the competent authority shall consider the investment plan and the impact of the company’s investment at the time of reviewing the company’s reinvestment. Therefore, the review period provided in Article 36 of the Financial Holding Company Act shall be restored.
6. Simplified Application Documents for Specific Cases: With the reference to the principle provided by Article 9 of the “Regulations Governing the Acquisition and Disposal of Assets by Public Companies“, which concerns that a transaction which reaches an amount of NT$ 300 million or up is considered a major event, the provision as regards applications of reinvestment types by financial holding companies was added to the draft amendment. The provision provides that a simple application procedure (in other words, applications documents that shall be submitted are simplified) applies to a financial holding company whose amount of the original investment with the amount of the investment this time does not exceed NT$ 300 million, or which maintains the cash capital increase of the investment shareholding ratio, as originally approved by the competent authority, and purchases minority interests of a subsidiary(ies). In this case, the simplified administrative procedure shall be proceeded. (Point 4 of the draft amendment)
7. The prerequisites for the rule, no position as a director or supervisor of the invested enterprise: Before a financial holding company’s purchase of stocks has not reached twenty-five percent (25%) of the company’s planned purchase, or the company has not acquired more than a half (1/2) of the total number of directors of the company, the internal staff of the company may not serve as a director or supervisor of the invested company (including its bank(s), insurance company(ies) and securities firm(s)) concurrently. However, this provision does not apply if a subsidiary(ies) of the financial holding company is not in the same trade of the enterprise where the internal staff of the financial holding company serve the aforesaid posts concurrently. (Point 5 of the draft amendment)
8. The method of dealing with the situation that the approved period granted to an approved financial holding company’s reinvestment expires: The follow-up plan and the schedules that shall be submitted by a financial holding company due to the fact that the financial holding company has not acquired the control right over its invested enterprise at the expiry of the investment period when the company’s reinvestment was approved, was clearly enacted. (Point 6 of the draft amendment)
Last updated on October 4, 2007