Data Source:Laws and Regulations Retrieving System of the Banking Bureau

Title: Operational Principles Governing the Investing Activities of Financial Holding Companies (Amended by Jin-Kuan-Yin-(6)-Zi-09660001390 dated October 18, 2007)

I. A financial holding company which applies to invest in any of the enterprises mentioned in Paragraph 2 of Article 36 of the Financial Holding Company Act (hereinafter called the “Act”) shall comply with the following provisions:
(1) The investment shall be passed by the board of directors of the financial holding company.
(2) Compliance with Articles 209 and 206 of the Company Act. Article 178 of the same law, which concerns a declaration on prohibition of business strife and prevention of conflicts of interests, shall apply mutatis mutandis to Article 206.
(3) After the presently filed investment, the group capital adequacy ratio of the financial holding company shall reach one hundred percent (100%) or up and each subsidiary of the company shall conform to regulations related to capital adequacy of each type of business.
(4) A financial holding company and its subsidiary(ies) had not been imposed with a punishment or fine of one million New Taiwan Dollars (NT$ 1000000) or up by the competent authority within the most recent year. However, this rule does not apply to these entities if their illegal circumstances have been specifically improved and such improvements have been recognized by the competent authority.
(5) A financial holding company’s consolidated financial statement of the most recent (accounting) period, which has been certified by a certified public account, shows no accumulated deficits. This rule does not apply to a financial holding company if the applied investment is to assist its subsidiary in improving its financial structure or restoring (its business) back to normal operation, and has a concrete improvement plan with respect to the accumulated deficit, which has been approved by the competent authority.
(6) A financial holding company has not been under the competent authority’s request for capital increase because of its subsidiary(ies) and has not completed raising funds for its subsidiary(ies).
(7) A financial holding company still has not completed disposing related investments under the order of the competent authority and its default is not due to Article 55 of the Act.
(8) Unless otherwise provided by other laws and regulations, the amount of a financial holding company’s first investment in its invested enterprise shall at least not be lower than five percent (5%) of the total number of outstanding shares issued by or of the total amount of paid-in capital of the invested enterprise.
(9) The investing activity shall be completed within one (1) year from the date of approval of the investment by the competent authority.
(10) The double leverage ratio (DLR, the ratio of equity investment to net worth, that was calculated pursuant to Paragraph 2 of Article 36 and Article 37 of the Act) with the presently filed investment factored in may not exceed one hundred and twenty-five percent (125%). This rule does not apply, however, to a financial holding company which handles a problem financial institution or a major investment in order to cooperate with the government policy and the competent authority has granted special approval for such dealing.
(11) An applicant which invests in more than ten percent (10%) of the total voting shares of a financial holding company, or in more than fifteen percent (15%) of the total voting shares issued by another bank shall meet the shareholder eligibility requirements set out in Article 16 of the Act or Article 25 of the Banking Act of the Republic of China.
(12) Where the invested enterprise is an existing company and had an accumulated deficit in the most recent year, the applicant shall provide a reasonable explanation with respect to the accumulated deficit. This rule does not apply, however, where an investment is being made in coordination with government policy to clear up a problem financial institution.
An applicant’s aforesaid investment that involves in foreign exchange business shall be handled in accordance with relevant provisions of the Central Bank of the Republic of China (Taiwan).
II. An applicant that invests via a cash acquisition shall have a clear source of the investment funds; the applicant whose funds are debt-financed shall have a specific source of funds for debt repayment and a debt repayment plan and maintain a sound capital structure.
III. A financial holding company which applies to invest shall not only submit a self-assessment form (Table 1) and a declaration affirming the veracity of the application documents (Table 2), but it shall also enclose the following:
(1) Minutes of the board of directors’ meetings of the invested enterprise.
(2) Investment objectives and an investment plan, including:
1. The shareholder structure of the invested enterprise.
2. Management team members of the invested enterprise.
3. The business scope, business principles and policies, and a business development plan of the invested enterprise.
4. Financial forecasts for the coming three (3) years, and an analysis of the feasibility of the investment efficiency of the invested enterprise.
5. 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)
6. A concrete schedule of an investment plan being decided to be executed in the future and measures for dealing with situation that the investment cannot be executed according to the plan.
7. With respect to 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, 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.
The aforesaid Item 5 concerning a plan and an integration scheme with respect to becoming a subsidiary and the biggest shareholder does not apply to a financial holding company that applies to invest in any of the enterprises set forth in Subparagraph 8 to Subparagraph 10, Paragraph 2 of Article 36 of the Act. This rule does not apply to a financial holding company which invests in another financial holding company.
(3) A statement declaring compliance with the non-competition and the non-conflict of interest provisions in Article 209 of the Company Act as well as Article 178 of the same Act which applies mutatis mutandis to Article 206, and compliance with the circumstances described in Point 5 (Table 3-1 or 3-2).
(4) An explanation of the financial holding company's group capital adequacy ratio and the capital adequacy of each subsidiary.
(5) The consolidated balance sheet and the income statement of the financial holding company and its subsidiaries for the most recent year.
(6) The financial holding company's double leverage ratio with the presently filed investment factored in, and a list of invested enterprises in which the financial holding company has already invested.
(7) A list of fund sources. For debt-financed acquisitions, the list entry shall include the source of funds for debt repayment, a debt repayment plan, and the effect of the acquisition on capital and financial structure (this rule does not apply to non-cash acquisitions).
(8) A forecast of the impact of the presently filed investment on the future development of the overall operation and the production of economies of scale or general effects of the financial holding company and of the subsidiaries of the financial holding company.
(9) Where the invested enterprise is an existing company, the applicant shall attach the invested enterprise's balance sheet and income statement for the most recent year (an explanation shall be provided if the invested enterprise has an accumulated deficit).
(10) Information related to equity-type securities of the invested enterprise being linked to an agreement on financial derivatives that was concluded with another person, or information in relation to equity-type securities issued by the invested enterprise that is presently filed by the financial holding company. These equity-type securities have been purchased by a financial holding company and its subsidiary(ies) and affiliated enterprise(s), and the responsible persons or substantial shareholders of the aforesaid companies, or a person in the name of another person:
1. Details of the aforesaid purchased securities.
2. Transaction information of purchase and sale for the past six (6) months.
3. A detailed explanation of a future purchase plan and of sources of funds.
4. The financial holding company shall submit a statement declaring that it undertakes that it may not use its subsidiary(ies), affiliated enterprise(s), and the responsible persons or substantial shareholders of the aforesaid companies, or be in the name of another person to proceed with an investing act against the object in which it applies to invest (Table 3-1 or 3-2).
When a financial holding company applies to the competent authority for reinvestment, it shall declare a major message with respect to the aforesaid purchase act at the Market Observation Post System; it shall not only file the causes of the occurred facts, but it shall also, in the column, “Other Items”, specify the information related to transactions as regards financial derivatives and equity-type securities related to the reinvestment mentioned in this Paragraph, including the number of shares that link securities, the execution or change of prices, equivalent amounts and the date of execution.
The so-called “equity-type securities” means securities mentioned in Paragraph 1 of Article 11 of the Securities and Exchange Act Enforcement Rules.
(11) Where the total number of stocks of any of the shareholders of the invested enterprise being present filed by the financial holding company is purchased by a financial holding company and its subsidiary(ies) and affiliated enterprise, and the responsible persons or substantial shareholders of the aforesaid companies, or a person in the name of another person exceed fifty percent (50%) of the total number of outstanding shares issued by the shareholder of the invested enterprise, the companies, and the said responsible persons or substantial shareholders of the aforesaid companies, or the person in the name of another person shall declare details of these shares and sources of funds for these shares.
The aforesaid shareholder of the invested enterprise who shall file a report means that the shareholder holds more than five percent (5%) of the shares of the invested enterprise.
(12) The financial holding company’s management of all its investment interests, and the concrete risk management mechanisms of the said company.
(13) For an investment in more than ten percent (10%) of the total voting shares of a financial holding company, or in more than fifteen percent (15%) of the total issued voting shares of another bank, the applicant shall furnish documents showing that it meets the shareholder eligibility requirements referred to in Article 16 of the Financial Holding Company Act or Article 25 of the Banking Act of the Republic of China.
(14) 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:
1. The scheme with respect to coping with the assumed situation that the raise of interest rates or decline of stock prices results the turnover of funding.
2. A statement declaring that he/she/it is willing to execute the scheme mentioned in the preceding Subparagraph.
The financial holding company shall compile the aforesaid documents and analyze the impact of the contents of the documents on the operation of the company.
(15) A statement issued by a certified public accountant affirming the compliance with Points 1 and 2.
(16) Where an investment activity is not carried out via a centralized securities trading market or an over-the-counter securities market, an explanation of the reasonableness of the transaction price shall be furnished.
(17) Other evaluation information that is additionally required to be submitted in accordance with the special characteristics of the invested enterprise.
IV. Where the type of reinvestment applied by a financial holding company falls under one of the following circumstances, the financial holding company may handle in accordance with Paragraph 2 of this Point:
(1) The reinvestment is to maintain the cash capital increase of the investment shareholding ratio, as originally approved by the competent authority.
(2) The reinvestment is to make the invested enterprise become a subsidiary of the financial holding company and the amount of the original investment of the financial holding company with the amount of the investment presently filed does not exceed NT$ 300 million.
(3) The reinvestment is to purchase minority interests of a subsidiary(ies) of the financial holding company.
The financial holding company which complies with the aforesaid requirements shall submit the following application documents:
(1) A self-assessment form (Table 4) and a declaration affirming the veracity of the application documents (Table 2).
(2) Minutes of the board of directors’ meetings of the invested enterprise.
(3) The shareholder structure and management team members of the invested enterprise.
(4) The business scope, business principles and policies, and a business development plan of the invested enterprise.
(5) A concrete schedule of an investment plan being decided to be executed in the future and measures for dealing with situation that the investment cannot be performed according to the plan.
(6) A statement declaring compliance with the non-competition and the non-conflict of interest provisions in Article 209 of the Company Act as well as Article 178 of the same Act which applies mutatis mutandis to Article 206, and compliance with the circumstances described in Point 5 (Table 3-1 or 3-2).
(7) An explanation of the financial holding company's group capital adequacy ratio and the capital adequacy of each subsidiary.
(8) The financial holding company's double leverage ratio with the presently filed investment factored in, and a list of invested enterprises in which the financial holding company has already invested.
(9) The financial holding company’s management of all its investment interests, and the concrete risk management mechanisms of the said company.
(10) Where an investment activity is not carried out via a centralized securities trading market or an over-the-counter securities market, an explanation of the reasonableness of the transaction price shall be furnished.
(11) Other evaluation information that is additionally required to be submitted in accordance with the special characteristics of the invested enterprise.
V. Before a financial holding company that invests in a financial holding company, a bank, an insurance company and a securities firm purchases less than twenty-five percent (25%) of the equity, or have not acquired more than half of the total number of the directors of the financial holding company, the bank, the insurance company and the securities firm respectively, its internal staff must not have concurrently served as directors or supervisors of the invested enterprise and of the bank, insurance subsidiary(ies) and securities subsidiary(ies) of the invested enterprise. However, this rule 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.
The internal staff mentioned in the preceding Paragraph means substantial shareholders, directors, supervisors or managers of the financial holding company and of the subsidiary(ies) of the financial holding company, or any person who works in the financial holding company and/or its subsidiary(ies) and holds a position in the rank equal to a manager, as well as spouses, parents and sons and daughters of the aforesaid people.
The internal staff mentioned in the preceding two paragraphs, who have served as directors or supervisors of the invested enterprise and the bank, insurance subsidiary(ies) and securities subsidiary(ies) of the invested enterprise before the amendment of the Principles comes into force, may serve the said posts until the respective expiries of the current terms of office.
VI. A financial holding company which is approved to invest by the competent authority, except the reinvestment that falls under the type of reinvestment mentioned in Point 4, shall report to the competent authority the amount of money invested and shareholding before the second business day of the expiry of the approved investment period.
With respect to the reinvestment mentioned in the preceding Paragraph, if the financial holding company has not acquired the control right over its invested enterprise, it shall submit a follow-up plan and the schedules within three (3) months from the expiry date of the approved investment period.
VII. Where a financial holding company which is approved to invest by the competent authority stops investing, transferring or selling shares of its invested enterprise, it shall report to the competent authority for future recordation and reference within ten (10) days from the date of the occurred facts.
VIII. When a financial holding company applies to invest in accordance with Article 37 of the Act, Points 1 and 2, Point 7 and Paragraph 2 of Point 4 that concern a mandatory submission of application documents shall apply mutatis mutandis to the company.
IX. If a financial holding company’s method of investment in a financial institution is to transform the financial institution into a subsidiary of the financial holding company by the financial institution’s transfer by shares in accordance with Articles 26 and 27 of the Act, the financial holding company shall apply such an investment together with the application to transform a financial institution into a subsidiary of the financial holding company in accordance with Article 26 of the Act and these Principles shall not apply.