萬國法律事務所

The content of the Memorandum of Understanding (“MOU”) entered into between the Financial Supervisory Commission, Executive Yuan, R.O.C (“FSC”) and the People’s Republic of China (“PRC”) has been announced and immediately sent from the Executive Yuan to the Legislative Yuan for reference. With respect to the insurance industry, the investment of a Taiwanese insurance company in a PRC insurance company is capped to 25% of the total shares of the PRC insurance company. Any amount exceeding said cap is only allowed in the case of a joint venture in which the shareholding of the Taiwanese insurance company must be at least 50%.

According to the MOU, there are two means available for a Taiwanese insurance company to enter into the PRC market: by the establishment of an entity or through an investment in equity. The establishment of a new entity includes setting up a branch, subsidiary or joint venture company. However, despite such provisions in the MOU, Taiwan has yet to officially allow Taiwanese insurance companies to set up entities in the PRC. The investment by a Taiwanese insurance company in the shares of a PRC insurance company must be less than 25%. If the shareholding exceeds 25%, the parties must work towards creating a joint venture and the Taiwanese insurance company must hold at least 50% of the total shares of the company.

With respect to banking, a more stringent approach is adopted. The banking parties from each side of the Strait must together set up entities or create examination guidelines for the approval of the investment by authorities on both sides of the Strait. In addition, the examination must include four main thresholds: whether the business has been conducted lawfully, whether it complied with safety regulations and met assessment standards, whether its finances are stable, and whether it will have an effect on the stability of the financial market.

Further, the banking industry has included crisis management principals to address, for instance, the responsibilities of the parties in a liquidity crisis. It is provided, for example, that when a crisis affects a branch of a Taiwan invested bank in the PRC, the crisis must be managed by the main branch in Taiwan, whereas if the crisis affects a subsidy of a Taiwan invested bank in the PRC, the subsidy itself must be responsible to deal with the crisis with the assistance of the main branch in Taiwan.

In addition, in order to control the risk involved in credit extension by foreign banks in their Taiwan branches, the FSC has announced that the basis for calculating the quotas for credit extension granted by foreign banks will be changed from the “net value of the head office” to the “net value of the branch office”. This will significantly curb the ability of the foreign banks in granting credit extension in Taiwan. Any credit extension currently provided by a foreign bank in excess of the quotas set forth by the regulations must be adjusted in order to comply with the new regulations. With regards to the issues in credit extension by PRC banks entering the Taiwan market, the FSC is currently in the midst of internal reviews and discussions.