Dear Friends,

To enhance the international competitiveness of banks and insurance companies and to protect financial consumers, the Legislative Yuan passed three readings to amend the Banking Act, International Financial Business Act, Insurance Act and Financial Consumer Protection Act.  The legislations above were announced by the President on February 4, 2015.  We summarize the key points below:

1. Banking Act

(1) Flexibility to issue financial debentures: The restrictions that for banks to issue financial debentures is to provide funding for medium-term or long-term credit and the minimum principal repayment period of two years are deleted;

(2) Regulations on derivatives: The amendment authorizes the Financial Supervisory Commission ("FSC") to enact regulations for banks to conduct financial derivatives business, including the regulations on the business scope, personnel management, protection of customers' rights and risk management;

(3) The basis on which total investment limits of banks are calculated is amended as "net value".  In addition, starting from September 1, 2015, the cap for the interest rate of cash advance cards and revolving credit of credit cards will be 15%;

(4) To amend the calculation basis for total investment limit: The amendment uses net worth as the calculation basis for the total amount limit of banks to invest in financial related businesses and non-financial related businesses.  In the future, the total investment amount of a bank shall not exceed forty percent (40%) of the bank's net worth upon investment, and the total amount invested in non-financial related businesses shall not exceed ten percent (10%) of the bank's net worth upon investment; and

(5) A commercial bank may invest in non-self-use real estate for the use by cultural and artistic or public welfare organizations, subject to approval by the FSC.

2. International Financial Business Act

(1) Insurance companies may establish Offshore Insurance Units (OIU) in Taiwan.  OIUs may engage in the following business in foreign currencies: (i) offering life insurance to offshore individuals and legal entities as policyholders and insured; (ii) real estate property insurance to offshore individuals and legal entities as policyholders for offshore real estate; (iii) offshore re-insurance policies and (iv) any other insurance business as approved by the FSC;

(2) The above business of an OIU is exempted from the restrictions under the Foreign Exchange Control Act and Insurance Act; and

(3) Within 10 years after effectiveness of this amendment, an OIU is exempted from business income tax, business tax, and stamp duty, and no withholding tax is required, provided that for insurance contracts established within the above period, the exemption lasts until the expiration date of such contracts, which shall not exceed 30 years.

3. Insurance Act

(1) Banks may engage in either insurance brokerage or insurance agency business;

(2) Classification of the capital adequacy ratio (CAR) – To strengthen the FSC's supervision on insurance companies, the amendment classifies the CAR of insurance companies into the following 4 levels:

(i) capital adequate;

(ii) capital inadequate;

(iii) capital obviously inadequate; and

(iv) capital seriously inadequate;

Among others, the level (1) above remains at 200%, and the level (4) refers to the CAR less than 50% or negative net worth.  The amendment authorizes the FSC to prescribe the ratios for levels (2) and (3);

(3) Exit – The amendment authorizes the FSC to adopt different supervisory measures on insurance companies depending on their CAR level (such as discharge of the responsible person and order to dispose of specific assets, etc.).  Among others, for level (4) company, the FSC may have the insurance company under conservatorship, receivership, or suspend its business or order to dissolve;

(4) Outside actuary – An insurance company is required to engage an outside actuary to verify the actuarial report; and

(5) Increasing the administrative fine – For the insurance companies fails to effectively perform the internal control or audit system, the maximum administrative fine is increased from NT$3 million to NT$6 million (around US$100,000 to US$200,000).

4. Financial Consumer Protection Act

(1) The financial service enterprises (Enterprises) shall establish the remuneration system for sales persons after considering clients' interests and the risk possibly generated from the financial products, and such system shall be submitted to the board of directors for approval;

(2) The initial sale of complicated high risk products by the Enterprises shall be submitted to the board of director or board of managing directors for approval.  If such Enterprises are local branches of foreign financial institutions, it shall be approved by the local responsible person.  This amendment authorizes the FSC to determine the type of complicated high risk products;

(3) If the Enterprises provide the complicated high risk products to the financial consumer, the explanations and disclosures provided to the financial consumers shall be recorded in audio or video; and

(4) Upon financial consumers' requests, the courts may order a punitive damage up to one (1) to three (3) times or no more than one (1) time of the amount of actual damages suffered by the financial consumers respectively as a result of the willful or negligent violation of this Act by the Enterprises.

Stacy Lo / Angela Chang / Mark Chen / Robin Huang