Furthering Taiwan’s progress toward becoming one of Asia’s financial hubs through the promotion of fintech, development of green finance, and the enhanced competitiveness of Taiwan’s financial sector.
The banking market in Taiwan has been volatile over the past two years due to unexpected “black swan” incidents such as Brexit-related uncertainties and the U.S.-China trade war. Other economies in Europe and Asia are also showing signs of slowing.
To reduce the impact of the uncertain global conditions, the government has taken steps to liberalize Taiwan’s financial sector. For example, it has encouraged the financing of windfarm projects as a new and very important business opportunity for the banking industry. The measure is enabling foreign banks with offshore wind experience to bring their expertise to Taiwan, where they can work together with local financial institutions.
We look forward to continued liberalization to attract more foreign institutions to participate in the market and bring more business opportunities to Taiwan from neighboring financial hubs.
The government has also been carrying out deregulation in a timely and concrete manner to improve the business environment for Taiwan’s banking industry. The Financial Supervisory Commission (FSC) deserves credit for recent policies aimed at upgrading the competitiveness of Taiwan’s financial sector, such as its efforts in promoting financial technology (fintech), developing green finance, and expanding the scale of the capital market. As responsible members of the financial community in Taiwan, we aim to contribute to the sustainable development of the banking industry and to help make Taiwan one of Asia’s financial hubs.
The Committee particularly wishes to thank the Taiwan financial authorities for paying extra attention to our recommendations in last year’s Taiwan White Paper and taking meaningful follow-up actions.
In this year’s paper, we have focused our attention on five main issues, the objectives of which are in line with the FSC’s main policies. We believe that all of them could be resolved in the coming year. In view of the FSC’s desire to expand Taiwan’s financial market and increase employment opportunities, the first step in that effort should be to allow more products to be made available to additional types of customers in Taiwan. In this way, Taiwan’s financial industry will become more competitive vis-á-vis neighboring financial markets such as Hong Kong and Singapore, and the ability to retain talent and develop the Taiwan industry will be enhanced.
Suggestion 1: Expand the product scope available under the “bond-agency” platform.
Despite the generally positive response from regulators to the industry’s longstanding appeal for a relaxation of restrictions on cross-border financial products, the continuing restrictions on the product scope for bond agencies prevent professional Taiwanese institutional investors from obtaining a full scope of services through onshore financial institutions. As a result, professional institutional investors are required to directly engage offshore financial institutions for certain types of transactions, creating unnecessary obstacles for those investors’ portfolio management and limiting growth in the onshore bond-agency business.
Although existing regulations have laid a foundation for onshore bond-agency platforms to provide cash-bond products, certain other products including People’s Republic of China (PRC) linked bonds issued in the China market, bonds listed on the Hong Kong and Macau exchanges if the issuing enterprises are 30% directly or indirectly owned by the government or corporates of the PRC, as well as corporate-issued bonds that are weighted into the HS China Enterprise Index, are all of interest to institutional investors but are excluded from the scope of permitted bond agency business. Unless the permitted product scope of the bond agency is expanded to include these PRC-related bonds, institutional investors will continue to turn to offshore financial institutions in other markets (mainly Hong Kong and Singapore) to directly purchase the relevant products. This situation obviously contradicts Taiwan’s policy objective of bringing financial product intermediation onshore.
In contrast to these bond agency restrictions, the “foreign securities brokerage” service available to professional individual investors for buying/selling PRC securities in the China financial market (including PRC bonds) has been deregulated since 2013.
To meet the demands of professional institutional investors and for product alignment within the financial industry, the Committee suggests expanding the allowable product scope to include the above-described PRC-related bonds under the bond-agency business platform. The result will be to make Taiwan’s capital market more competitive and efficient.
Suggestion 2: Exempt the sales and trading activities of banks and securities firms from affiliate trading restrictions.
A bank engaged in trading of offshore securities is deemed to be concurrently engaged in a securities business, making such bank subject to Article 31-3 of the Regulations Governing Securities Firms. Under the restrictions set forth in that Article, banks and securities firms are prohibited from trading offshore securities with their offshore affiliates. The rationale for the restriction is to prevent securities firms from engaging in profit and loss manipulation through transactions with affiliates. However, this restriction has impeded banks and securities firms from engaging in a core business activity and from entering into arm’s-length transactions with related parties.
The banking and securities industries are highly regulated and subject to strict scrutiny by the FSC as well as regulators in other countries. A well-established stringent regulatory framework as well as internal controls govern inter-affiliate transactions. Thus, it is unnecessary to prohibit banks and securities firms from entering into arm’s-length transactions with their offshore affiliates. We recommend that the FSC loosen the restriction imposed under Article 31-3 of the Regulations Governing Securities Firms.
Suggestion 3: Relax the definition of recognized ECAs to encourage green financing.
According to Banking Bureau Ruling No.10600188770 issued on Sept. 1, 2017 and Article 33-3 of the Banking Act, only credit extensions backed by credit guarantee institutions “established or owned by a foreign central governments” are exempted from the limit on the aggregate amount of unsecured credit extended to a single juridical person.
Several cases have occurred where the credit extensions backed by Export Credit Agencies (ECAs) are not established or owned by a foreign central government, but the ultimate obligations under the export credit guarantee will still be assumed by the foreign central government. Examples are ECAs Atradius in the Netherlands and Euler Hermes in Germany.
To develop the overall green financing market in Taiwan and encourage local financial institutions to participate in green financing projects, the Committee urges the FSC to expand the scope of recognized ECAs to include agencies whose export credit guarantee obligations will ultimately be assumed by a foreign central government(s), regardless of whether the ECA is itself established or owned by a foreign central government.
Suggestion 4: Ensure regulatory consistency with regard to client classification.
The “Regulations Governing Internal Operating Systems and Procedures for Banks Conducting Financial Derivatives Business,” as last amended on February 1, 2018, included the Agriculture Bank of Taiwan and post offices that handle deposits and remittances within the definition of Professional Institutional Investors (PII). Earlier – on June 21, 2016 – the “Guidelines for Banks Providing Information and Advisory Services for Offshore Derivatives Products” was amended to adopt the PII definition as set out in the “Regulations Governing Internal Operating Systems and Procedures for Banks Conducting Financial Derivatives Business.” Consequently, these two institutions are deemed to be PIIs when entering into financial derivatives products transactions with banks and investing in Offshore Structured Products via banks’ provision of information and advisory services.
However, the definition of PIIs set out in the “Regulations Governing Offshore Structured Products” does not include these two institutions. Moreover, the “Rules Governing Securities Houses Acting as Agents for Sale of Foreign Bonds to Financial Institutions in Taiwan” and the “Regulations Governing Foreign Bank Branch Issuance of NT Dollar Bank Debentures” limit the target investors to PII and Professional Investors as defined in the “Regulations Governing Offshore Structured Products” and thus also exclude these two institutions.
This inconsistency confounds banks’ client-classification process and prevents the Agriculture Bank of Taiwan and post offices that handle deposits and remittances from purchasing foreign bonds from domestic foreign bond agents. It also complicates these two institutions’ investment process if they wish to invest in NT-dollar bank debentures issued by foreign bank branches, since they would have to submit written applications to the issuing banks to be recognized as a High Net Worth Entity or Professional Investor.
We suggest classifying the Agriculture Bank of Taiwan and post offices that handle deposits and remittances as PIIs in the “Regulations Governing Offshore Structured Products” in order to provide consistency across different regulations.
Suggestion 5: Promote digitalization in the banking sector.
5.1 Establish regulations for the digitalization of corporate banking services.
Currently when corporates apply for banking services, the level of digitalization is significantly lower than for consumer banking. To continuously create a digitalized environment for the financial industry overall, we recommend that the government establish relevant regulations on digital banking services for corporate customers, including such services as online account opening, applications for corporate financing, the submission of credit documentation, etc.
5.2 Build up an open API and database to enhance customers’ banking experience.
We recommend that the FSC liaise with other relevant government agencies to develop an open Application Programming Interface (API) and database to allow banks online access for verification of necessary documentation and information regarding corporations and individuals with which they have business dealings. This system would promote the application of fintech and a digitalized environment for the financial industry, as well as reduce operational human error and increase efficiency for customers and banks. In the case of corporate customers, such information might include articles of association, company registration amendment card, board minutes, financial reports, tax compliance audits, and signature cards. For individual customers, such could include tax information, personal data, income information, family status, contact information, and educational and employment information.
Singapore’s MyInfo is an example. This Singapore database stores more than 3.3 million pieces of user data, including Personal ID information, and occupational, income, family, and marriage information. The user has data ownership and can determine which third party can access the data instantly through the MyInfo authentication method. The connection with the bank’s system reduces the amount of time customers need to fill out forms and also saves back-end operator processing time. It also decreases paper-based operational risk and speeds up the bank’s credit approval process. The customer is able to complete the financial service in a short time with great service experience.
Singapore’s CorpPass is similar to MyInfo. After registration, corporations can use this platform to authenticate third parties and share corporate information with them.