The Financial Services Commission issued a preliminary notice of legislative changes on April 14 regarding the Financial Holding Companies Act (“the Act” hereinafter) and its Enforcement Decree, with aims to facilitate synergetic effects within financial holding companies and unleash more agile responses amid changing external environments.
Background
Financial holding companies (aka financial conglomerates) have been continuously growing since the enactment of the Act in 2000, which sought to improve the competitiveness of financial companies through enlargement and concurrent business operations, while promoting the sound management of their subsidiaries. However, despite the quantitative growth achieved thus far, it has been pointed out that their growth in qualitative terms has remained inadequate due to investment regulations and ownership restrictions.
Particularly with rapidly changing environments in the financial sector, such as digital transformation and the big blur phenomena, it has become increasingly crucial to seek regulatory reforms enabling financial holding companies to more agilely and effectively cope with these changes.
In this regard, the FSC has held a series of taskforce meetings and seminars with relevant stakeholders and private sector experts to draw up plans to improve rules on financial holding companies.
Some of the measures that require no revision to legislation and can be enforced through authoritative interpretation—such as the shared use of office space, sharing of information for management purpose, and expanding the scope of financial holding companies’ business areas—be will take effect immediately.
The measure which requires a legislative revision—raising the maximum level of investment financial holding companies can make in fintech businesses—will go through a relevant amendment process.
Key Revision Details
Easing Financial Holding Companies’ Fintech Investment Limit
Pursuant to the current Act, financial holding companies are allowed to own up to 5 percent of shares of another company unless that other company is at least half (50 percent or more) owned by or is a subsidiary to the former. This strict investment rule placed on financial holding companies has been pointed out as a barrier to promoting strategic partnerships with fintech businesses.
As such, this revision proposal eases financial holding companies’ current investment limit on fintech businesses by raising the maximum investment level to 15 percent of invested company (fintech business) shares to grant more leeway in forming partnerships between financial holding companies and fintech businesses.
Allowing Fintech Subsidiaries’ Ownership of Own Subsidiaries
Pursuant to the current Act, a fintech business that is a subsidiary of a financial holding company is not permitted to own a subsidiary of its own (which constitutes financial holding company’s second-tier or grandchild subsidiary). Due to this restriction, it has been pointed out that there currently exist barriers in making use of new technologies such as artificial intelligence in the provision of financial services.
As such, the revision proposal eases financial holding companies’ ownership rules to facilitate the provision of more innovative financial services by allowing the ownership of a relevant financial company (investment advisory or discretionary investment service) by fintech businesses that are subsidiaries of financial holding companies.
Easing Group-wide Work Consignment Approval and Reporting Rules
Pursuant to the current Act, financial holding companies’ subsidiaries are permitted to consign work to some other subsidiaries of the same parent company. However, this requires a pre-approval from the financial authorities, and this excessive regulation was pointed out as a barrier to carrying out work consignment in a swift manner.
As such, this revision proposal simplifies the reporting procedures to expedite group-wide work consignment among different subsidiaries and help improve synergetic effects.
Allowing PEF Operation by Financial Holding Companies’ Grandchild Subsidiaries
Pursuant to the current Act, financial holding company’s grandchild (second-tier) subsidiaries are not permitted to have controlling ownership of a subsidiary of their own (a great-grandchild or third-tier subsidiary to financial holding company), except when it is a financial company established overseas or a business that has close ties to the financial sector. Due to this restriction, collective investment businesses that are grandchild subsidiaries to financial holding companies are not able to establish and operate institution-only private equity funds (PEFs) as general partner (GPs) even when this qualifies as their core business area.
As such, the revision proposal eases the ownership rule to remove this restriction for financial holding companies’ grandchild subsidiaries, thereby allowing them to set up and operate institution-only PEFs as GPs. Along the same line, this revision proposal clearly prescribes that financial holding companies’ subsidiaries are exempted from the shareholding duty when they perform services in the capacity of GPs in establishing and operating institution-only PEFs.
Further Plan
This revision proposal will be put up for public comment for 42 days from April 14 to May 26, and then go through successive stages of legislative review and approval processes prior to being submitted to the National Assembly.
* Please refer to the attached PDF for details.