The Financial Supervisory Commission (FSC) issued a letter on 17 February 2015 to amend the Regulations Governing Issuance of Bank Debentures by Banks (Regulations). The main purpose of the amendments is to attract financial institutions to redirect their funds from overseas investments back to Taiwan to support the financial import substitution policy. Main contents of the amendments are as follows.
1. Delete the provisions that the bank debentures shall be for the purposes of raising funds for medium and long term credit extensions and have a tenor of not less than 2 years.
To increase the bank's flexibility for design and issuance of bank debentures so as to meet the needs of professional institutional investors and to seize business opportunities, the provision that bank debentures shall be for the purposes of raising funds for medium and long term credit extensions and have a tenor of not less than 2 years was deleted from the newly amended Articles 11 and 72-1 of the Banking Act promulgated on 4 February 2015. To accommodate such amendment, the relevant provision in Paragraph 1 of Article 2 of the Regulations was deleted accordingly.
2. Add the definitions of professional institutional investor and non-professional investor
Definitions of professional institutional investor and non-professional investor were newly added in Paragraph 2 of Article 2, applicable mutatis mutandis to the provisions in the Regulations Governing Offshore Structured Products.
3. Amend the provisions regarding credit rating
According to Paragraph 2 of Article 6 of the Regulations before amendment, bank debentures issued by a bank shall be rated by a credit rating agency sanctioned by the competent authority, unless the bank has reasonable explanations for not having such a credit rating and has obtained the approval of the competent authority. After the amendment, Paragraph 2 of Article 6 of the Regulations provided that the subordinated bank debentures issued by a bank, whose target customers are individual non-professional investors, shall still be rated by a credit rating agency sanctioned by the competent authority; in other cases, the bank may choose to adopt the issuer rating or the issue rating. In addition, after the amendment, Paragraph 3 of Article 6 of the Regulations provides that if the issuer rating is adopted, the bank shall remind investors of the risk of the bank debentures.
4. Ease the restriction on the tenor of bank debentures
According to Article 10 of the Regulations before amendment, a bank shall issue bank debentures within 1 year from the date on which an approval becomes effective; failure to do so shall result in the invalidation of such effectiveness. However, for bank debentures requiring application for approval or effective registration under the Regulations Governing the Offering and Issuance of Securities by Securities Issuers or Regulations Governing the Offering and Issuance of Overseas Securities by Issuers, the provisions thereof shall be complied and the restriction that the bank debentures shall be issued within 1 year shall not apply. After the amendment, the Regulations have a newly added provision that banks may obtain the competent authority's approval of bank debentures, whose target customers are professional institutional investors, to be issued by way of revolving issue within the credit limit within a certain period, and the restriction that the bank debentures shall be issued within 1 year shall not apply.