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Introduction

Taiwan is an island nation with a population of 23.57 million. According to 'The Global Competitiveness Report 2019', issued by the World Economic Forum, among 141 economies, Taiwan ranks 12th for global competitiveness and first equal for macroeconomic stability.2 'The Global Competitiveness Report Special Edition 2020' pauses rankings due to the impact of covid-19 on the global economy. However, with respect to the key features of competitiveness that enhanced countries' responses to the pandemic, it recognises Taiwan as one of the economies with strong financial systems that 'could more easily find resources to provide credit to [small and medium-sized enterprises], which, in addition to public interventions, contributed to keeping companies afloat in the current context'.3 According to the 'IMD World Competitiveness Yearbook 2021', issued by the International Institute for Management Development, among 64 economies, Taiwan ranks eighth for overall performance based on indicators such as economic performance, government efficiency, business efficiency and infrastructure.4 Furthermore, with net financial assets per capita of €110,706, Taiwan ranks second in terms of net wealth in Asia, behind Singapore.5

The competent authority of the Taiwanese banking sector is the Financial Supervisory Commission (FSC), which is an independent regulatory authority governing the financial services industry in Taiwan. The FSC determines financial policy, drafts regulations and rules with regard to the financial industry, conducts financial examinations and supervises financial institutions.

Based on the latest information published by the Banking Bureau of the FSC, by the end of September 2021, other than the Central Bank of the Republic of China (Taiwan) (CBC), which regulates monetary and credit policies, there were 38 domestic banks and 29 local branches of foreign banks (including Chinese banks) in Taiwan. The Bank of Taiwan, CTBC Bank Co, Ltd, Mega International Commercial Bank, Taiwan Cooperative Bank and Cathay United Bank are the top five domestic banks measured by equities and assets.6

With a view to aligning with the standards set by the Basel Committee on Banking Supervision, the FSC amended the Regulations Governing the Capital Adequacy and Capital Category of Banks in 2019.7 Furthermore, after estimating the size, interconnectedness, substitutability and complexity of each bank, the FSC has also announced that CTBC Bank Co, Ltd, Cathay United Bank, Taipei Fubon Bank, Mega International Commercial Bank, Taiwan Cooperative Bank and First Commercial Bank are categorised as domestic systemically important banks and are, therefore, subject to higher capital standards.8

The most significant recent development in the Taiwan banking sector was the FSC granting approvals to LINE, Next Bank and Rakuten Bank to set up internet-only banks and further granting digital banking licences to the same. Competition in the Taiwanese banking sector is expected to intensify in the coming years once these new players shake up the market.

The regulatory regime applicable to banks

i General introduction to the related laws and regulations

The primary laws and regulations governing the Taiwanese banking sector include the following:

  1. the Banking Act of Taiwan, which provides rules on conducting banking business, including the setting-up and dissolution of banks; general business scope of various types of banks; compliance requirements; business restrictions; etc. The Banking Act not only regulates domestic commercial banks, but also special business purpose banks (such as industrial banks, agricultural banks and the export–import bank), investment and trust companies and Taiwanese branches of foreign banks;
  2. the Financial Holding Company Act of Taiwan (FHCA), which governs the establishment, business and supervision of financial holding companies. A licensed financial holding company is the parent company of financial institutions that may include banks, insurance companies, securities firms or other companies engaging in financial business. Except for standard company operations regulated by the Company Act of Taiwan, a financial holding company is obligated to comply with the FHCA;9
  3. the Central Bank of the Republic of China (Taiwan) Act, which sets out general rules as well as the powers and functions of the CBC. The CBC regulates monetary and credit policies, manages official foreign exchange reserves and issues currency;
  4. the Offshore Banking Act, which governs the establishment and operation of Taiwanese banks' offshore banking units;10
  5. the Deposit Insurance Act, which delegates Taiwan's deposit insurance system operation to the Central Deposit Insurance Corporation of Taiwan (CDIC). The CDIC handles deposit insurance-related matters and deals with distressed banks in accordance with the FSC's orders;
  6. the Financial Consumer Protection Act, which governs the protection of the interests of consumers dealing with financial institutions; and
  7. the Money Laundering Control Act, the Counter-Terrorism Financing Act and related regulations.11

In addition to these, Taiwanese banks and financial institutions have to comply with the Personal Data Protection Act; also, to avoid inappropriate tax avoidance, Taiwanese banks and financial institutions are required to comply with the Regulations Governing the Implementation of the Common Standard on Reporting and Due Diligence for Financial Institutions, which requires all Taiwanese banks and financial institutions to implement the Common Reporting Standard.

ii Operating a bank in Taiwan

According to the Banking Act, an approval and licence from the FSC are required for setting up and operating a bank in Taiwan.12 The minimum capital requirement for a commercial bank is NT$10 billion.13

The establishment, cancellation or relocation of any branch office, representative office, subsidiary or joint venture by a bank also require the FSC's approval.14 If the branch office, representative office, subsidiary or joint venture concerned is in another jurisdiction, the FSC will consult with the CBC before granting its approval.15 In addition, separate approval from the CBC is required for a bank to conduct foreign exchange-related business or to set up and operate an offshore banking unit.16

iii Overseas banks in Taiwan

An overseas bank is not allowed to conduct business within the territory of Taiwan before obtaining the FSC's approval to set up and operate a branch office in Taiwan.17

Moreover, an overseas bank may set up a representative office in Taiwan after obtaining the approval of the FSC.18 The permissible activities of the representative office of an overseas bank are limited to the collection of commercial and market information and business liaison.19

Furthermore, an FSC ruling issued on 10 September 2019 forbids domestic banks or branches of overseas banks acting as unlicensed overseas banks' agents to provide financial services in Taiwan. Such behaviour would be treated as an evasion of the Banking Act, which would be penalised.20 It is generally understood that the FSC's policy is to forbid an overseas bank with no Taiwanese branch office to conduct business in Taiwan unless the relevant transaction is carried out on an offshore transaction basis. While there is no crystal rule for such offshore transaction, it is generally understood that an overseas bank with no Taiwanese branch office shall avoid: (1) signing or receiving transactions or account opening documents in Taiwan; (2) using services of any local agent, intermediary or personnel in respect of such transactions; (3) meeting with any Taiwanese customers in Taiwan for specific transactions; and (4) initiating any public marketing or promotion activities in Taiwan.