A decision by the legislative finance committee that board members of financial companies need to obtain approval from shareholders before also becoming a board member at a rival firm will have a significant impact on several state-controlled financial holding companies, analysts said.
The legislative committee reached the decision in an effort to ease concerns about conflicts of interest and reduce leaks of confidential information in such cases.
The move sparked strong opposition from financial regulators. But an academic praised the legislative move yesterday, saying the avoidance of conflicts of interest is crucial for the competitiveness of the sector.
"There weren't many such problems before the existence of financial holding companies, since financial businesses such as securities, insurance and banking, were usually independent from one another at that time," said Charles Yeh (葉銀華), a professor at the Graduate Institute of Finance at Fu Jen Catholic University (輔仁大學).
Since the establishment of financial holding companies that combine all of these financial businesses, company directors need to play by rules that minimize conflicts of interest, Yeh said.
The finance committee decided on Thursday that the financial holding companies have to comply with Article 209 of the Corporate Law (公司法), which requires shareholder approval for some decisions by board members.
The regulation aims to prevent leakages of confidential information that could put the company at a disadvantage, and ensure fair play in the market.
The decision will have implications for the nation's six financial holding companies -- First Financial Holding Co (第一金), China Development Financial Holding Co (
The legislative move comes as China Development encountered opposition from a board director representing the International Commercial Bank of China (中國國際商銀), the banking arm of its competitor Mega Financial Holding, for China Development's acquisition of KGI Securities Co (中信證券) and President Securities Corp (統一證券). The timing has led to speculation that the legislative decision may have been tailor-made to further China Development's goals.
People First Party legislator Christina Liu (
"This is a big issue," a local news report quoted Liu as saying yesterday, without explaining why Liu made the about-face.
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