Commission relaxes regulations on structured notes

HIGH NET WORTH::The debt securities would be allowed to link with more targets, promoting the creation of more products aimed at attracting wealthy investors

By Kao Shih-ching  /  Staff reporter

Wed, Jan 01, 2020 - Page 12

The Financial Supervisory Commission yesterday said that it would allow banks and brokerages to launch several new products to help them attract wealthy investors, after easing regulations on investment targets linked with structured notes.

A structured note is a debt security whose return is based on the performances of some indicators, such as a basket of equities, interest rates, commodities or foreign currencies.

The commission would allow the linking of structured notes with more targets, which would encourage banks and their overseas branches to issue more products, FSC Banking Bureau Deputy Director-General Huang Kuang-hsi (黃光熙) told a news conference in New Taipei City.

High net worth clients of banks’ offshore banking units would be allowed to buy foreign currency-denominated derivatives and structured notes that are linked with local shares, he said.

Banks would be allowed to customize a product according to their wealthy customers’ needs and provide the product following the commission’s approval, he added.

To reduce potential risks, only banks with stronger financial fundamentals would be allowed to launch such products, with the bureau scheduled to announce which banks qualify in March, Huang said.

Meanwhile, foreign institutional investors would be allowed to use foreign currencies as collateral for New Taiwan dollar-denominated loans from brokerages to invest in local shares, the commission said.

At present, they have to directly use the NT dollar as collateral and thus have to endure fluctuations in exchange rates, it said.

“The change is expected to make it more convenient for foreign investors and encourage them to increase their investment in local shares,” the commission said, adding that the new rules would take effect in July.

A total of 14 domestic brokerages provide financing to investors, with the combined lending totaling NT$1.4 trillion (US$46.5 billion) as of the end of November last year, it said.

While Taiwan Financial Service Roundtable has urged the commission to allow foreign institutional investors to put up foreign equity as collateral for loans from brokerages, the commission said that it could not reach a consensus with the central bank, which has expressed concern over exchange rates.

The commission added that it would continue negotiating with the central bank.

Offshore securities units would be permitted to provide loans to wealthy investors in the second half of this year like domestic brokerages, the commission said.

However, the commission and the central bank would set new regulations to limit the amount of the loans, it said.

The commission added that it would also ease the limit on the amount of investment in local shares by insurers that use premiums from their foreign currency-denominated investment-linked policies.