Taiwan probes foreign bond sales

[HONG KONG] Taiwan's Financial Supervisory Commission is toughening its stance on foreign banks marketing offshore securities in the country, after some tried to operate there without onshore licences.

According to bankers from foreign firms active in the country, the FSC has taken a noticeably stricter stance in recent months and suggested that a number of foreign banks could be fined soon.

The clampdown follows a surge in Taiwan-targeted debt offerings from overseas entities, with firms from Goldman Sachs to Air Liquide issuing Formosa bonds in recent months.

Under Taiwanese regulations, bankers without onshore licences are not allowed to market overseas financial products in the country. Some firms had enlisted domestic bookrunners in order to appear to comply, but, in reality, foreign banks had been managing transactions.

For a while, the FSC is said to have turned a blind eye to the practice, but it appears this is changing. "The FSC has been getting really strict about who can market and underwrite in Taiwan," said a syndicate banker based in Hong Kong.

"If we work on a Formosa bond, we have to be licence-holders. We are, but many foreign banks are not." The FSC did not respond to requests for comment.

Several bankers pointed to the fine imposed on Barclays last December as the point at which the crackdown began. Barclays' Taipei branch was fined a modest NT$12m (S$524,880) for what the regulator described as assisting colleagues not licensed to sell offshore financial products in Taiwan.

Since Barclays was penalised, SinoPac, Concord and KGI - all domestic firms - have been fined for using non-licensed individuals to solicit investors. In fact, another foreign investment bank is said to be facing a fine similar to Barclays. Although the fines so far have not been sizable, the reputational damage is unwelcome.

In recent weeks, Taiwan has emerged as a popular place for foreign banks to issue offshore renminbi-denominated Formosa bonds. Major American and European banks, including Goldman Sachs, Morgan Stanley, BNP Paribas and Deutsche Bank, have listed bonds on Taiwan's GreTai market. Many of the Formosa offerings had the issuers' own Taipei offices listed as bookrunners, along with Taiwanese firms like SinoPac and KGI.

Obtaining a banking licence in Taiwan can be an onerous process. According to Article 54 of the country's Banking Act, the regulators must first approve a bank to be established before it can even apply for a licence. Then, the bank must submit a registration certificate, verify its capital level and submit a host of other documents. Bankers said good contacts inside the regulator could speed up approval, but it usually took considerable time and effort.

Bankers suggested that the FSC's aim was intended to protect local players, even though some of the fines had been directed at Taiwanese firms.

"I guess they simply want to protect local interest," said another Hong Kong-based banker. "Maybe they don't like the idea of large international banks trying to come into this market and taking away business."

REUTERS