Regulator abolishes 25pc cap but wants strategic investment, not speculation Taiwan authorities have abolished a cap on foreign investment in domestic banks as part of a plan to attract international financial institutions into the sector. Officials from the Bureau of Monetary Affairs (Boma), a division of the industry regulator, the Financial Supervisory Commission (FSC), confirmed yesterday that foreign financial holding companies would no longer be limited to a 25 per cent stake in Taiwan banks. However, any foreign investor in a Taiwan bank must be engaged in more than one line of financial services, such as banking, insurance or stockbroking. That stipulation is deliberately aimed at ensuring foreign strategic investment rather than pure speculation on Taiwan's financial services industry. 'One of our goals is to have foreign investment in financial institutions to bring in new skills and management ideas,' said Sharon Yeh, deputy director of Boma's division for supervision of financial holding companies. The government aims to see at least one Taiwan bank controlled by a foreign investor or listed overseas by the end of next year. Ms Yeh said the government would maintain its rule that both domestic and foreign investors needed to apply to the FSC for permission to own more than 10 per cent of a financial holding company. The change effectively means that foreign financial institutions can buy Taiwan banks outright, but not financial holding companies - firms with more than one category of financial institutions under one umbrella. In May 2000, Citibank took a 15 per cent stake in Fubon Financial. The deal included a seat on the board, but the United States bank sold its stake last year over management control issues. Taiwan has 14 financial holding companies and 47 banks, of which 12 are state-owned. Its three largest banks - Bank of Taiwan, Taiwan Co-operative Bank and Land Bank of Taiwan - are all wholly owned by the government, making them good targets for foreign investment. Analysts said the change might open the way for the government to achieve its goal of privatising six state-owned banks by the end of this year. Market reaction was muted to the news yesterday with the financial sub-index gaining 0.76 per cent, compared with a 0.9 per cent rise in the broader Taiex with much of the day's gains led by positive macroeconomic news.