Important Notes and Risks Associated with Fubon Wealth Management Products Financing

¹Facilities Secured by Investment Fund
Important Notes

Should the security coverage ratio in respect of the outstanding amount of the facility, as conclusively determined by the Bank at its sole and absolute discretion, fall to or below 100%, then the Borrower must upon request by the Bank either (a) provide additional security to the Bank; or (b) reduce the outstanding under the facility so that the said security coverage ratio will at all times be maintained equivalent to, or above, 100%. If the Borrower fails to comply with the request for additional security or reduce outstanding within the prescribed time, the pledged Investment Fund may be liquidated at a loss without notice. The Borrower will remain liable for any resulting deficit.

Borrower should have sufficient resources to:

1. Pay, out of own pocket the total value of the Investment Fund, including the portion not financed by the facility;
2. Meet scheduled principal repayment (if any) and aggregate interest payment over the entire intended facility arrangement; and
3. Repay on demand the entire sum and aggregate interest owed under the facility as required by the Bank.

When making decision to sell the Investment Fund which are financed by credit facility, Borrower should fully consider all interest expenses incurred which may have negative impact on the possible profitability of his/her investments.

Risks Associated with Facilities Secured by Investment Fund

1. Investment Risk
   All investment involves risks. Price of investment products may go up as well as down and may even become valueless. Past performance is not indicative of future performance. Before making any investment decisions, a person should carefully consider whether the investment is suitable in light of his/her financial situation, investment experiences, investment objectives, and risk tolerance level. The Borrower may face substantial loss from relatively small movements in Investment fund value, and the loss may be in excess of the initial investment amount. The Borrower should seek independent professional advice if necessary.
2. Leverage Risk
   Using Investment fund Financing Service will increase the investment risk. The Borrower may face substantial loss from relatively small movements in Investment fund values and/or exchange rate, and the loss may be in excess of the Borrower’s initial investment amount and the Borrower may be requested upon a short notice to deposit additional funds with the Bank to maintain the security coverage positions. The Borrower understands that the leverage position is marked-to-market regularly and the customer may be called upon a short notice to deposit additional margin funds if the account margin level has reached margin call and/or force-sell level. If the Borrower fails to comply with the request for additional funds within the time prescribed or positions have reached force-sell level, the Borrower’s pledged Investment fund may be liquidated at a loss without notice and without any margin calls. The Borrower will remain liable for any resultant deficit. The Borrower must have sufficient net worth to be able to assume the risks and agrees to bear the potential losses of investment through Investment fund Financing Service.
3. Liquidity Risk
   The Borrower should have sufficient net worth to be able to assume the risks that the Investment fund cannot be redeemed.
4. Interest Rate Risk
   Under the facility, the interest rates applicable to the loan(s) may change over time, such that the Borrower may be required to pay additional interests and the costs of financing the loan(s) may increase. In addition, it may lead to the net cost of interest payable higher than the rate of return generated from the Investment fund, resulting in the loss.
5. Dividend / Interest Distribution Risk
   The dividend / interest distributed from the Investment fund may not be sufficient to cover the interest payable under the facility and therefore reduce the rate of return from the Investment fund, which may then require the Borrower to pay interest payments from his/her own pocket.
6. Exchange Rate Risk
   If the currency of the pledged Investment fund is different from the currency of the loan, it will be subject to exchange rate risk. The exchange rate between the two currencies may rise or fall. The fluctuation in exchange rates may result in losses.

²Facilities Secured by Insurance Policy
Important Notes

1. Borrower and Insurance Policy Owner should have sufficient resources to:
   
   • Pay, out of own pocket the total premium of the policy, including the premium portion not financed by the facility; /li>
   • Meet scheduled principal repayment (if any) and aggregate interest payment over the entire intended facility arrangement; and
   • Repay on demand the entire sum and aggregate interest owed under the facility as required by the Bank.
2. The Bank reserves its right to demand additional security from the Borrower
3. The Bank will start to charge interest from the first day of the loan drawdown. In case it is intended that any amount under the facility is to be used for financing the premium payment of an insurance policy, interest, fees and charges will still apply even if the insurance policy is cancelled during the cooling-off period
4. All overdraft and revolving loan facilities provided by the Bank require annual review. Any unsuccessful renewal of overdraft and revolving loan facilities may resulted in the Borrower be obligated to repay the full principal, interest and/or other applicable fees.
5. The Facility shall be repaid in full by the Borrower on or before the loan maturity date. If the source of loan repayment is the cash surrender value of the insurance policy, a grace period of 30 days from the loan maturity date will be allowed for the payment to be received from the respective insurance company. During the said grace period, normal interest will continue to be charged. Upon expiry of the 30 days’ grace period after the loan maturity date, all outstanding balance under the facility will be charged at a default interest rate.

Risks Associated with Facilities Secured by Insurance Policy

1. Rights of the Assignee
   When the insurance policy is assigned to the Bank, the Bank is entitled to exercise the rights under the insurance policy on customer’s behalf, such as collection of the benefits payable (death benefit of the insurance policy will be paid to the designated beneficiary only after netting off the outstanding loan amount of the assignee) or surrender the insurance policy or request insurer to provide any policy insurance information. Customer may also need to obtain the Bank’s consent for making any insurance policy service requests subject to the agreement under the loan facility, such as change of beneficiary, withdrawal of insurance policy account value, change of the premium payment mode, switch of policy currency and switch of facility currency etc.
2. Set-off Risk
   The Bank shall have the sole right to (i) collect the proceeds of the Insurance Policy from the insurer when a claim arises under the Insurance Policy, whether due to the death of the insured or the maturity of the Insurance Policy, and (ii) fully or partially surrender the Insurance Policy and receive the surrender value thereof, and apply all or part of the proceeds against the outstanding amounts owed by the Borrower to the Bank. The Bank shall pay any surplus after repayment of the loan facilities (if any) to the Borrower or the designated beneficiary(ies) under the Insurance Policy. The Borrower shall remain liable for any shortfall between the amounts of the claim proceeds and/or surrender value of the Insurance Policy (as the case may be) and the Secured Liabilities (as defined in the Assignment).
3. Insurance Company Risk
   In the event the insurance company becomes insolvent or defaults on its obligations, the Bank may have a claim against the Borrower if the net amounts received by the Bank under the Insurance Policy are inadequate to pay off the outstanding amounts owed by the Borrower. The maximum loan to value (“LTV”) ratio will depend on the credit rating of the relevant insurance company acting as the insurer under the Insurance Policy. The Borrower therefore is exposed to the credit risk of the insurance company. The Bank may at its discretion terminate the loan in the event of any adverse change of the long-term credit rating of the insurer.
4. Death Benefit Risk
   In case of the death of the insured under the Insurance Policy during the policy term, the proceeds received by the beneficiary(ies) may be less than the aggregate amount paid by the Borrower in connection with the Facility and subscription of the policy (including the sum of the premium paid and the incurred interest under the loan).
5. Interest Rate Risk
   Under the Facility, the interest rates applicable to the loan(s) may change over time, such that the Borrower may be required to pay additional interests and the costs of financing the loan(s) may increase. In addition, the interest payment may have an impact on the benefit to be generated from the insurance policy and hence reduce the actual return. The net cost of interest payable may be higher than the rate of return generated from the insurance policy, resulting in a loss.
6. Surrender and Leverage Risk
   If the Borrower/the Bank surrenders/ exercises the right to surrender the policy before the end of the term of the Insurance Policy in particular in the early years during the tenor of the policy, due to interest expenses incurred, early repayment penalty (if any) and surrender charge (if any), the benefits receivable under the policy may be substantially less than the sum of total premium paid. In addition, if part of the insurance premium is financed by premium financing facility, during any early surrender of the policy, the percentage of loss when comparing to the amount paid by the Borrower will be further magnified due to the leverage effect.
7. Non-guaranteed return & Rate of Return Risk
   The non-guaranteed return receivable from the insurance policy may be affected by a series of factors including market conditions, investment outlook, policy persistency and insurer’s investment return. For insurance policy under premium financing, the above mentioned factors may result in financial loss or reduction in benefits of the relevant insurance policy. The return generated from the Insurance Policy may not be sufficient to cover the interest payable under the Facility and therefore reduce the rate of return from the Insurance Policy, which may then require additional interest payments by the Borrower.
8. RMB Currency and Exchange Rate Risk (applicable to the policy with RMB denominated currency)
   RMB is currently subject to regulatory and foreign exchange restrictions (which might be changed from time to time). All the RMB policy premium and benefits (including but not limited to the maturity benefit, accumulated interest and death benefit) will be payable and settled in RMB. Customer could also choose to pay premiums in HKD, or request insurance company to pay the policy benefits in HKD. The exchange rate between RMB and HKD in respect of the policy will be the market-based prevailing exchange rate determined by insurance company from time to time. As such, on the maturity of the policy, customer may not receive the same amount of Hong Kong dollars due to the spread between buying and selling RMB or the fluctuation of the exchange rate between RMB and HKD. There is a risk that customer could lose a substantial portion of customer’s benefit value after currency conversion from RMB to HKD, if the RMB depreciates substantially against the HKD when a benefit becomes payable under the policy
9. Exchange Rate Risk (applicable to the policy with non-HKD denominated currency)
   Foreign currency policies are subject to exchange rate risk. The exchange rate between foreign currency and HKD may rise or fall. Therefore, all the policy premium and benefits (including but not limited to the maturity benefit, accumulated interest and death benefit) payable in HKD under foreign currency policy will vary with the exchange rate. The exchange rate between foreign currency and HKD will be the market-based prevailing exchange rate determined by insurance company from time to time, which may not be the same as the spot rate of Bank. The fluctuation in exchange rate may result in losses if a customer chooses to pay premiums foreign currency policy in HKD, or requests the insurance company to pay the account value / surrender value or other benefits payable in HKD, for foreign currency policy. The fluctuation in exchange rate may result in a shortfall of collateral, the Bank reserves its right to demand additional security from the Borrower.
10. Exchange Rate Risk (applicable to the policy currency and facility currency are not denominated in the same currency)
    Foreign currency facility is subject to exchange rate risk. The exchange rate between policy currency and facility currency may rise or fall. Therefore, the foreign currency loan amount calculated in policy currency equivalence will vary with the exchange rate. If customer chooses a facility currency different from the policy currency, the fluctuation in exchange rate may result in a shortfall of collateral and the Bank reserves its right to demand additional security from the Borrower.
11. Duration/ Payment timing mismatch Risk
    The tenor of the credit Facility may not be sufficient to cover the whole tenor/ payment period of the relevant Insurance Policy. The Borrower can apply for an extension of the Facility which is subject to the Bank’s discretion. The Borrower shall repay all the outstanding amount due under the Facility in one lump sum on or before the loan maturity date. In case the facility is to be repaid by the surrender value of the policy and the actual benefit receivable is not sufficient to cover the outstanding debts, the borrower is required to repay the remaining outstanding debts.