1.Announced Amendments to the Securities Investment Trust and Consulting Act
On January 31st, 2018, Presidential Order Hua-zong-yi-yi-zi No. 10700012041 announced amendments to the Securities Investment Trust and Consulting Act to enhance the competitiveness of the domestic asset-management industry and strengthen the operations of securities investment trust enterprises (SITEs) and securities investment consulting enterprises (SICEs). The amendments added two articles and revised five others:
(1)Amended Article 11 to increase to 99 from 35 the number of offerees with whom a SITE may carry out a private placement of beneficial interest certificates.
(2)Added Article 16-1 and amended Article 111, establishing regulations on the bankruptcy remote structure of assets that SITEs or SICEs obtain in their own name on behalf of investors, and defining the relevant obligations and penalties.
(3)Amended Article 17, streamlining SITEs’ investment process by eliminating the rule that requires such enterprises to submit analysis reports in a prescribed format when managing securities investment trust funds to invest or trade, and subjecting these activities to SITEs’ own internal control systems instead.
(4)Amended Article 30, eliminating the rule that the prescribed percentage of current assets held by securities investment trust funds shall be submitted to the Ministry of Finance for ratification.
(5)Amended Article 62, relaxing regulations on the operation of discretionary investment businesses when the customers meet certain criteria.
(6)Added Article 105-1, imposing criminal liabilities on employees of SITEs or SICEs who act in violation of their duties.
2.Revised the “Plan to Advance Excellence for SITEs” to Encourage Greater Participation by SITEs
To encourage SITEs to upgrade their asset-management personnel and expertise, expand the scale of asset under management (AUM), and spur their internationalization, on January 4th, 2018, the Financial Supervisory Commission (FSC) revised its “Plan to Advance Excellence for SITEs” and released a related Q&A. These revisions relaxed standards for several evaluation criteria, including easing the acceptable annual rate of change in “the number or the scale of investment trust funds mandated or appointed to an overseas consultant,” and replacing the original 10% year-on-year growth on three areas--investment trust funds sold overseas, foreign capital received for providing investment consulting services, and foreign capital invested in investment trust funds--with a positive year-on-year growth requirement that takes effect after certain AUM have been reached. The revisions also added three new performance that can be deemed substantial contributions, including outstanding performance in issuance of green funds (including ETFs) that invest domestically; significant success in shifting the sales rewards calculation onto the basis of AUM when carrying out promotion activities jointly arranged by SITEs and fund distributors, and distinguished results in maintaining talents by increasing salaries to personnel with core capabilities in asset management: investment research, product design, risk management, trading, etc.
3.Amended the “Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds”
To encourage offshore fund institutions to contribute to the development of the asset management industry in Taiwan, on December 28th, 2017, the FSC revised its “Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds,” requiring that master agents’ or offshore fund institutions’ local business offices in Taiwan shall not have any material violations within the three years preceding the application date, and also amending the qualification for evaluation indicator 2.4, which involves offshore fund institution’s investment of its foreign capital in funds issued by domestic SITEs. In addition, the revisions added that distinguished performance in shifting the sales rewards calculation onto the basis of AUM when carrying out promotion activities jointly arranged by offshore fund institutions, master agents and fund distributors can be deemed substantial contributions.
4.Relaxed Prohibition the same associate person of SITEs or SICEs Making Contrary Investment Decisions Regarding the Same Security in Different Accounts Under the Enterprise’s Management
To streamline the investment processes and improve the investment efficiency of SITEs or SICEs, on January 2nd, 2018, the FSC relaxed the restrictions on fund managers, who concurrently serve as discretionary investment managers or vice versa, or any of them who concurrently serve as securities investment analysts, to make opposite investment decisions, opposite buy/sell recommendations, or opposite trades on the same security in different accounts. Following this amendment, the prohibition no longer applies to investment decisions or consulting recommendations for open-ended funds created or redeemed from a SITE or an offshore fund management institution. However, fund managers, discretionary investment managers, or any of them who concurrently serve as investment analysts undertaking the aforesaid actions shall, at the time of making this investment decision or providing investment recommendations, prepare a reasonable analysis on the basis for these action and a clear explanation of their necessity, and report to an authorized supervisor for future reference.
5.Eased Criteria for Custodians of Discretionary Investment
To make it easier for SITEs or SICEs to obtain mandates to manage the overseas investment of government funds, and in consideration of the fact that the management practices for government funds already establish criteria for mandated custodians, on January 9th, 2018, the FSC eased regulations governing custodians of discretionary investment. In situation when a discretionary customer is a government fund, and the fund’s management practices already define criteria for mandated custodians, the FSC will accept those criteria.
6.Announced Amendments to the “Certified Public Accountant Act” Making Adjustments to regulatory requirements for CPA business operations
On January 31st, 2018, Presidential Order Hua-zong-yi-yi-zi No. 10700009761 announced amendments to the “Certified Public Accountant Act” to improve the supervision on CPAs and encourage the sound development of CPA business operations by strengthening disqualification criteria for CPAs, eliminating the substitution of pre-professional training for practical training, imposing a specific requirement for continuing professional education, emphasizing compliance with the regulatory requirement for CPAs to obtain CPA Association membership for practice, and requiring that co-location CPA firms establish a co-location contract.
7.The FSC Issued Orders Regarding the Checklist of the Financial Reports and the Index of the Financial Reports
In response to the adoption of IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” on January 2018, the FSC published the amendments of the Regulations Governing the Preparation of Financial Reports by Securities Issuers on June 28th, 2017. And in line with the application of Auditing Standard No. 65 “Reviewing of Financial Information Performed by the Independent Auditor of the Entity” to financial reports reviews starting from the first quarter of 2018, on January 24th, 2018, the FSC published ordinance regarding the checking list of the annual and quarterly financial reports, which are also applicable to the filing of financial reports in 2018 and thereafter. The order No. Financial-Supervisory-Securities-Auditing-1060001995 issued on January 26th, 2017, was rescinded at the same time.
8.Eased Regulations on Securities Firms Trading Foreign Bonds at Their Place of Business with Professional Investors, and on Securities Firms Conducting Foreign-Bond Repo Trades with Non-Professional Investors
On January 8th, 2018, the FSC published Order No. Financial-Supervisory-Securities-1060046293, allowing securities firms to engage in foreign bond repurchase and reverse repurchase (RP/RS) transactions at their place of business with non-professional investors. The order also strengthened protections for non-professional investors by setting the scope of the underlying instruments, the method of interest calculation, and the credit-ratings criteria for such trades. In addition, the order also allows offshore banking branches concurrently engaged in trading foreign securities to meet current practical operational needs by trading foreign-currency-denominated structured notes with professional institutional investors, high-net-worth corporate investors, and professional juristic persons or funds with total assets in excess of NT$100 million.
9.Increased Scope of Managed Futures Enterprises Operations, Permitted Payments in Foreign Currencies
To enhance the development of managed futures enterprises and the efficiency of their capital utilization, as well as attract overseas Chinese and foreign persons to invest in the domestic securities market, on January 5th and January 11th, 2018, the FSC relaxed regulations on managed futures enterprises’ management of discretionary assets, permitting such assets to be used to trade domestic or foreign futures or invest in securities in TWD or foreign currencies. The FSC also permitted overseas Chinese and foreign persons to mandate managed futures enterprises to conduct discretionary investment of securities.
10.Established the Dynamic Price Banding Mechanism for the Futures Market to Prevent Sudden Abnormal Price Fluctuations
To prevent erroneous orders, fat-finger errors, and momentary intraday order book imbalances from causing sudden and unusual price fluctuations, the FSC directed Taiwan Futures Exchange (TAIFEX) to establish the dynamic price banding mechanism for the futures market. Under the mechanism, TAIFEX will check each new order. If the simulated transaction price of a buy order is above the upper limit of dynamic price band, or the simulated transaction price of a sell order is below the lower limit of dynamic price band, the order will be rejected. The measure took effect on January 22nd, 2018.
11.Directed TAIFEX to Launch AUD/USD and GBP/USD FX Futures, and to Utilize a Three-level Price Limit Mechanism for FX Futures
To meet the diverse needs of investors and enhance the international competitiveness of the futures market, the FSC directed TAIFEX to introduce AUD/USD and GBP/USD FX Futures, and to utilize a three-level price limit mechanism for FX futures products to enhance the products’ price continuity and stability. The measure took effect on January 22nd, 2018.