1. Amendments to the Futures Trading Act
To harmonize Taiwan’s laws and regulations with international norms, align related securities and futures legislations, and strengthen legal compliance among futures enterprises and related institutions, the Financial Supervisory Commission (FSC) introduced a partial amendment to the Futures Trading Act. The amendments passed the third reading in the Legislative Yuan on 25 December 2018, and were promulgated by the President on 16 January 2019. The key points of these amendments are as follows:
(1) The amendment introduces a legal basis for the central counterparty clearing mechanism (CCP) of the over-the-counter derivatives transactions; (2) the amendment eliminates the Act’s provisions regarding the order in which the various sources of reserve funds will be drawn upon to compensate for an event of default in the futures market, and instead allows the clearing house to determine the order and implement it after obtaining final approval from the competent authority; (3) it sets restrictions on the transfer of the futures exchange’s shares; it allows the offering of futures trust funds by effective registration, requires futures trust enterprises to provide prospectuses to investors before offering futures trust funds, and provides civil damages as well as the limitation (extinctive prescription) period for claiming such damages; (4) the penalties imposed on the futures commission merchants who violate the permitted futures brokerage trading’s categories and exchanges were altered from criminal penalties to administrative penalties; (5) it expands the range of disciplinary measures available to the competent authority to additionally include ordering correction and taking other necessary measures, raises the maximum administrative fine from NT$600,000 to NT$2.4 million, and authorizes the competent authority to grant exemptions from penalties for minor violations.
2. FSC Amends Restrictions on Offshore Funds Investing in Mainland China Securities
To respond to global index providers continuously raising the weight of China A-Shares in related indexes, the FSC issued amendments to the restrictions on offshore funds investing in Mainland China securities on 4 January 2019. These amendments relax the limit on the total investments of an offshore fund in Mainland China securities from 10% of the net asset value of the fund to 20%. Besides, for an offshore fund that enjoys incentive measures under the Incentive Policy for Offshore Funds Development in Taiwan, the ceiling on total investments in Mainland China securities is raised from 30% of the net asset value of the fund to 40%.
3. FSC Amends the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants
To harmonize with Taiwan''s newly issued Statements of Auditing Standards as well as Taiwan’s application of the International Financial Reporting Standards (IFRS) 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” from fiscal 2018, and its application of IFRS 16 “Leases” from fiscal 2019, and to address recent commonly observed audit deficiencies, the FSC issued amendments to the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants on 24 January 2019. The key points of the amendments include procedures—adopted based on deficiencies discovered in recent auditing practice—to enhance auditing by certified public accountants (CPAs) and increase CPAs’ alertness to deficiencies. The amendments also revise relevant accounting items and auditing procedures to harmonize with the newly issued Statements of Auditing Standards and the IFRSs and improve the quality of CPA audits.
4. Relaxing the Restrictions on the Business Methods of Futures Brokerage Merchants Engaging in Foreign Futures Trading
To respond to the demand for futures brokerage merchants to engage in foreign futures trading operations, the FSC issued Order No. Financial-Supervisory-Securities-Futures-1070347707 on 29 January 2019. The order allows futures brokerage merchants to directly authorize domestic or foreign companies that possess clearing memberships of the foreign futures exchange designated by the FSC to carry out trade of futures as well as clearing and settlement.
5. Interpretive Order Issued on Article 18, Paragraph 1, Subparagraph 3 and Paragraph 2 of the Securities Investor and Futures Trader Protection Act Regarding Protection Fund Contributions by the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx)
The FSC issued an interpretive order on 24 January 2019, stipulating that from 1 January 2019 to 31 December 2020, the TWSE and the TPEx shall temporarily cease allocation to the protection fund, in accordance with Article 18, Paragraph 1, subparagraph 3 of the Securities Investor and Futures Trader Protection Act.