Taiwan’s Financial Supervisory Commission (FSC) is updating rules and regulations with the aim of encouraging offshore funds to contribute more to the local market.
Yeh Yin-hua, an FSC commissioner*, hopes to see the foreign managers not only conduct marketing exercises in Taiwan, but also install bigger teams locally to provide customer services, professional information and investment capability.
In the past, he says, Taiwan has opened the door to foreign companies too wide, and they merely took Taiwan as a distribution channel for their funds, only employing sales and marketing staff and after-sales customer service.
By the end of last year, the total AUM of onshore funds was about NT$1.8 trillion ($61 billion) and offshore was about NT$2.2 trillion, but domestic securities investment trust enterprises (Sites) employ many more staff in Taiwan than offshore managers do.
The regulator introduced new know-your-customer and know-your-product rules for offshore funds on January 10, of which one requirement is a minimum number of staff at foreign fund management companies. For instance, if the offshore asset manager’s weighted average AUM from domestic investors in the past three years falls in the range of NT$200 billion–300 billion, it must employ at least 25 staff in Taiwan.
“The employment requirement is linked with our expectation that offshore managers will show more commitment in the Taiwan market,” says Yeh. “We hope offshore managers can also install investment teams locally.”
Given the success offshore managers have had in raising funds in Taiwan, he adds, they should be hiring investment professionals on the ground to provide client services and explain product features and performance to investors.
In the meantime, the FSC is trying to offer incentives to those committed foreign managers. “We are evaluating the possibility of differentiating the regulation of offshore managers if they have a large Site in Taiwan and/or issue a large amount of mandates to their Sites in Taiwan.”
“The more you are committed to Taiwan, the more administration convenience you can expect from the regulator,” Yeh says. But there is still some debate about the approach to be taken, “as it may benefit larger companies but smaller companies may suffer”.
The FSC also says large international asset managers have emerging-market funds that invest in Taiwan, but in most cases the investment decisions are made by their team based in Hong Kong. “We suggest such investment management can be carried out by their subsidiaries in Taiwan,” says Yeh.
To encourage this to happen, the FSC is relaxing certain rules. Firstly, it will change the regulations to allow concurrent management of funds for professional investors.
That is to say, if the parent company has an emerging-market fund targeting professional investors, it can issue a mandate to its Site in Taiwan to manage its Taiwanese positions. The Site can appoint a portfolio manager to handle the mandate, and that PM can now also manage other funds, whereas in the past each PM was only allowed to manage one fund.
Total AUM under such mandates stands at around NT$10 billion, but the FSC hopes this amount will rise to NT$50 billion in the coming two or three years, following the rule change, which is slated to come in before the end of June.
The FSC also plans to simplify paperwork required for the research, investment and trading processes for mandates. Under current rules, explains Yeh, Sites are struggling to complete very detailed research reports when rebalancing their portfolios.
*The full interview with Yeh Yin-hua will appear in AsianInvestor’s upcoming (May) issue.