Chapter 3 Review and Investment or Sale of Products |
| Article 17 | An offshore structured product must meet the following criteria and the documents provided in Subparagraphs 1 through 6 and Subparagraph 8 of Paragraph 1, Article 19 herein have been reviewed by the trustee or sub-distributor in accordance with the rules set out by TFSR pursuant to Paragraph 1 of Article 20 herein before it can be offered to professional investors for trust investment, brokerage trade or linking to an investment-linked insurance product in the Republic of China:
1. The long-term credit rating of the issuing institution or the guarantor, or the issue rating of the offshore structured product is at a certain level or higher given by a credit rating agency approved or recognized by the FSC.
2. The product is not denominated in NTD.
3. The product is not linked to any of the following:
(1) NTD interest rate or exchange rate indices.
(2) Securities issued in Taiwan.
(3)Taiwan stock indices compiled by domestic and foreign institutions and relevant financial products. The preceding provision does not apply to indices compiled by the Taiwan Stock Exchange Corporation or the GreTai Securities Market in collaboration with a foreign institution and not using stocks listed in Taiwan as the main constituent stocks.
(4)Offshore funds not approved by or not effectively registered with the FSC for offering and sale in Taiwan, and offshore funds not privately placed in Taiwan in accordance with the provisions of the Regulations Governing Offshore Funds.
When offshore structured product is targeted specifically to professional institutional investors, an offshore fund that is not a securities investment trust fund type and is already sold to professional institutional investors domestically by a securities investment trust enterprise or securities investment consulting enterprise can be a linked product. |
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| Article 18 | Before an offshore structured product can be offered to non-professional investors for trust investment, brokerage trade or linking to investment-linked insurance policies in the Republic of China, the offshore structured product shall meet the following requirements and its issuer or master agent shall submit the application documents provided in Paragraph 1, Article 19 herein to the trade association of the trustee or sub-distributor for review in accordance with the review procedure and method, review criteria, information disclosure requirement and relevant regulations set forth pursuant to Paragraph 1 and Paragraph 4 of Article 20 herein, and subsequently, the trustee or sub-distributor shall review the application pursuant to Paragraph 1 and Paragraph 2 of Article 20 herein and sign an agreement with the issuer or master agent:
1. The long-term credit rating of the issuing institution or the guarantor, or the issue rating of the offshore structured product is at a certain level or higher given by a credit rating agency approved or recognized by the FSC.
2. The product shall be denominated in U. S. Dollars, British Pounds, Euros, Australian Dollars, New Zealand Dollars, Hong Kong Dollars, Singapore Dollars, Canadian Dollars, Japanese Yen or RMB.
3. The product shall not be linked to any of the following:
(1) NTD interest rate or exchange rate indices.
(2) Securities issued in Taiwan.
(3) Securities issued overseas by a domestic enterprise.
(4) Beneficiary certificates issued overseas by a domestic securities investment trust enterprise.
(5)Taiwan stock indices compiled by domestic and foreign institutions and relevant financial products. The preceding provision does not apply to indices compiled by Taiwan Stock Exchange Corporation or GreTai Securities Market in collaboration with a foreign institution and not using stocks listed in Taiwan as the main constituent stocks.
(6) Any of the following products or contracts that is associated with Mainland Area:
a. Securities in the securities markets of Mainland Area.
b. Securities issued or traded by a government, enterprise or institution in Mainland Area.
c. Stock indices and stock index futures in Mainland Area.
d. Bonds or interest rate indexes related to a money market in Mainland Area.
e. RMB exchange rate indices.
f. Other products falling under the Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area and related regulations prescribed under the Act.
(7) Offshore funds not approved by or not effectively registered with the FSC for offering and sale in Taiwan.
(8) Privately placed offshore securities.
(9) The underlying assets of derivatives other than equities, interest rates, exchange rates, funds, exchange-traded funds (ETF), indices, commodities and related indices. However in the case of ETFs, it is limited to ETFs listed and traded on securities markets approved by the FSC that invest mainly in stocks and bonds and do not have leveraging or short-selling effect.
4. Close-ended structure products:
(1) The principal guaranteed rate at maturity shall be at least 100% of the principal in the denominated currency.
(2) The product shall not have target-redemption design, nor contain options for early redemption by the issuing institution.
5. The dynamic principal guaranteed rate of the open-ended structured products shall be at least 80% of the principal in the denominated currency. |
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| Article 19 | Where an offshore structured product is not targeted specifically to professional investors for trust investment or sales, its issuer or master agent shall submit the following documents to the trade association of the trustee or sub-distributor for review, and shall in two (2) business days after receiving the approval notice, report to the FSC for reference:
1. A specimen of agreement signed between the issuer or master agent and the trustee or sub-distributor pursuant to Paragraph 1 of Article 16 herein;
2. Documents evidencing that the issuer or master agent has posted operating bond as required according to Article 7 herein;
3. The investor brochure and prospectus, both in Chinese version, of the offshore structured product;
4. A written statement from the offshore structured product issuing institution that it will, at the request of the FSC, provide account books and records related to the purchase and redemption of the offshore structured product, and information related to the rights and interests of investors to the FSC for review;
5. The latest CPA-audited financial report of the offshore structured product issuing institution and its Chinese translation, and a statement that the Chinese translation is the same as the original version;
6. A document evidencing compliance with the credit rating requirement under these Regulations and a statement of regulatory compliance;
7. An opinion letter from an attorney stating that investor protection at the registration places of the offshore structured product-issuing institution and the product are comparable to that offered in Taiwan; and
8. Other documents required by the FSC.
The Life Insurance Association of the Republic of China (LIA-ROC) may entrust another institution, subject to the consent of the FSC, to conduct the review of offshore structured products sold by insurance companies as specified in the preceding paragraph and file the information with the FSC in accordance with Paragraph 5 hereof.
The FSC may order the trust investment in or sale of all or part of a reviewed offshore structured product specified in the preceding two paragraphs to stop if the FSC discovered any of the following situations:
1. It disrupts market order;
2. It damages the rights or interests of customers;
3. It endangers the business and financial health of the financial service firms; or
4. Other situations that violate law or regulations.
Where an offshore structured product is offered to professional investors only, the trustee or sub-distributor shall conduct review of documents specified in all subparagraphs other than Subparagraph 7 of Paragraph 1 hereof by itself before commencing the trust investment or sales activities. 5. However, regarding the latest CPA-audited financial report of the offshore structured product issuing institution and its Chinese translation as required under Subparagraph 5 of Paragraph 1 hereof, the said Chinese translation may be replaced by a summary Chinese translation covering the CPA's audit opinion, balance sheet, income statement, statement of changes in owners' equity, cash flow statements and those footnotes involving material information.
The trade association of the trustee or sub-distributor mentioned in Paragraph 1 hereof shall, before the tenth of each month, compile the information on the number of products that passed the review in the previous month and relevant information and forward the same to the FSC and the Central Bank of the Republic of China (Taiwan).
In event that the Chinese investor brochure of Subparagraph 3 of Paragraph 1 or the prospectus of Paragraph 4 is not translated faithfully, the construction of any provisions that are in doubt shall be made in favor of the investor. |
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| Article 20 | The TFSR, in consultation with the trade association of the trustee or sub-distributor, will prescribe the review procedure and method, review criteria, review periods, review fees, handling of objections, information disclosure and other rules and submit it to the FSC for approval; the preceding provision applies to subsequent amendments of these rules.
For the review of offshore structured products, a trustee or sub-distributor shall set up a product review team composed of at least the following personnel:
1. One independent director or one director;
2. Finance officer;
3. Legal and compliance officer; and
4. Risk management officer.
Where the trustee or sub-distributor does not have directors, its responsible person in the Republic of China shall act as the member of the product review team specified in Subparagraph 1 of the preceding paragraph.
To conduct the review specified in Paragraph 1 of the preceding article, the trade association of the trustee or sub-distributor may separately or jointly with other trade associations, set up a product review team composed of at least two experts/scholars in each field of finance, law and risk management. |
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| Article 21 | The issuer or master agent of an offshore structured product that is not targeted specifically to professional investors for trust investment or sales, shall, after passing the review of the trade association of the trustee or sub-distributor, make public announcement two (2) business days before offering it for trust investment, brokerage sale, or investment-linked insurance policies.
The public announcement under the preceding paragraph shall contain the following particulars:
1. Date and reference number of the approval by the trade association;
2. Name, telephone number, and address of the issuer or master agent;
3. Name, telephone number, and address of the trustee or sub-distributor;
4. Name and type of the offshore structured product;
5. Commencement date for accepting purchase and redemption orders, and the cut-off time for accepting purchase and redemption orders on each business day, of the offshore structured product;
6. A chart showing fees to be borne by investors and the amount thereof or calculation basis therefor;
7. Minimum subscription amount;
8. Calculation of the subscription amount;
9. Procedures for subscription and methods of payment;
10. Chinese version of prospectus and investor brochure, and the method of distribution or locations at where they are available;
11. Warnings about investment risk of the product;
12. Methods by which the issuer or master agent will assist in protecting the rights and interests of investors;
13. Information on the dividends of the offshore structured product;
14. Trading terms and conditions comparable to those in other countries as provided in Article 5 herein;
15. Matters required of disclosure by the TFSR; and
16. Other disclosures required for the purpose of protecting the public interest and investors.
Where matters to be contained in the aforementioned public announcement are otherwise set out by the trustee or sub-distributor, the issuer or master agent may indicate therein that investors may contact the trustee or sub-distributor.
Changes to the information contained in the public announcement mentioned in the preceding two paragraphs shall be updated in two (2) business days after occurrence. |
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| Article 22 | A trustee or sub-distributor shall observe the following when engaging in trust investment or brokerage trading involving offshore structured products or investing in such products for investment-linked insurance policies:
1. The trustee or sub-distributor shall determine whether the investor is a professional or non-professional investor:
(1)The trustee or sub-distributor shall make an overall evaluation of the risk bearing capacity of non-professional investors based on their age, knowledge, investment experience, financial condition, trading purpose, and understanding of the product, classify non-professional investors into at least three risk categories, and ask such investors to give a signature as confirmation that he/she understands the risks involved.
(2)With the exception of professional institutional investors, a professional investor may apply to the trustee or sub-distributor to change his or her status to non-professional investors. Non-professional investors that do not meet the criteria set forth in Article 3 herein may not apply to change their status to professional investor.
2. The review of an offshore structured product by the product review team set up by a trustee or sub-distributor shall cover at least the following matters:
(1)Evaluation and confirmation of the legality of the offshore structured product, the reasonableness of investment assumptions and risk return, the appropriateness of the investment mandate, and whether there are conflicts of interest involved;
(2) Comprehensive evaluation of the features of the structured product, risk and probability of loss on principal, liquidity, complexity of product structure, and term to maturity; there should be at least three risk levels for structured products;
(3)Evaluation and confirmation of the information and marketing materials on the offshore structured product to be provided to the investors, and the accuracy and comprehensiveness of information disclosure; and
(4) Confirmation of whether the investment in the offshore structured products is limited to professional investors.
3. A trustee or sub-distributor shall carry out the following marketing control procedures:
(1) The trustee or sub-distributor shall, based on the results of review as described in the preceding subparagraphs, use bold font in the Chinese version of investor brochure and prospectus of the offshore structured product to highlight the risk level of the product and whether the product is for investment by professional investors only. A trustee or sub-distributor shall not accept requests from non-professional investors to invest in offshore structured products beyond their suitability levels or in products offered to professional investors only.
(2) A trustee or sub-distributor shall fulfill its obligation to inform before making trust investment or brokerage trades in offshore structured products, or investing in such products linked to investment-linked insurance policies, and shall allow at least seven (7) days for non-professional investors and at least three (3) days for professional investors to review the related contracts of offshore structured product, except where a professional investor provides a signed statement that he or she has carefully reviewed the product. The preceding provision does not apply to investment-linked insurance policies whose applicants have the right to cancel the policy without penalty within a set time period according to the policy terms and conditions.
(3) A trust enterprise or securities firm that engages in trust investment or brokerage trade of offshore structured product shall be read to or electronic equipment-based used to inform the investors the important points in the investor brochure, and save the tape recording or save with electronic equipment of the related operating electronic process. However, the foregoing information may be delivered to a professional investor in written or video format or video media instead.
(4) An insurance company that sells investment-linked insurance policies linked to offshore structured products shall, before the expiration of the agreed free-look period, conduct phone visit for each and every case to make sure the solicitor has fully informed the client of the risks, fees and suitability of such investment-linked policy and that the client understands associated risks. The insurance company shall save the tape recording of such visits. Where the client could not be reached by phone or decline the phone visit, the insurance company shall send a registered letter to remind the client of associated risks.
Where a trustee or sub-distributor engages in trust investment or brokerage sale involving offshore structured products or invest in offshore structured products for investment-linked insurance policies, the restriction in Item 1, Subparagraph 3 of the preceding paragraph does not apply to professional investors.
The composition and operation of the product review team mentioned in Subparagraph 2 of Paragraph 1 hereof shall follow the provisions in Paragraphs 2 and 3 of Article 20 hereof, applicable regulations, and the self-regulatory rules set forth by the trade association of the trustee or sub-distributor.
A trustee or sub-distributor shall include the matters mentioned in Paragraph 1 hereof as internal control and internal audit items and conduct regular audit and special audit according to the Regulations Governing the Implementation of Internal Control and Audit Systems for the industry. |
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| Article 23 | A trustee or sub-distributor shall explain the following matters to the investors before engaging in trust investment or brokerage trade involving offshore structured products or investing in such products for investment-linked insurance policies:
1. Investing in the offshore structured product could result in loss of principal or loss exceeding the original principal due to change in interest rates, exchange rates, the market price of securities or other indexes.
2. Investing in the offshore structured product could result in loss of principal or loss exceeding the original principal due to changes in the business or financial condition of the issuing institution or others.
3. Investing in the offshore structured product could result in loss of principal or loss exceeding the original principal due to other material events that are deemed sufficient to affect the judgment of investors by the FSC.
The trustee or sub-distributor shall also make explanation if the offshore structured product involved in trust investment or brokerage trade, or linked to an investment-linked insurance policy has a time period for the exercise and termination of contract rights and restriction on the validity of rights.
A trustee or sub-distributor that engages in trust investment or brokerage trade involving offshore structured products or invests in such products for investment-linked insurance policies as provided in Paragraph 1 hereof shall fully disclose to and explicitly inform the investors of fees and methods of collection, the trading structure of investing in offshore structured products and possible risks, including the amount of maximum loss.
Unless otherwise provided by law or regulations, the disclosure of information and matters of compliance mentioned in the preceding paragraph shall be undertaken in accordance with the self-regulatory rules set forth by respective trade association. |
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| Article 24 | When making a recommendation, or providing information and marketing materials on an offshore structured product, an issuer, master agent, trustee, or sub-distributor shall not engage in any of the following behaviors :
1. Using the fact of an offshore structured product having received the approval of the trade association as substantiation of any matter in connection with the application or in a statement or recommendation guaranteeing the value of the offshore structured product.
2. Causing others to erroneously believe that the principal or profitability is guaranteed.
3. Using a name for the offshore structured product that might mislead customers.
4. Offering gifts or other benefits as an inducement to solicit the purchase of an offshore structured product.
5. Making exaggerated publicity claims about past performance or using advertising to attack competitors.
6. Engaging in any false or deceptive conduct or other conduct obviously inconsistent with facts or intended to mislead others.
7. Including content that contravenes laws or regulations, the contract, or information contained in the prospectus.
8. Making predictions of future performance of the offshore structured product.
9. Violating the self-regulatory rules for advertisement and promotional activities set forth by the trade association of the trustee or sub-distributor.
10. Any other act prejudicial to the rights or interests of investors.
No general advertisement or public solicitation is allowed for offshore structured products that are permitted for investment by professional investors only. |
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| Article 25 | Issuers, master agents, trustees or sub-distributors will be held liable for any violation of the provisions in the preceding article according to applicable laws and regulations. |
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