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Article 19
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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 22
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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 read to the investors the important points in the investor brochure of the product and save the tape recording of the 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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