| Title： |
Regulations Governing Offshore Structured Products(2015.09.18) |
| Date： |
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Article 3
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The term "trust investment" as used in these Regulations means the act of investing in offshore structured products based on a fiduciary relationship; the term "brokerage trade" as used in these Regulations means the act of buying or selling offshore structured products via securities firms.
The term "investor" as used in these Regulations means the principal of a trust investment or brokerage trade or the applicant for investment-linked insurance.
The term "professional investor" as used in these Regulations means an investor that meets one of the following criteria:
1.A professional institutional investor, which includes domestic and foreign banks, insurance companies, bills finance companies, securities firms, fund management companies, government investment institutions, government funds, pension funds, mutual funds, unit trusts, securities investment trust enterprises, securities investment consulting enterprises, trust enterprises, futures commission merchants, futures service enterprises and other institutions approved by the FSC.
2.A juristic person meeting all of the following criteria and having applied in writing to trust enterprises, securities firms and insurance enterprises (referred to as the "trustees or sub-distributors" hereunder) for the status of a high net worth corporate investor：
(1)A juristic person with net worth exceeding NT$20,000,000,000 according to its latest CPA-audited or reviewed financial report ; notwithstanding the foregoing, the financial reports of juristic persons outside of the Republic of China need not be CPA-audited or reviewed.
(2)The person has a dedicated investment unit, staffed by capable professionals and the unit's manager meets one of the following conditions.
i.The manager worked in financial product investment at a financial, securities, futures or insurance institution for more than three years.
ii.The manager has financial product investment experience of more than four years.
iii.The manager possesses other qualifications or experience that show he/she has financial product investment professional knowledge and management experience and can soundly and effectively manage the business of an investment department.
(3)The person holds securities position or derivatives product portfolio exceeding NT$1,000,000,000 according to its latest CPA-audited or reviewed financial report ; notwithstanding the foregoing, the financial reports of juristic persons outside of the Republic of China need not be CPA-audited or reviewed.
(4)The person's internal control system has suitable investment procedure and risk management measures.
3.A juristic person or fund with total assets exceeding NT$50,000,000 according to its latest CPA-audited or reviewed financial report; notwithstanding the foregoing, the financial reports of juristic persons outside of the Republic of China need not be CPA-audited or reviewed.
4.A natural person meeting all of the following criteria and having applied in writing to the trustee or sub-distributor for the status of professional investor
(1)The person has proof of financial capacity of at least NT$30,000,000; or has made a foreign currency denominated investment equivalent to over NT$3,000,000 in value, and in addition, his/her total assets at the trustee or sub-distributor, including deposits and investments (including the aforesaid investment), worth more than NT$15,000,000, and the person has provided a statement undertaking that his or her total assets exceed NT$30,000,000;
(2)The person has sufficient professional knowledge or trading experience in financial products; and
(3)The person understands fully that a trustee or sub-distributor is exempted from certain responsibilities towards professional investors in conducting trust investment and agrees to sign on as a professional investor.
5.A trust enterprise that has entered into a trust agreement with the trustor and the trustor meets the conditions set forth in Subparagraph 2, 3 or the preceding subparagraph hereof.
The term "non-professional investor" as used in these Regulations means an investor other than one meeting the criteria for professional investor as specified in the preceding paragraph.
The trustee or sub-distributor is responsible for conducting reasonable investigation to verify that an investor meets the qualification criteria for a professional investor as set forth in Paragraph 3 hereof and obtaining reasonable and credible corroborative evidence from the investor.
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Article 4
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Offshore structured products that do not comply with these Regulations may neither be purchased through trust investment or brokerage trade nor included among the underlying assets of an investment-linked insurance product inside the Republic of China. However, this provision does not apply to offshore structured products listed and traded on a foreign securities exchange.
Trustees or sub-distributors shall follow these Regulations when engaging in trust investment, conducting brokerage trading or issuing investment-linked insurance products involving products specified in Article 2 herein; any matters not provided for herein shall be governed by other applicable laws and regulations. Trustees or sub-distributors shall follow the applicable rules and regulations of the Central Bank of the Republic of China (Taiwan) where such activities involve inward or outward remittance of funds.
Offshore structured products sold via trustees or sub-distributors to professional institutional investors or high net worth corporate investors are not subject to the regulations in Chapter 2 relating to issuers and master agents or the provisions of Article 20 and 22.
The aforementioned offshore structured products sold via trustees or sub-distributors are subject mutatis mutandis to the reporting provisions of Article 10.
Offshore banking branch (OBU) ,offshore securities branch (OSU) and Offshore Insurance Unit (OIU) duly approved by the competent authority pursuant to the "Offshore Banking Act, "are not subject to these Regulations when selling offshore structured products via trust investment, brokerage trade or trading investment-linked insurance products to offshore individuals, juristic persons, government entities, or financial institutions.
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Article 6
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The offshore structured product issuing institution shall have a branch company set up in the Republic of China (referred to as the "issuer" hereunder). In the absence of such branch company, a parent company, branch company or subsidiary of the product's issuer or guarantor shall act as the master agent (referred to as the "master agent"), provided that the issuer or guarantor must be:
1.a subsidiary of the issuer that is located in the Republic of China, or a Taiwan parent company, branch company of an offshore subsidiary of the issuer; or
2.a parent company, branch or subsidiary company of the guarantor that is located in the Republic of China, or a Taiwan branch company of an offshore subsidiary of the guarantor.
The term "branch company" mentioned in the preceding paragraph is limited to the branch office of a foreign bank in Taiwan, the branch company of a foreign securities firm in Taiwan or the branch company of a foreign insurance company in Taiwan that is established with the approval of the Financial Supervisory Commission (referred to as "the FSC" hereunder).
The parent company of an offshore structured product issuing institution or a guarantor mentioned in Paragraph 1 hereof shall meet the following criteria:
1.the domestic bank, domestic securities firm, or domestic insurance company of a foreign financial holding company, bank, securities firm or insurance company is established in Taiwan with the approval of the FSC and its parent entity holds more than 50% of the shares through direct or indirect investment; and
2.the parent company agrees to be jointly and severally liable with the offshore structured product issuing institution or the guarantor for the offshore structured product.
The subsidiary of an offshore structured product issuing institution or a guarantor mentioned in Paragraph 1 hereof shall meet the following criteria:
1.the subsidiary bank, securities firm, or insurance company of a foreign financial holding company, bank, securities firm or insurance company is established in Taiwan with the approval of the FSC and its parent entity holds more than 50% of the shares of said subsidiary through direct or indirect investment; and
2.the subsidiary agrees to be jointly and severally liable with the offshore structured product issuing institution or the guarantor for the offshore structured product.
A "foreign financial holding company" as referred to in the preceding two paragraphs shall meet the following criteria:
1.it is supervised by a foreign financial supervisory and regulatory authority; and
2.its capital adequacy ratios meet Basel III requirements.
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Article 17
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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
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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 20
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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 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 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 26
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These Regulations shall be implemented one month following promulgation.
The amended provisions of these Regulations shall be implemented from the date of issuance, except the regulations amended in Article 3 and paragraph 3, 4 of Article 4 on September 18, 2015 which shall be implemented within one month from the date of issuance.
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