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Article 2
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The term "offshore structured product" as used in these Regulations means a compound instrument issued outside of the Republic of China in the form of a bond that links a fixed-income product with a derivative for which the underlying asset is an equity, interest rate, exchange rate, index, commodity, credit event or other interest.
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Article 9
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The issuer or master agent shall be responsible for the following matters:
1. Producing investor brochure and prospectus, both in Chinese version, for the offshore structured product it issues or distributes, and delivery of such information to the investors via trustees or sub-distributors;
2. Acting as the agent for service of process and all document correspondences in Taiwan on behalf of the offshore structured product issuing institution or guarantor;
3. Communicating with the offshore structured product issuing institution, and providing investors with relevant issuance and trading information on the offshore structured product it represents;
4. Forwarding transaction instructions of the trustees or sub-distributors for purchase or redemption of offshore structured product to the issuing institution; and
5. Other matters as required by law or regulations, or the FSC.
The information to be published in the Chinese version of investor brochure and prospectus mentioned in Subparagraph 1 of the preceding paragraph will be drawn up by Taiwan Financial Services Roundtable (referred to as the "TFSR" hereunder) in consultation with the trade association of the trustee or sub-distributor and reported to the FSC for reference.
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Article 14
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An issuer or master agent shall publish on each business day the reference prices on the offshore structured products it issues or distributes.
The trustees or sub-distributors shall, within the time period prescribed by the FSC, produce and deliver to the investors a transaction confirmation, account statement or other proof documents in written or electronic form, and disclose on the account statement the latest reference prices for the reference of the investors.
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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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