Taiwan regulator “cautious” on mutual recognition
Taiwan's Financial Services Commission is seeking to both build up the domestic asset management industry and encourage foreign investment. In the second of three extracts from an interview, Rosemary Wang, deputy director-general in the regulator's securities and futures bureau, spoke to Christina Wang about the development of a local online fund platform and the potential for mutual recognition between China and Taiwan, among other things.
The full interview appears in the May 2016 issue of AsianInvestor magazine. We have already published an extract from on the plans to introduce member choice of funds under the central pension scheme.
What is the FSC doing to encourage foreign investment in Taiwan?
We removed a restriction in November 2014 to allow foreigners to buy funds linked to Taiwanese stocks. Also, at the moment mainland Chinese investors can only buy Taiwan funds via their qualified domestic institutional investor (QDII) programme.
In February we set out amendments to the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors to relax regulations. We propose to allow mainland individuals to buy Taiwanese funds as long as they come to Taiwan and open an account onshore.
We have capped the initial investment quota [for funds denominated in NT$ and foreign-currency funds with more than 30% in Taiwanese securities] for all mainlanders, including QDII, at $500 million, with the upper limit for each investment set at $1 million. The cap for each investment is not applied to mainlanders’ investments in foreign-currency funds with more than 30% in Taiwanese securities, while they get an additional $500 million aggregate quota for such investments, apart from the existing $500 million cap for NT$-denominated fund investments.
So far, most voices we have heard from the asset management industry about the proposals are positive and supportive [a public consultation ended in mid-March]. We now need to send it to the Executive Yuan for approval, so we cannot be sure we’ll get the green light.
What about the possibility of a mutual recognition of funds (MRF) scheme between Taiwan and Hong Kong, and with China?
We are in talks with Hong Kong’s Securities and Futures Commission, and have made some preliminary agreements. With the mainland, we haven’t started talks yet. Such an agreement will only be possible if the MRF is of mutual benefit. We are cautious about MRF with mainland China. We need to take into consideration the potential impact on fund managers in Taiwan. The Hong Kong-China MRF has only just been launched [on July 1, 2015]. We will wait to see its impact before making any move [on establishing an MRF with mainland China].
How does the FSC plan to address issues around fee payments to distributors?
To crack down on improper sales activities and distributors’ conflicts of interest with investors, and to encourage investors to hold funds for the medium and long term, the FSC is enhancing regulation of distribution, including: rectifying the payment mechanism for distribution commission fees, forbidding banks from offering travel incentives to fund houses in the name of education and training, and requiring the disclosure of fund fees in their subscription documents.
In addition, in line with the trend of financial technology development, Taiwan will set up an online fund distribution platform, to provide more diversified fund sales channels, and create a convenient, reliable and subjective fund trading environment.
So what are your plans for developing an online fund platform?
Given the present environment of rapid advances in fintech, retail investors are seeking to buy funds in a more efficient and convenient way. So we are promoting an online mutual fund platform. It is expected to go live in July and has been developed by Fund Rich Securities, a joint venture between the Taiwan Depository & Clearing Corporation, Taipei Exchange, and fund managers. The platform will have a simple robo-advisory function. It’s not tailor-made advisory, rather a suggestion appropriate to investors with similar risk appetites or goals.
How do you expect this new service to impact the competitive environment?
Users of the online platform will be retail investors with smaller levels of assets under management, which is separate from major clients of banks who need professional services from financial advisers. Some customers may choose to move from banks to the online platform, but we have told banks that their positioning is different. Fintech is a trend that will only grow in future. We expect no major changes to the market structure in the short term.