Deacons
  October 24, 2005 - Hong Kong

Taiwan: New Era for Overseas Funds Offering

The Taiwan Financial Supervisory Commission (“FSC”) on 2 August 2005 promulgated new rules governing the offering of overseas funds in Taiwan (the “New Rules”). Please refer to our Client Update by email which was issued in September 2005 and posted on our website: www.deacons.com.hk for our Executive Summary on the New Rules. Deacons has held a client seminar on the subject in September and we had the honour of Mr. Gordon Hsin, senior director of SITCA presiding. The following is a list of frequently asked questions (“FAQs”) that represent common concerns in view of the introduction of the New Rules. FAQ1. We have existing arrangements with Taiwan distributors to distribute our offshore funds in Taiwan. Can we keep our existing arrangements? A. According to the New Rules, it is a requirement to appoint a master agent who will in turn appoint any sub-distributors in Taiwan. You will need to review your existing distributors and consider whether any of them meets the qualification to act as a master agent, in order to negotiate and enter into a master agency agreement and new tripartite distribution agreements with the master agent and your sub-distributors. Your existing contracts will need to be terminated and replaced with new contracts that comply with the requirements under the New Rules. FAQ2. Our offshore funds are already registered and approved by the FSC in Taiwan. Do we still need to apply for registration or approval under the New Rules? A. Under the old regime, offshore funds that were registered and approved by the FSC for consultation by securities investment consulting enterprises (“SICE”). The New Rules provide for a “fast track” registration process for such offshore funds already approved under the old regime to be registered with the FSC under the New Rules. There is a one-year grace period, ie. up to 2 August 2006, for the offshore funds previously approved to rely on the “fast track” registration process. Thereafter, these funds will need to make a fresh application for approval under the New Rules. In order to be registered under the New Rules, these offshore funds will need to appoint a master agent and through the master agent submit a full set of supporting documents to demonstrate compliance with the requirements under the New Rules. The registration process is “fast track” in the sense that the FSC has given a commitment if the application is in order the registration is effective within 12 days of the receipt of the application by the FSC. However, the application documents are first to be submitted to the Securities Investment Trust and Consulting Association (“SITCA”) for review before they may be submitted to the FSC. SITCA has yet to issue its ‘performance pledge’ on timing in this regard although we understand this is being considered. FAQ3. Can our offshore funds previously registered under the old regime continue to be distributed by our existing distributors in Taiwan before these funds are registered under the New Rules? A. The offshore funds previously registered under the old regime can continue to be distributed under the existing arrangements until the end of the one-year grace period, ie. 2 August 2006. However, we understand from SITCA that if during this period an application is made to register the funds with the FSC under the New Rules and any existing distributor is not put forward as one of the sub-distributors to be appointed, such distributor may not continue the distribution of the funds notwithstanding that the one-year grace period has not yet expired. FAQ4. The New Rules provide for a new private placement regime. Can an offshore fund operator conduct private placement of offshore funds or is it a requirement to appoint a local agent to conduct private placement? A. An offshore fund operator can itself conduct private placement directly in accordance with the permitted scope under the New Rules. It may, but is not required to, appoint a local distributor being banks, trust companies, securities brokerage, securities investment trust enterprises (“SITEs”) or SICE (the “Local Agent”). However, the offshore fund operator is required to appoint a local tax agent and process agent. FAQ5. There is a filing requirement under the New Rules on private placements. Who has the onus of making the filing and what does this entail? A. The onus is on the offshore fund operator to make the filing with SITCA and also the Taiwan Central Bank on each private placement under the New Rules, but the offshore fund operator may appoint its Local Agent to make the filing. The first filing is required to be made within five days of the completion of fund raising at the launch of the fund, and thereafter on a monthly basis within five days from the beginning of each month for any changes in the number of investors and/or amount of funds raised. There is a prescribed form to be completed and submitted on filing, which requires information to be submitted on the fund and its service providers, the Local Agent, tax agent, process agent, the number of investors who are professional investors (ie. banks, trust companies, securities brokerage, financial holdings etc) and amount of funds raised from such persons, the number of investors not exceeding 35 who are private investors (ie. natural persons, legal persons, funds of prescribed qualification) and amount of funds raised from such persons, and aggregated number of investors and funds raised. FAQ6. How should we handle Taiwan foreign exchange control when conducting private placement to Taiwan investors? A. The New Rules provide that where the offshore fund operator appoints a Local Agent to conduct private placement, the Local Agent is required to apply to the Taiwan Central Bank for approval to handle the foreign exchange remittance transactions relating to the private placement. However, where the offshore fund operator itself conducts the private placement directly, the investors themselves are required to arrange foreign exchange remittance in accordance with the relevant exchange control regulations.