Asset Management
1. Management of onshore funds
2. Extensive written decision report requirements
3. Taxation of overseas income under the Alternative Minimum Tax scheme
4. Pension scheme reform
Introduction
As responsible members of the
financial community in Taiwan, the
goal of the committee is to contribute to
the long term sustainable development
of the asset management industry. The
committee is more than happy to work
together with the Taiwan government
to better position Taiwan as a financial
centre within the Asia-Pacific region.
The committee appreciates the steps
taken by the Financial Supervisory
Commission (FSC) over the past year to
resolve issues affecting the industry. We
acknowledge that the FSC has relaxed
regulations to allow the outsourcing of
investment decisions to qualified third
parties in overseas regions whose time
zones are different from that of Taiwan
with the exception Asia and Oceania.
However, further relaxation to full
delegation is required. We also understand
that the FSC signed a Memorandum of
Understanding (MoU) with Luxembourg
regulators covering general financial
supervisory information exchange on 23
August 2010. Nevertheless, we further
urge the government to quickly proceed
with the signing of the agreement
relating to mutual recognition of funds
for distribution in order to develop a
robust regulatory framework for business
development. The issue regarding
regulatory approval process has not been
repeated this year because we understand
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that the SFB is currently reviewing
options to speed up the approval process.
Since other issues listed in the
previous position papers are unresolved
and are still of concern to the committee,
they have been updated and presented
again in this year’s paper.
1. Management of onshore funds
1.1. Concurrent functions of Securities
Investment Trust Enterprises
(“SITE”), Securities Investment
Consulting Enterprises (“SICE”)
and discretionary business fund
managers
We appreciate the fact that the SFB
has been working with the industry on
the possibility of allowing SITE fund
managers to manage discretionary
accounts. This is a further update on
this issue.
Key problem:
A SITE is permitted to engage in the
investment management of offshore
collective investments business pursuant
to a discretionary mandate under
current regulations, but individual asset
managers may not concurrently provide
investment management services to both
a SITE fund and a segregated account
pursuant to a discretionary mandate,
due to conflict of interest concerns. The
same fund manager is also restricted
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from providing investment advisory
services to offshore clients or funds;
as such service is categorized as SICE
business under current regulations. Such
conflict of interest concerns run contrary
to internationally accepted industry
norms in leading financial centers
including Hong Kong and Singapore. In
those jurisdictions, asset management
companies and their individual asset
managers are regulated through a
licensing regime, with the day-to-day
operation of their asset management
business governed by self-regulation in
accordance with established best practices
guidelines and with no restrictions on
the type of collective investments that
may be concurrently managed and no
additional restrictions on the rendering
of investment advisory services. Taiwan
should follow international practices
which are sufficient to protect the
benefits and interests of investors. Doing
so would allow international financial
corporations to fully utilize Taiwan fund
managers’ expertise and knowledge
of the Taiwan stock market, as well as
expand the growth of the Taiwan fund
industry business.
R E C O M M E N D AT I O N
Remove current restrictions and
allow the same fund managers to
concurrently provide investment
management services to both
SITE funds and segregated
a c c o u n t s , a s w e l l a s p ro v i d i n g
SICE investment advisory services
t o o ff s h o re f u n d s o r o v e r s e a s
clients.
 A S S E T M A NA G E M E N T
SITE, SICE or discretionary
business fund managers should
be allowed to be registered as
fund managers of offshore funds.
1.2. Full delegation of portfolio
management
Key problem:
Through a ruling issued on 21
December 2009, the FSC relaxed
restrictions to allow SITEs to delegate
fund investment business to a qualified
third party in any overseas region other
than Asia and Oceania, provided that
certain requirements are met. Following
this ruling, the consigned management
institution may provide full investment
services such as investment consultation
and decision making for the benefit of
the investors. However, this delegation
is only partial and should be further
relaxed to full delegation, i.e. to including
Asia and Oceania in the scope, giving
the consigned management institution
full discretion in making investment
decisions so as to increase the global
opportunities available to onshore funds.
It is standard international practice
to delegate investment decisions to
overseas fund investment professionals
who are knowledgeable about their
local markets and in a better position
to make investment decisions about
securities in their home countries. In
Asian countries such as Hong Kong,
Singapore, South Korea, Indonesia
and Malaysia, the outsourcing of the
investment decision-making process
to third parties is permitted. Adopting
the same practice in Taiwan would
enhance the competitiveness of local
onshore funds.
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R E C O M M E N D AT I O N
Full delegation should be allowed
whereby investment decision
processes can be outsourced to
third parties outside of Taiwan.
2. Extensive written decision report
requirements
We are thankful for the Financial
S u p e r v i s o r y C o m m i s s i o n ’s ( F S C )
efforts in commissioning the Securities
I n v e s t m e n t Tr u s t & C o n s u l t i n g
Association of the ROC (SITCA)
to conduct further study on how to
improve or reduce the ‘written’ decision
report requirement under the Securities
Investment Trust and Consulting Act.
Current requirements are excessive for
daily business operation and out of step
with common practices in other European
and North American asset management
centers. The ad hoc committee set up
by SITCA has since made the following
recommendations and we sincerely hope
that the FSC will adopt and implement
these recommendations in the near future:
• The investment report should not be
standardized and may not refer to
the recommendations to sell or buy
specific stocks.
• The investment report may use third
party research reports, either in English
or Chinese, to support the analysis
therein.
• Whenever there is a large redemption or
drastic market movement necessitating
the sale of stocks, the regulator would
treat the instance as a special case
and waive the normal requirement to
provide an investment analysis. The
FSC has allowed the use of third-party
reports and allowed reports on cash
management and foreign exchange
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(FX) hedging to be written in a simpler
format to simplify the requirements.
However, the FSC also requests
SITEs to keep quoting records for
cash management and FX hedging for
compliance purposes.
R E C O M M E N D AT I O N
Further regulations should
be introduced to reduce and
simplify written decision report
requirements for investment
analysis to accommodate
different types of fund products
and the investment operations of
fund managers. For example, the
regulators could allow the use of
check-boxes in reports to replace
lengthy descriptions of how the
investment decision is made.
The long term goal of the
regulator should be to implement
measures to allow asset
management companies to
implement adequate internal
processes to replace the written
decision report requirements.
Alter natively, Article 17 of the
Securities Investment Trust and
Consulting Act could be amended
to completely eliminate the
requirement for written decision
reports, which would be in line
with standard global practices.
3.Taxation of overseas income under
the Alternative Minimum Tax
scheme
Under the Alternative Minimum
Tax (AMT) law, all income including
capital gains from securities and sources
outside of the Republic of China are to
be added into income generated within
 A S S E T M A NA G E M E N T
the Republic of China when calculating
individuals’ taxable income.
To discourage Taiwanese investors
from investing overseas directly instead
of through authorised domestic financial
institutions, simplifying the guidelines
for the calculation of overseas income
related to AMT by the Tax Bureau is
very important.
The stated purpose of AMT is to
increase taxes on the wealthy and create
a fair tax environment that will have no
impact on the majority of Taiwanese
taxpayers. However, to implement and
collect AMT, financial institutions will
need to develop sophisticated book
keeping and administrative systems,
which will not only cause problems for
the institutions but may prompt investors
to lock in gains on short-term transactions
due to unfamiliarity with the AMT
regulations. This will be costly and time
consuming especially in view of the fact
that a very limited number of taxpayers
would actually be required to pay this
tax. The best way to achieve the results
desired by the AMT would be to simplify
the tax mechanism.
R E C O M M E N D AT I O N
Simplify the methodology for
taxation of overseas income.
For instance, apply the same
tax calculation methodology
to taxpayers investing through
domestic financial institutions
as on those investing overseas
directly by automatically
rendering 20% of total offshore
income as capital gains for every
taxpayer. It would then be up to
individual taxpayers to provide
evidence if the actual capital gain
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(after offsetting the investment
R E C O M M E N D AT I O N
losses) is a lower amount. This
approach would comply with
In the short term, the committee
existing tax rules, be cost and
urges the government to allow
time effective and encourage
employees to choose from
long term investors to keep
authorized and suitable onshore
their investments made through
and offshore funds available on
domestic institutions instead
the market for their voluntary
of selling them on an annual
contributions and to provide tax
basis to avoid complications in
benefits for pension schemes.
c a l c u l a t i n g a n d re a l i z i n g l o n g
term profits that would be taxed
In the medium term, the
under AMT rules. This would
gover nment should follow the
also encourage investors to keep
practices of globally recognized
their investments in registered
pension schemes and cooperate
products within Taiwan.
with qualified pension managers
and infrastructure providers to
4. Pension scheme reform p r o v i d e t a i l o r- m a d e p e n s i o n
This issue appeared in last year’s schemes for pensioners which
position paper. Taiwan’s new labour allow for both mandatory and
pension scheme was changed from a voluntary contribution options.
defined benefit to a defined contribution
scheme in 2007. However, the scheme Guidelines governing pension
is still centrally managed by the Labor fund schemes should be
Pension Fund Supervisory Committee announced as early as possible
and employees are unable to choose to provide sufficient lead time
investment funds unlike in other for qualified asset managers
countries around the world. In addition, or financial entities to design
voluntary contributions from employees suitable products based on
are still small which means the income Taiwanese participants’ needs.
replacement rate is inadequate.
It is a global trend to allow employees Financial entities should be
participating in defined contribution permitted to design suitable
schemes to be able to choose funds based p r o d u c t s b a s e d o n Ta i w a n e s e
on their risk tolerance and age. However, participants’ needs.
for the system to work effectively, the
government should draw up guidelines
to govern fund managers and the types
of products being offered to pensioners.
The government should also cooperate
with fund managers to design or select
suitable products and provide adequate
education to meet pensioners’ needs.
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