Insufficient Information Summary
Access to securities markets in Taiwan by foreign institutional investors has been liberalized and broadened, as stated in the 2009 U.S. Department of Commerce Country Commercial Guide. The Financial Supervisory Commission (FSC) was established on July 1, 2004 as the integrated financial supervisory and regulatory authority in Taiwan to resolve the problem of overlapping authorities. The Securities and Futures Bureau of the FSC, formerly known as the Securities and Futures Commission, is responsible for the supervision of the securities markets. While the FSC is an ordinary member of the International Organization of Securities Commissions (IOSCO), there is no publicly available assessment of its compliance with the IOSCO Objectives and Principles of Securities Regulation. The securities market in Taiwan is mainly regulated by the Securities and Exchange Act, the Futures Trading Act, and the Company Act. The FSC's 2006 Annual Report notes that the Securities and Exchange Act was amended in 2006, and the Executive Yuan adopted the "Financial Market Package Project" prepared jointly by the FSC and the Ministry of Finance to establish a diversified, internationalized, and stable financial system in Taiwan. Furthermore, the FSC, according to a 2009 article on Taiwan’s regulatory developments written by Victor Chang and Jessica Liang of LCS & Partners law firm, proposed a Financial Services Act (FSA) to provide for a functional regulatory framework. However, as of January 2010, there is no new information as to whether the proposed FSA has been enacted.
General Overview
The Financial Supervisory Commission (FSC) was established on July 1, 2004, as an integrated financial supervisory and regulatory authority to resolve the problem of overlapping authorities, merging the three separate departments of the Ministry of Finance (MoF): the Bureau of Monetary Affairs, the Department of Insurance, and the Securities and Futures Commission. The FSC comprises four bureaus: the Securities and Futures Bureau (SFB), the Banking Bureau (BB), the Insurance Bureau (IB), and the Financial Examination Bureau (FEB). The SFB, formerly known as the Securities and Futures Commission, is responsible for the supervision of the securities markets, whereas the FEB is in charge of the examination of all financial institutions. As reported on the FSC's website, "as the financial services and activities become more sophisticated and diversified, both the regulatory and examination responsibilities need to be further modified and consolidated to enhance the effectiveness and efficiency of financial supervision."
The securities market in Taiwan is mainly regulated by the Securities and Exchange Act, the Futures Trading Act, and the Company Act. According to the FSC's 2006 Annual Report, amendments to the Securities and Exchange Act in January 2006 focused on promoting corporate governance, expanding the business scope of securities firms, introducing an independent director and audit committee system, preventing market manipulation and insider trading, and establishing closer cooperation with foreign authorities. Per the same report, the FSC was drafting a Financial Services Act (FSA) to introduce functional supervision, improve the protection of consumers and investors, and integrate cross-industry participation in financial services. According to a 2009 article on Taiwan’s regulatory developments written by Victor Chang and Jessica Liang of LCS & Partners law firm, proposed a Financial Services Act (FSA) to provide for a functional regulatory framework. As of January 2010 however, there is no public information regarding whether the proposed FSA has been enacted. In September 2006, the Executive Yuan adopted the "Financial Market Package Project" prepared jointly by the FSC and the MoF to establish a diversified, internationalized, and stable financial system in Taiwan.
As noted in a 2008 and 2009 U.S. Department of Commerce Country Commercial Guide reports, access to securities markets in Taiwan by foreign institutional investors has been liberalized and broadened. Furthermore, all legal limits on foreign ownership, with the exception of Chinese investors, have been removed from most companies listed on the Taiwan Stock Exchange (TSE). According to the World Federation of Exchanges website, as of November 2009, there were 740 firms listed on the TSE, 8 of them foreign. According to its 2008 Annual Report, the FSC is planning to incorporate the TSE, the Taiwan Futures Exchange, the computerized over-the-counter market, the GreTai Securities Market (GTSM), and the Taiwan Depository and Clearing Corporation into a holding company as a subsidiary of the FSC in order to enhance the international competitiveness of Taiwan's capital markets.
The 2008 FSC annual report states that, to maintain market stability in Taiwan, the FSB “strengthened corporate governance systems, implemented financial supervisory measures” (p. 5), and also ensured greater awareness of the importance of risk management. Per the same report, Taiwan is looking to sign memorandums of understanding (MOUs) with other supervisory authorities to address cooperation in financial supervision particularly in the area of cross-border activities. The FSC signed MOUs with a number of countries to demonstrate its commitment to effective cross-border supervision. As stated on its website, the SFB has signed MOUs with 19 foreign securities and futures authorities Taiwan also pushed for an amendment to its Securities and Exchange Act in 2008, one provision was to ensure that the FSC becomes a signatory to the International Organization of Securities Commissions (IOSCO) Multilateral memorandum of understanding (MMOU). This amendment, if passed, will further encourage and promote international cooperation among securities markets. . The FSC is an ordinary member of the IOSCO, The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members, who wish to sign the IOSCO MMoU, participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. There is however, no publicly available assessment of Taiwan's compliance with the IOSCO Objectives and Principles of Securities Regulation.
The Principles
II1. The responsibilities of the regulator should be clear and objectively stated.
The responsibilities of the FSC, as noted on its website, include supervision, examination, and inspection of the financial market. The FSC includes four bureaus: the SFB, the BB, the IB, and the FEB. The SFB, formerly known as the Securities and Futures Commission, is responsible for the supervision of the securities markets, whereas the FEB is in charge of the examination of all financial institutions. More specifically, the duties of the SFB, as stated on its website, include the approval of new issues of securities, the overseeing of secondary trading on the TSE and the GTSM, the licensing of securities professionals, and the regulation of market intermediaries, foreign investors, and certified public accountants. On the other hand, according to the FSC's website, the FEB "is entrusted with the responsibilities of financial institution supervision and examination as well as the drafting, planning and executing of the policies and regulations." Despite the information provided above, the available sources do not directly address Taiwan's compliance with this principle.
II2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.
The FSC, as noted on its website, functions as an independent agency that directly reports to the Executive Yuan. The Chairperson and commissioners of the FSC are appointed by the President of the Republic of China (ROC) (Taiwan). However, the available sources do not directly address Taiwan's compliance with this principle.
II3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.
As noted on its website, the FSC has adequate resources to carry out vigorous law enforcement and comprehensive supervision due to its quasi-judicial power. However, the available sources do not directly address Taiwan's compliance with this principle.
II4. The regulator should adopt clear and consistent regulatory processes.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II8. The regulator should have comprehensive inspection, investigation and surveillance powers.
See Principle 3.
II9. The regulator should have comprehensive enforcement powers.
See Principle 3.
II10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
ID11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.
The Securities and Exchange Act was amended in January 2006 to establish closer cooperation with foreign authorities, as noted on the SFB website. More specifically, the Act "provides that the ROC government and agencies (or institutions) authorized by it may, based on the principle of reciprocity, enter into a cooperative treaty or agreement with a foreign government or agency (institution), or with an international organization, to facilitate matters such as information exchange, technical cooperation, and investigation assistance." According to the 2008 FSC annual report, Taiwan, in recognizing the risks of financial crimes stemming out of cross-border financial activity, is keenly looking to sign memorandums of understanding (MOUs) with other supervisory authorities to address cooperation in financial supervision. In 2008, “the FSC signed or confirmed MOUs for cooperation in single-sector or cross sector supervision with Morocco, Jordan, Canada and Dubai” (p. 34). Per the same report, Taiwan pushed for an amendment to its Securities and Exchange Act in 2008, to ensure that the country through the FSC, becomes a signatory to the IOSCO MMOU. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The amendment will further encourage and promote international cooperation among securities markets, if passed. However, the available sources do not directly address Taiwan's compliance with this principle.
ID12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
As stated on its website, the SFB has signed MoUs with 19 foreign securities and futures authorities. See also Principle 11.
ID13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.
See Principle 11.
II14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors' decisions.
According to the 2008 Securities and Futures institute (SFI) annual report , the TSE and GTSM in conjunction with the SFI, has set up a number of ‘Information Transparency and Disclosure Rankings’ on TSE and GTSM listed companies, to encourage enterprises to fully disclose corporate information in compliance with international standards. The fifth edition of the Information Transparency Disclosure rankings results were announced in June 2008, covering 651 companies listed on the TSE, and 447 GTSM listed companies. However, the available sources do not directly address Taiwan's compliance with this principle.
II15. Holders of securities in a company should be treated in a fair and equitable manner.
The FSC, according to its 2006 Annual Report, issued the Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies in 2002 notably to ensure the establishment of independent directors and audit committees. Per the same report, corporate governance was also promoted through the 2006 amendments to the Securities and Exchange Act, as well as various Regulations, which "facilitate the implementation of corporate governance measures, and provide public companies with compliance requirements" (p. 48). According to the 2008 FSC annual report, as part of its amendment of the Securities and Exchange Act, the FSC issued a number of provisions to expedite the enforcement of corporate governance measures, while providing public companies with compliance requirements. Per the report, some of the provisions issued include, the Regulations Governing the Installation of Independent Directors of Public Companies and Related Compliance Matters, the Regulations Governing the Exercise of Powers by Audit Committees of Public Companies, and the Regulations Governing the Proceedings of Board of Directors Meetings of Public Companies. The FSC plans to hold conferences regularly, like the Taipei Corporate Governance Forum, to promote best practices in corporate governance.
The 2008 annual report also mentions that the FSC, in its promotion of the efficiency of shareholder proxy and corporate governance, amended the Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies “to strengthen supervision of persons that engage in proxy matters” (p. 28) in February 2008. The FSC also added to the amended regulations, provisions regarding delivery methods for shareholder meeting souvenirs by a proxy solicitor or agent, as well as provisions governing the tallying and verification of proxies, in order to strengthen supervision, and ensure fairness and impartiality in the solicitation process. These Regulations were further amended in 2009. However, the available sources do not directly address Taiwan's compliance with this principle.
II16. Accounting and auditing standards should be of a high and internationally acceptable quality.
According to a regulatory and standard-setting framework assessment published by the National Federation of Certified Public Accountants Associations of Chinese Taiwan (NFCPAA) in 2004, listed companies are required to prepare financial statements in accordance with the Taiwanese Generally Accepted Accounting Principles (GAAP) pursuant to the Company Act. They must also submit annual financial statements to respective shareholders for their approval. Entities regulated by the SFB, in addition to the Taiwanese Generally Accepted Accounting Principles (GAAP) must follow "Guidelines Governing the Preparation of Financial Reports by Securities Issuers" and "Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants." According to a number of publications on the subject, Taiwanese GAAP differ from International Fincial Reporting Standards (IFRSs). Since 1999 Taiwan, however, has been making efforts to converge national standards with IFRSs. Finally, on June 5, 2009, the Accounting Research and Development Foundation of the Republic in Taiwan (ARDF) released its “Roadmap toward IFRS Adoption in Taiwan,” announcing its plan to fully adopt IFRSs in Taiwan using a phased-in approach. According to the Roadmap, in Phase I, listed companies and financial institutions supervised by the FSC (except for credit cooperatives, credit card companies, and insurance intermediaries) will be required to adopt Taiwan-IFRSs starting 2013, with early adoption permitted in 2012 for certain types of companies. In Phase II, other companies, including unlisted public companies, credit cooperatives, and credit card companies will me mandated to apply Taiwan-IFRSs starting from January 1, 2015, with earlier application permitted from January 1, 2013. No further information as to Taiwan's compliance with this principle is publicly available.
II17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investors interest in the scheme.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II21. Regulation should provide for minimum entry standards for market intermediaries.
The SFB, as stated on its website, is responsible for the regulation of market intermediaries. However, the available sources do not directly address Taiwan's compliance with this principle.
II22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.
See Principle 21.
II23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.
See Principle 21.
II24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.
See Principle 21.
II25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.
The duties of the SFB, as stated on its website, include the overseeing of secondary trading on the TSE and the GTSM. However, the available sources do not directly address Taiwan's compliance with this principle.
II26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.
The SFB, as stated on its website, has established a system for monitoring stock prices to curb trading abuses. Furthermore, the SFB is empowered to curb abuses and violations of the applicable laws and regulations. Administrative sanctions include issuing warnings, imposing fines and revoking licenses. According to the SFB website, the 2006 amendments to the Securities and Exchange Act include provisions on the prevention of market manipulation and insider trading. However, the available sources do not directly address Taiwan's compliance with this principle.
II27. Regulation should promote transparency of trading.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.
There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.
II30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.
According to the SFB website, clearing and settlement for the trades executed at the TSE and the GTSM are carried out by the Clearing Department of the Taiwan Depository and Clearing Corporation. However, the available sources do not directly address Taiwan's compliance with this principle.
