The Financial Supervisory Commission promulgated Articles 4, 5, 11, 21, 22, 26, 28 and 29 the Regulations Governing the Discretionary Investment Business Conducted by Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises (hereinafter, the “Regulations”) as amended via the Jin-Guan-Zheng-Tou-1070326730 Directive of July 30, 2018. These amendments are made to accommodate the amendments to the Securities Investment Trust and Consulting Law and to expand the size of domestic assets under management by attracting offshore professional investment institutions to retain discretionary services provided by domestic operators. The Regulations are highlighted as follows:
First, currently after a securities investment consulting enterprise obtains a business license or a securities investment trust enterprise obtains a business license and has commenced the operation of trust business after setting up a fund, such enterprise may apply to operate discretionary investment business if certain criteria are met. However, sometimes the condition that the net value per share shall not fall below the par value cannot be met at this time because the business is not yet on track with relatively unstable revenues and because large fixed costs and relevant initial expenditures may be incurred. Therefore, it is additionally stipulated that such two types of enterprises which have not obtained a business license for a full accounting year are not subject to the constraint that the net value per share shall not fall below the par value (Refer to Articles 4 and 5 of the Regulations).
In addition, according to the general explanation provided by the Financial Supervisory Commission concerning the amendments, in case of a customer of discretionary investment business who meets the criteria set by the competent authority, a securities investment trust enterprise or securities investment consulting enterprise may elect to agree with the customer on the custody of the discretionary investment assets, matters that shall be handled before the execution of a contract, and account handling matters in order to accommodate the amendments to Article 62, Paragraph 7 of the Securities Investment Trust and Consulting Law. In addition, in view of the fact that professional institutional investor such as offshore funds have had their existing custodians and that they have sufficient know-how and trading experience concerning financial products, they should be capable of handling matters relating to the pursuit of discretionary investment services. Therefore, it is specifically stipulated that if a customer is a professional institutional investor under Article 4, Paragraph 2 of the Financial Consumer Protection Law and a custodian has been designated for the entrusted investment assets, the previous provisions of the Regulations which require that customers shall place their assets under the custody of a discretionary custodian and contract with a custodian, and which stipulate matters that shall be handled before a discretionary investment contract is executed, as well as return of commissions or payment of other benefits to reduce the transaction costs of customers, regular monthly reporting obligations, and notification of net asset value impairment do not apply (Refer to Articles 11, 21, 22, 26, 28 and 29 of the Regulations).
Third, to accommodate the amendments to Article 17 of the Securities Investment Trust and Consulting Law (which shall apply mutatis mutandis pursuant to Article 58 of the same law), Article 28 of the Regulations as amended stipulate that a securities investment trust enterprise or a securities investment consulting enterprise which uses entrusted investment assets for investment or trading shall set up and thoroughly implement an internal control system for its manners of analysis, decision-making, execution and review. Records for the internal control operation shall be retained for a period of no less than five years. In addition, to accommodate the amendment to Article 62, Paragraph 3 of the Securities Investment Trust and Consulting Law, relevant wordings in Article 28, Paragraph 6 of the Regulations are revised (Refer toArticle 28 of the Regulations).