Oli Wang and Tina Lee
The Financial Supervisory Commission (hereinafter, the “FSC”) preannounced the draft amendments to the provisions on the threshold for reporting and announcing substantial shareholdings under the Securities and Exchange Act via the Jin-Guan-Zheng-Fa-1110380186 Directive of January 14, 2022. The period of solicitation for public opinions will expire on March 15, 2022. These amendments are highlighted below:
1. The threshold for reporting and announcing substantial shareholdings is reduced to five percent of the total issued shares of a public company, effective one year after the promulgation of the amendments.
Under Article 43-1, Paragraph 1 of the current Securities and Exchange Act, any person who acquires, either individually or jointly with other persons, more than ten percent of the total issued shares of a public company shall report the number and the purposes of the share acquisition, funding sources, and the matters that shall be reported as required by the competent authority to the competent authority.
The draft amendments are planning to reduce the threshold for reporting and announcing substantial shareholdings from the current ten percent to five percent of the total issued shares of a public company to promote the sound development of the substantial shareholding disclosure system, enhance the transparency of information, accommodate the legislative trends of foreign countries, and enhance the corporate governance in Taiwan.
Since relevant accommodating laws and regulations are yet to be revised, and the practical external operations are yet to be adjusted, a one-year transition period will be granted after the promulgation of the aforementioned amendments (Article 43-1 and Article 183 of the amendments).
2. The ceiling of the penalty on securities firms, securities service enterprises, and securities-related institutions is raised.
To strengthen the legal compliance of securities firms, securities service enterprises, and securities-related institutions and thoroughly establish and implement their internal control systems, the FSC has revised the ceiling of penalty for the failure of the above enterprises or institutions to comprehensively establish or to thoroughly implement the internal control systems or their violation of the provisions on finance, business, or management from NT$4.8 million to NT$6 million (Article 178-1 of the amendments).
The threshold for reporting and announcing large shareholdings under the current Securities and Exchange Act may keep investors or the competent authority from knowing the reasons and trends of substantial changes in shareholdings in a timely manner, making them unable to grasp the potential changes in the ownership and share prices of companies. Therefore, the FSC has lowered the threshold for reporting and announcing substantial shareholdings from the current ten percent to five percent of the total issued shares of a public company, with reference to the five percent threshold for reporting substantial shareholdings in the United States and Japan, and intends to provide a one-year transition period for implementation. In fact, since the first quarter of 2020, the financial reports of listed companies in Taiwan have already been required to disclose information on shareholders who hold more than five percent of the total issued shares of a listed company.