July 2023
Recent Legal Developments Concerning the Securities and Exchange Act of Taiwan
July 2023
Oli Wong and Weke Chen
The Financial Supervisory Commission of Taiwan (hereinafter, the “FSC”) announced on March 28 of this year (2023) the “Sustainable Development Action Plan for TWSE and TPEx-Listed Companies (2023) ”, highlights include “strengthen the functions of independent directors and audit committees” and “enhancement of the disclosure of information on substantial shareholdings” and etc. Accordingly, the Securities and Exchange Act (hereinafter, the “SEA”) has been amended so far in 2023 as follows:
1. The threshold for reporting and announcing substantial shareholdings is reduced to five percent.
In January 2022, the FSC preannounced draft Amendments to Articles 43-1, 178-1 and 183 of the SEA. [1] Article 43-1 of the SEA has lowered the report and announcement threshold for substantial shareholdings from the current 10% to 5%, alongside a one-year transition period grant. Additionally, draft amendments on Article 178-1 of the SEA revised the ceiling of penalty for securities firms, securities service enterprises and securities-related institutions which fail to establish or implement an internal control system or violate relevant financial, business or management regulations will raise from NT $4.8 million to NT $6 million.
The Legislative Yuan passed the above amendments by three readings and has adopted and announced all on May 10, 2023 with exception of Articles 43-1 of the SEA which will be adopted on May 10, 2024.
2. The right to sue directors, the right to convene shareholders’ meetings, and the right to represent the company when the directors transact with the company for themselves shall be subject to the decision of the audit committee in a collegiate manner. If a meeting of the audit committee cannot be convened for a valid reason, the matters to be resolved shall be handled with a special resolution adopted by the board of directors.
The FSC preannounced draft Amendments to Articles 14-4, 14-5 and 178 on August 2022[2], which include: (1) revision on the right to sue directors, the right to convene shareholders’ meetings and the right to represent the company when the directors transact with the company for themselves shall be exercised by independent directors alone and is subject to the decision of the audit committee in a collegiate manner (SEA draft Amendment Article 14-4); (2) added requirement concerning if a meeting of the audit committee cannot be convened for a valid reason, the matters to be resolved shall be handled with a special resolution adopted by the board of director, though financial reporting matters should still be subject to the opinion of independent directors whether they agree or disagree, and the relevant penalty provisions should be added accordingly. (SEA draft amendment Article 14-5, paragraph 3, Article 178)
The Legislative Yuan passed the above amendments by three readings and has adopted and announced all on June 28, 2023.
3. Added punitive measure to sanction those that utilize illegal methods to endanger the functions of core information and communication system equipment of stock exchanges, securities over-the-counter trading centers or centralized securities custody businesses
To strengthen the protection of operations on critical facilities of national importance, and to prevent the occurrence of harmful acts, Articles 174-3 and 174-4 of the SEA stipulate that those who endanger the operation of the core information and communication system equipment of the stock exchange, over-the-counter securities exchange or centralized securities depository enterprises by means of physical damage (including theft, destruction or other illegal methods) or virtual infringement (including unreasonable intrusion, interference or production of procedures dedicated to the aforementioned crimes) will face a fixed-term imprisonment of not less than one year and not more than seven years. If there is an intention to jeopardize national security or social stability or cause harm to the stability of the securities trading market, the severity of the punishment will be further increased.
The Legislative Yuan passed the above amendments with three readings and has adopted and announced all on June 28, 2023.
[1] Please refer to the LTP’s Newsletter article in February 2022 titled “The Financial Supervisory Commission of Taiwan Preannounced the Draft Amendments to the Provisions on the Threshold for Reporting and Announcing Substantial Shareholdings Under the Securities and Exchange Act” .
[2] Please refer to the LTP’s Newsletter article in September 2022 titled “Draft Amendments to Articles 14-4, 14-5, and 178 of the Securities and Exchange Act Pre-announced by the Financial Supervisory Commission of Taiwan”.
Oli Wong and Weke Chen
The Financial Supervisory Commission of Taiwan (hereinafter, the “FSC”) announced on March 28 of this year (2023) the “Sustainable Development Action Plan for TWSE and TPEx-Listed Companies (2023) ”, highlights include “strengthen the functions of independent directors and audit committees” and “enhancement of the disclosure of information on substantial shareholdings” and etc. Accordingly, the Securities and Exchange Act (hereinafter, the “SEA”) has been amended so far in 2023 as follows:
1. The threshold for reporting and announcing substantial shareholdings is reduced to five percent.
In January 2022, the FSC preannounced draft Amendments to Articles 43-1, 178-1 and 183 of the SEA. [1] Article 43-1 of the SEA has lowered the report and announcement threshold for substantial shareholdings from the current 10% to 5%, alongside a one-year transition period grant. Additionally, draft amendments on Article 178-1 of the SEA revised the ceiling of penalty for securities firms, securities service enterprises and securities-related institutions which fail to establish or implement an internal control system or violate relevant financial, business or management regulations will raise from NT $4.8 million to NT $6 million.
The Legislative Yuan passed the above amendments by three readings and has adopted and announced all on May 10, 2023 with exception of Articles 43-1 of the SEA which will be adopted on May 10, 2024.
2. The right to sue directors, the right to convene shareholders’ meetings, and the right to represent the company when the directors transact with the company for themselves shall be subject to the decision of the audit committee in a collegiate manner. If a meeting of the audit committee cannot be convened for a valid reason, the matters to be resolved shall be handled with a special resolution adopted by the board of directors.
The FSC preannounced draft Amendments to Articles 14-4, 14-5 and 178 on August 2022[2], which include: (1) revision on the right to sue directors, the right to convene shareholders’ meetings and the right to represent the company when the directors transact with the company for themselves shall be exercised by independent directors alone and is subject to the decision of the audit committee in a collegiate manner (SEA draft Amendment Article 14-4); (2) added requirement concerning if a meeting of the audit committee cannot be convened for a valid reason, the matters to be resolved shall be handled with a special resolution adopted by the board of director, though financial reporting matters should still be subject to the opinion of independent directors whether they agree or disagree, and the relevant penalty provisions should be added accordingly. (SEA draft amendment Article 14-5, paragraph 3, Article 178)
The Legislative Yuan passed the above amendments by three readings and has adopted and announced all on June 28, 2023.
3. Added punitive measure to sanction those that utilize illegal methods to endanger the functions of core information and communication system equipment of stock exchanges, securities over-the-counter trading centers or centralized securities custody businesses
To strengthen the protection of operations on critical facilities of national importance, and to prevent the occurrence of harmful acts, Articles 174-3 and 174-4 of the SEA stipulate that those who endanger the operation of the core information and communication system equipment of the stock exchange, over-the-counter securities exchange or centralized securities depository enterprises by means of physical damage (including theft, destruction or other illegal methods) or virtual infringement (including unreasonable intrusion, interference or production of procedures dedicated to the aforementioned crimes) will face a fixed-term imprisonment of not less than one year and not more than seven years. If there is an intention to jeopardize national security or social stability or cause harm to the stability of the securities trading market, the severity of the punishment will be further increased.
The Legislative Yuan passed the above amendments with three readings and has adopted and announced all on June 28, 2023.
[1] Please refer to the LTP’s Newsletter article in February 2022 titled “The Financial Supervisory Commission of Taiwan Preannounced the Draft Amendments to the Provisions on the Threshold for Reporting and Announcing Substantial Shareholdings Under the Securities and Exchange Act” .
[2] Please refer to the LTP’s Newsletter article in September 2022 titled “Draft Amendments to Articles 14-4, 14-5, and 178 of the Securities and Exchange Act Pre-announced by the Financial Supervisory Commission of Taiwan”.
