Snapshot: Fund Management Regulation in Taiwan


Fund management rules

Regulatory framework and authorities

How is fund management regulated in your jurisdiction? Who are the main authorities responsible for regulating funds, fund managers and those who market the funds?

In Taiwan, there are five main types of funds, defined by the organizer and the type of organizational structure used:

  • corporate securities trust funds (SITE funds);
  • limited private equity funds set up by securities investment companies or subsidiaries of securities firms (SITE PE funds);
  • private equity limited partnership funds formed by entities or individuals other than securities investment companies and subsidiaries of securities firms (off-SITE limited partnership funds);
  • private equity funds not structured in the form of limited partnerships, generally organized as a company (private equity company funds); and
  • offshore funds which are regulated by the jurisdictions where such funds are organized, but which are marketed and distributed in Taiwan in accordance with the regulations governing offshore funds (offshore funds).

For comparison, SITE funds invest and behave similarly to mutual funds in other jurisdictions, and other funds can be the equivalent of hedge funds, private equity funds, venture capital or a mixture. For simplicity, this article will from time to time refer to SITE PE Funds, Non-SITE Limited Partnership Funds, and Private Equity Firm Funds as “Non-SITE Funds”.

Generally, in Taiwan, if a domestic fund is not managed in-house (for example, through its general partner or trustees), the management of the fund must be carried out by licensed securities investment firms (SITEs) pursuant to the Securities Investment Trust and Consulting Act. , under the supervision of the Financial Supervisory Commission (CSF).

SITE funds, SITE PE funds and offshore funds are subject to periodic regulatory audits by the FSC. In addition, Taiwanese institutional investors in all types of funds are also subject to periodic regulatory audits. By issuing feedback to the funds and its key institutional investors, such audits could, from time to time, allow the Taiwanese regulator to indirectly influence the direction of fund management, particularly with respect to investments in mainland China. and investments in complex financial products.

Fund management

Is the administration of funds regulated in your jurisdiction?

Taiwan does not currently issue a separate license for fund administration. In the absence of direct regulation, the fund administration business is generally unregulated in Taiwan, nor can it be registered with the relevant authority. However, it is common in Taiwan for a SITE to act as a fund administrator of a SITE fund without engaging other third parties to provide related services. In the future, as more independently managed funds flourish in Taiwan, there may be a market for independent fund administration services.

Authorisation

What is the authorization or licensing process for funds? What are the main requirements that apply to managers and operators of investment funds in your jurisdiction?

Any SITE fund may raise funds officially only after the SITE’s application and filing has been approved by the FSC, and such SITE fund must be managed by a SITE which must be licensed and meet the requirements for minimum capital and sales staff.

Any SITE PE fund can raise funds only after the SITE’s FSC application has been approved. If such a fund is to be managed by a SITE, the management function should be carried out by a specialized and separate internal service within the SITE without involving other personnel from other services.

Any non-SITE limited partnership fund and any private equity company fund must be established and registered with the Ministry of Economic Affairs. These funds can be managed by management consulting companies which do not require specific qualifications. However, if these management consulting firms provide analysis, opinions, advice or recommendations to third parties for the purpose of obtaining compensation in connection with securities, securities-related products or other investments or transactions , they may be deemed to be engaged in the business of securities investment trusts and advisory services. , and should then, in order to be approved accordingly, respect a minimum capital threshold and have qualified sales staff.

Territorial scope of the regulations

What is the territorial scope of fund regulations? Can a foreign manager perform management activities or provide services to clients in your jurisdiction without authorization?

In principle, the scope of fund regulation is limited to Taiwan-registered funds and offshore-registered funds that raise funds or make private equity investments in Taiwan. A foreign manager cannot provide fund management services or other related fund services in Taiwan without being duly licensed or registered. In practice, successful fundraising activities for offshore funds have been conducted overseas with minimal contacts in Taiwan via reverse solicitation.

Acquisitions

Is the acquisition of a majority or minority stake in a fund manager in your jurisdiction subject to the prior authorization of the regulator?

Any change in the shareholding held by directors, supervisors, managers and shareholders holding more than 5% of the total issued shares of a SITE must be reported within five days of the effective date of this change.

Any change in the shareholding held by directors, supervisors, managers and shareholders holding more than 10% of the total issued shares of securities companies that have established a SITE PE fund must be reported by the 15th of the following month.

There is no equivalent regulation for non-SITE limited partnership funds, private equity firm funds and offshore funds; however, to the extent these funds have institutional investors, they will likely limit change of control events through “key man” provisions or other provisions in the fund documentation.

Restrictions on compensation and profit sharing

Are there any regulatory restrictions on structuring fund manager compensation and incentive arrangements?

Remuneration of the fund manager and participation in the profits of the funds can be arranged through agreements and, therefore, the conditions are generally subject to market standards.

Since SITE funds in Taiwan are regularly audited, the compensation agreements for these SITE funds will generally follow industry-standard agreement templates, and any material deviations in the terms of the compensation and profit-sharing agreement from the fund manager against standard agreements may affect regulatory approval. for the SITE fund or generate feedback during the regulatory audit process.

For non-SITE funds and offshore funds, executive compensation and profit-sharing arrangements for other types of funds would generally be decided by market practice; there are no regulatory restrictions or models.

Date declared by law

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May 8, 2020.

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