Brand-New regulation Open! Alternative Investment gleams from Taiwan regulation relaxation
Taiwan welcomes alternatives investment by means of structural change
Following the progress of New Wealth Management Scheme, Taiwan Financial Supervision Committee’s (“FSC”) ambition is to attract capitals from ultra high-net-worth (“UHNW”) given Taiwan is essentially equipped a large scale of super rich citizens while those HNW normally have access directly with offshore private banks which offer flexible service as well as diversified product spectrum. FSC announced on May 31 2021, furtherly to open door for offshore “non-securitized type products” landing on the territory! Before this announcement, non-securitized products are only applicable to professional financial institutions via sales and introduction by qualified Securities Investment Trust Enterprise (“SITE”) or Securities Investment Consultant Enterprise (“SICE”). The client universe turns to include UHNW with investable assets more than TWD 100mn, equivalent to ~USD 3.5mn.
Local regulatory framework guides sales activities through legalized private placement agent
While the local regulations governing different products and inland sales channel segments vary and complex, it’s never easy for offshore fund managers to fully understand the whole mechanism and update to the most recent eligible requirements. NIC from time to time was enquired by offshore fund managers about the legality of cross-border sales. Below are certain common questions.
1. How to sell non-registered funds in Taiwan?
Pursue to Article 52 of Regulation Governing Offshore Funds, an offshore fund institution may conduct private placements of offshore funds to professional financial institutions defined by FSC and Professional investors meeting the conditions set by FSC.
This regulation principle is to manage sales of offshore funds in proper manner. The ways to enter Taiwan fund markets include appointment a master agent to register the funds or appointment a private placement agent to pitch non-registered funds to eligible investors.
For salespeople coming to onsite meeting with clients, without proper engagement and reporting procedure by qualified agent, though this business model sails for years for offshore fund management companies, it’s essentially illegal, by the definition of Taiwan regulation.
2. What’s the different regulation guidelines towards securitized products and non-securitized products?
Taiwan FSC deems non-securitized products are suitable for investors with abundant professional knowledge to evaluate relevant investment risk. Before the new regulation relaxation on May 31, 2021, it’s limited to professional financial institutions to expose to non-securitized products only. Investor shall obtain pre-approval from competent authority for such investment before subscription. Common non-securitized products include but not limited to private equity, direct lending, bank loan, and secondary private equity etc. Certain types i.e. private infrastructure and private REITs are to be clarified whether classified as non-securitized products by competent authority’s definition. Newly announced regulation broadens the investor universe to UHNW including entities and natural person with investable assets exceeding TWD 100mn.
As for securitized products i.e. equities, bonds, mutual funds as well as hedge funds in alternative investment space, FSC allows professional financial institutions and professional investors to purchase. Post filing is eligible within five days from the investment proceeds paid in full.
The classification of securitized and non-securitized products is very tricky in Taiwan. Not many experienced people understand the execution rules. Previously only qualified insurance companies are exposed to alternative investment but given the door for non-securitized products is open for UHNW for now, such products are eligible to banks and SITEs. The ways to sell non-securitized products are more and more diversified. NIC will be the most experienced team, in Taiwan, to interpret relevant regulations and identify applicable clients and channels.
3. Shall offshore fund reach professional entities or bank/broker channels through cross-broader to sell products to end investors without private placement agent?
It’s similarly to earlier question. For the sake of well monitoring the sales activities and ensuring product delivery is relayed to applicable investors meeting condition set by competent authority, FSC has continuously highlighted to financial institutions above mentioned related regulation. In global wise, more and more offshore fund management companies themselves are required by their competent authority to fully compliant to investors’ local regulation. Thus, it’s foreseen that the importance is imposed to both from buy-side and sell-side compliance parallelly.
Investor classification of non-registered funds
To clearly map out the client type and nature of the funds, we summarize below metrics to let you understand Taiwan competent authorities’ guideline at a glance.
Table 1: Investor and Product Metrics
In terms of the investor type definition, above professional financial institutions include bank, bill houses, insurance companies, securities brokers, trust enterprises and financial holding companies. For individuals, investors must have financial capacity >=USD 1mn and have sufficient knowledge of trading experience in financial products, while for professional corporates, investors must have assets above equivalent to USD1.6mn. FSC relax the restriction for non-securitized products to High-Asset clients with investable assets over USD 3.5mn. Apart from professional financial institutions, Professional Investors and High-Asset investors are up to 99 accounts for each non-registered fund.
In principle, to legalize the sales activities locally, appointment a qualified agent is optimal, or better to say, it’s requisite legally. Additionally, local regulations change overtimes such revisions influence fund company’s sales approach to identify the sizable and right client segment in most proper strategical means. We are pleased to talk to fund partners always. Come to set a call meeting with NIC teams!