The Committee appreciates the Taiwanese government’s dedication in creating a more vibrant asset management industry in Taiwan and welcomes the policy statement published by the Financial Supervisory Commission (FSC) in December 2020 outlining the FSC’s strategies to develop Taiwan’s capital markets in the coming years. The relevant policies and proposed regulatory changes set forth in the outline will provide global asset management firms with more confidence to invest in Taiwan’s asset management industry and attract more foreign investment and talent to the local capital market.
The Committee would like to express our appreciation for the FSC’s acceptance of our 2020 White Paper suggestion to permit securities investment trust funds to invest in contingent convertible bonds. And since the FSC’s launch in 2013 of its “Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds,” we have been happy to see more investment in talent development, investor education, and local asset growth being made by offshore asset managers. We consider this to be a remarkable achievement by the FSC.
This year, to further develop Taiwan’s asset management industry, members of the Committee suggest several commercial, legal, and regulatory changes. These suggestions include relaxing certain investment restrictions and encouraging more investments in retirement funds. The Committee looks forward to a continuing collaboration with the FSC to create a resilient and vibrant investment market in Taiwan, bringing greater benefits to both domestic and international investors.
Suggestion 1: Expand and improve the members’-choice pilot program for pension reform.
The FSC approved a member’s-choice pilot program for pension reform two years ago, but more needs to be done to ensure that this pilot is more broadly implemented, allowing Taiwanese people to adequately prepare for their retirement.
The pilot program has achieved a number of key goals (both in performance and participation), showing that it can be a feasible alternative to the current government-run program. It has also highlighted a few areas needing improvement before the members’-choice program can be more widely implemented:
Make a more diverse offering available to investors.Currently, only four asset managers and four products are approved on the platform. The platform needs to be expanded to have broader industry participation. Our recommendation is that all qualified industry participants – that is, all Securities Investment Trust Enterprises (SITEs) in good standing – be allowed to offer products as part of the scheme, provided that the products meet certain pre-set requirements established by SITCA. Not only will this give investors more choice, it will also act as a hedge by allowing more diverse investment.
Set a deadline of no more than three years to expand the pilot program so as to be a viable alternative to the established government-run program. Having such a deadline will allow the industry to begin to effectively educate investors about the importance of investing for retirement and how to do so effectively. One reason that the current government scheme has such a low voluntary contribution level is because the public is: 1) unaware of the benefits of beginning retirement investing as early as possible, and 2) more comfortable when they have some control over how their retirement contribution is invested. Promoting public/private investor education and creating certainty as to the timing of implementing a members’-choice pilot program will go a long way to ensure better retirement savings contributions by Taiwanese.
Provide a tax incentive for joining the pilot pension scheme to ensure that it is in the best interest of investors to participate in the program. Tax incentivization is the cornerstone of members’-choice retirement schemes. To help the government to promote its recently launched “Project for Retirement-Focused Fund Platform,” the Committee proposes that the government grant each investor in either onshore or offshore funds an income-tax deduction of not more than NT$24,000 per year as an incentive for investment in retirement savings. This measure would be comparable to the tax deduction available for life-insurance premiums.
Suggestion 2: Permit ESG funds to be launched in Taiwan and adopt a disclosure model.
As the world experiences increasing environmental changes, shortages of certain natural resources, and social pressures, the importance of greater resilience and stricter monitoring in investment portfolios has become ever more compelling. In response, asset managers with Environmental, Social, and Governance (ESG) capabilities have been promoting a variety of sustainable investment frameworks aimed at generating investment returns while addressing these global challenges.
The Committee understands that the FSC is now finalizing policy requirements for the launch of onshore ESG funds and encourages the FSC to build on these minimum requirements to provide credibility to this growing market in Taiwan. The Committee is highly willing to work with the FSC to enhance the necessary standards applicable to ESG-labeled funds in Taiwan.
Instead of requiring asset managers to peg the onshore ESG fund to a third-party ESG index, the Committee suggests that the FSC focus more on the full potential of the ESG strategy and process, supported by transparent disclosure requirements in line with global practice. Whether an onshore fund could be classified as an ESG-labeled fund should be subject to whether an asset manager has embedded ESG components in the investment process and securities selection for the fund. We also encourage the FSC to require asset management firms to disclose in their offering documents how their investment strategies (e.g., the investment process and securities selection criteria) aim to achieve the sustainable investment objectives. Such a provision would help create a sound regulatory framework to provide credibility to this growing market, better align Taiwan with global best practices, and be more effective than imposing prescriptive investment guidelines on ESG funds.