The Committee appreciates the attention paid by the Taiwan authorities to our 2021 White Paper suggestions. In particular, we were happy to learn of the positive response of the Ministry of Finance (MOF) to the request of custodian banks and tax guarantors to ensure the accessibility of FINI tax and earnings information on its online platform, thereby providing foreign investors with a more convenient investment environment. We are also grateful for the communication and assistance offered by the National Development Council and Financial Supervisory Commission (FSC) in connection to our other suggestions and wish to express our appreciation for the Taiwan authorities’ continuous focus on the sustainable development of Taiwan’s capital market and ambitious efforts in assisting Taiwan enterprises to align with international standards.

The Committee continuously focuses on optimizing the environment for foreign investment and increasing market efficiency, which will further facilitate globalization of Taiwan’s capital market. Given the changes and disruptions brought on by the pandemic, the Committee suggests appropriate deregulation to adapt to new work styles and arrangements and, in the spirit of public-private cooperation, we offer our assistance in further efforts to develop Taiwan’s capital market by providing the following suggestions.

Suggestion 1: Allow FINIs to use Taiwan securities as collateral for offshore financing activities.

Neighboring markets such as South Korea have recently adjusted their regulations to allow foreign investors to use the domestic securities they own as collateral for offshore borrowing. We recommend a similar approach in Taiwan by (i) removing the current prohibition in the FINI regulations on FINI-held securities being pledged as collateral, and (ii) allowing banks to be the local custodian for collateral agents, providing record-keeping services and handling securities as collateral in TDCC. Making this change would allow FINIs to more effectively utilize the Taiwan securities they own as collateral, increase the attractiveness of Taiwan’s market to overseas investors, improve market efficiency and liquidity, and increase market stability.

Suggestion 2: Allow FINIs to appoint multiple Taiwan custodians.
In current international practice, foreign investors may appoint more than one global custodian when more than one custodian is needed to operate portfolios so as to create segregated accounts managed by different managers. However, current Taiwan regulations prohibit FINIs from appointing more than one Taiwan custodian, which inhibits efficient creation of segregated accounts and use of multiple managers.

We therefore recommend that Taiwan follow the example of other Asian countries such as South Korea and India, which, like Taiwan, have adopted ID account mechanisms but do not prohibit the appointment of more than one domestic custodian.

Suggestion 3: Take steps to improve the efficiency of Taiwan’s capital market.

We recommend the following steps to improve capital market efficiency:

3.1 Enable flexible working environments to reflect the lessons learned from the COVID situation and support staff wellbeing, as well as to facilitate efficient implementation of business continuity plans (BCP), including arranging for staff to work from home and allowing industry participants connecting to the Taiwan Stock Exchange (TWSE), TDCC, Central Bank (CBC), and other government entities to use flexible IP addresses with safe identification and authentication processes as a replacement for fixed IP addresses or TWCA cards and card readers to facilitate connection to internal networks.

3.2 Replace the current system requiring custodians to hold a separate chop for each FINI, with a system where each custodian bank’s specific digital signature or chop can be used for investment-related fund subscription/redemption application forms, securities settlement, corporate events, and account opening.

3.3 Amend Article 92 of the Income Tax Act or issue a ruling letter to facilitate e-receipt of tax-withholding certificates issued by tax withholders or their company registrars.

3.4 Remove the requirement that FINIs holding delisted shares for over one year apply for foreign investment approval (FIA) status from the Investment Commission. Because such investments were initially made in exchange-listed securities in accordance with the “Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals,” such FINI status should be continued upon delisting so as to avoid costly regulatory processes that are seen by FINIs as being punitive and discouraging to long-term investment in Taiwan.

3.5 Review existing banking, securities, and futures regulations requiring a minimum of three hours of training for personnel in these sectors. Such intensive training is not necessary for staff who are already familiar with the topic of the training. Thus, the Committee proposes adding the option of waiving training or reducing the minimum requirement to 30 minutes or one hour for staff who have passed an internal exam.

3.6 Instruct district tax bureaus to use the non-resident tax data stored in the MOF’s eTax Portal to review tax refund applications from FINIs, instead of the current practice of requesting FINIs’ tax agents to submit originals or photocopies of withholding statements to apply for refunds. Such a submission practice involves a lengthy and complex process that wastes paper and is environmentally unfriendly and can easily be avoided given that the relevant data is already stored in the eTax Portal when reported by tax withholders. Using this stored data would improve the efficiency and accuracy of the tax bureaus’ review and approval of refund applications.

3.7 Increase the bandwidth of the MOF’s eTax Portal so as to allow FINI-appointed tax guarantors and custodians to access and download all of their clients’ tax and earnings information at the same time for subsequent processing.

3.8 Amend Article 2 of the “Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies,” which limits proxy forms to those printed and issued by the companies, to allow companies to issue shareholder meeting notices by electronic means. Such an amendment would align with the April 8, 2022 ruling issued by the Ministry of Economic Affairs clarifying that prior consent for shareholder meeting notices to be sent by electronic means may be given by shareholders through passive receipt by the company without the need to actively obtain shareholder permission.

Suggestion 4: Permit registered overseas professionals of foreign securities firms to work temporarily in Taiwan either during emergencies or as part of the “new normal.”
Since the COVID-19 pandemic began, businesses throughout the world have sought alternative workplaces to relocate their staff in order to boost resiliency. In addition to work-from-home (WFH) arrangements, companies are also exploring “work-from-anywhere” models. For example, it should be permitted for Hong Kong employees of a securities firm to be temporarily relocated to the firm’s Taipei branch or affiliate if a business interruption event like the one in Hong Kong occurs, without having to comply with the work permit and/or businessperson registration requirements that would be in effect for the Taipei branch or affiliate to hire its own full-time employees. Given that these professionals conduct non-Taiwan business regulated by the Hong Kong authorities and are properly registered there, the FSC should have no concerns with their being physically located in Taiwan so long as such individuals do not engage in onshore marketing of offshore products.

This “work-from-anywhere” practice is common in developed financial markets like Hong Kong and Singapore and could be implemented in Taiwan by permitting simplified temporary registration of relocated staff or requiring that they report to Taiwan’s financial regulators after completion of their activities.

The benefits of this approach include:

1. Creating better visibility of Taiwan among global financial institutions as a viable location for implementing a BCP.
2. Moving Taiwan closer to being a regional financial hub.
3. Allowing Taiwanese staff working at the regional subsidiaries of Taiwanese financial institutions to return to Taiwan for a period for family reasons.

Suggestion 5: Establish a single clearinghouse system to achieve delivery versus payment and netting cash settlements.
Taiwan is one of only a few major securities markets that has yet to establish a single clearinghouse system. The lack of such a system increases settlement risks by causing a lag in cash and securities settlements and creates extra funding costs through the need for settlement with different brokers on the same settlement date. We urge the securities authorities to seriously consider this request as a way to improve operational efficiency in securities markets and align Taiwan with international trends.