Lexgroup Newsletter (Issue No. 323)

Date: Sep 2019

Criminal Act

1. Criminal Speedy Trial Act

On 19 June 2019, the President announced an amendment to the Criminal Speedy Trial Act (Amendment).  We summarize the key points below:

(1) The cap on accumulated period of detention during the trial is shorten from 8 years to 5 five years, which will be enforced 1 year after the announcement of the Amendment.

(2) The cap on the restriction period for travel abroad is removed, which will be enforced 6 months after the announcement of the Amendment.

Reported by: David Tsai / Naiju Kuan

Telecommunication

2. Statute Governing Telecommunications

On 26 June 2019, the President announced  the Statute Governing Telecommunications (Statute), of which the enforcement date will be further determined by the Executive Yuan. 

Please refer to our Newsletter Issue No. 321 published on June 11 for the key point.

Reported by: Kangshen Liu / Hsiyen Hsu

Company Act

3. MOEA's Ruling in Relation to Share Certificate

On 10 June 2019, the Ministry of Economic Affairs (MOEA) issued a ruling that the requirement under Article 162 of the Company Act for share certificates issued by a company to be affixed with signature or personal seal of the "director representing the company is mandatory".  However, if a company amends its Articles of Incorporation to require share certificates to be signed by or affixed with signatures of "director representing the company" and "two directors", it is not against Article 162 of the Company Act.

Reported by: Mike Lu / Angela Lin

4. MOEA's Ruling in Relation to Special Shares

On 14 June 2019, the MOEA issued a ruling that a company may issue special shares pursuant to Subparagraph 5, Paragraph 1, Article 157 of Company Act where the shareholders of such special shares are entitled to certain number of board seats   As such, the directors so elected shall be the shareholders of special shares.

In addition, under Paragraph 1, Article 27 of the Company Act, the government or a juristic shareholder can be elected to act as the director or supervisor, but shall appoint individuals to perform such duties.  Thus, individuals appointed to represent a juristic shareholder to perform duty of directorship does need to be the shareholder of the special shares.

Reported by: Mike Lu / Angela Lin

Securities and Exchange Act

5. Rulings Related to Sukuk

On 14 June, the Financial Supervisory Commission (FSC) issued a ruling specifying that "other securities approved by the competent authority" under Article 22 of the Securities and Exchange Act (Act) includes foreign currency denominated Sukuk fixed income securities offered and issued within the Republic of China by foreign issuers for sale only to professional investors. Therefore, such securities may be exempted from the reporting requirements under Paragraph 1, Article 22 of the Act, the relevant disclosure requirements under Article 36 of the Act, and the relevant requirements of the Regulations Governing Information to Be Published in Prospectus.  The foreign issuers of such securities shall still attach relevant materials to report to the Central Bank in advance with a copy to the Taipei Exchange.  Furthermore, the foreign issuers still need to follow the disclosure requirements provided in the said ruling.

Reported by: Jeffrey Liu / Deborah Lee

SITE/SICE

6. Outsourcing by Securities Investment Trust Enterprise (SITE) and Securities Investment Consulting Enterprise (SICE)

On 20 June 2019, the FSC issued a ruling allowing a SITE or SICE investing the assets of discretionary investment account to outsource the trading instruction operation of subscription or redeem (including filling in, submitting and confirming the forms) to professional institutions. The FSC also requires a SITE/SICE to enter into a written agreement with the entrusted professional institution setting out the entrusted matters, and to be equipped with effective supervisory mechanism and ability.  The entrusted institution must have expertise and agency qualifications for discretionary investment mandate business.

Reported by: Jeffrey Liu / Deborah Lee

7. Amendment to Template of Sales Agent Agreement (Two Parties, Three Parties)

On 21 June 2019, the Securities Investment Trust and Consulting Association (SITCA) announced the amendments to the Template of Sales Agent Agreement (Two Parties, Three Parties).  The amendments require a sales agent to comply with relevant laws and regulations in respect of anti-money laundering and countering the financing of terrorism (AML/CFT), and to provide, upon the master agent’s request, a copy of the undertaking for AML/CFT internal control system which has been announced and reported to the competent authority.

Reported by: Jeffrey Liu / Eliza Lee

Banking

8. Draft Amendment to Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation

On 25 June 2019, the FSC announced the draft amendment to the Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation (Regulations) for public consultation. We summarize the key points below:

(1) To delete the provisions in respect of implied consent of the clients for outsourcing;

(2) To add provisions that asset management companies directly or indirectly wholly owned by financial institutions can accept the appointment from their parent companies to handle the debt collection of their parent companies;

(3) To add the compliance requirements in respect of outsourcing of cloud services, including:

(a) A financial institution shall ensure the risk control of operation;

(b) A financial institution shall have the ultimate supervisory obligation of the cloud service providers; 

(c) A financial institution shall ensure that themselves, competent authority, the Central Bank or the designated entities may obtain the relevant information of operation implemented by the cloud service providers;

(d) A financial institution may entrust the independent third parties to conduct auditing;

(e) A financial institution shall adopt the effective protection measures for the clients' information that transmitted to and stored with the cloud service providers; 

(f) A financial institution shall reserve the ownership of the information outsourced to cloud service providers for processing; 

(g) In principle, the clients' information and storage location thereof shall be within Taiwan; and

(h) A financial institution shall set out the emergency contingency plan.

(4) Whether the approval or filing for record will be required for outsourcing of cloud service shall depend on the materiality of the outsourcing, and the criteria of determining the materiality and the required documents for the application are provided.

Reported by: Stacy Lo / Deborah Lee

Banking

9. Handling Principle of Charging the Default Interest and Default Penalty of the Mortgage and Consumer Loan

On 25 June, the FSC made a news release providing that from 1 July 2019, a bank must follow below principles for charging default interests and default penalty of the mortgage and consumer loan:

(1) In the case of late payment where it is not a continuous default, the default interest and the default penalty which is not a fixed amount as charged by the bank shall be based on the due principal in the current period.  

(2) If the borrower faces financial difficulties and fails to duly pay monthly, and the bank exercises the acceleration clause where the full principal amount is deemed due, the bank may charge the default interests based on the unpaid principal balance for the delay period; the default penalty may be charged based on the unpaid principal balance as well.

(3) Where in practice the bank may waive the charge or provide a favorable calculation method to the borrower, it may act accordingly.

(4) As banks shall adjust their current policy in accordance with the principle above.  If the relevant information system and the contents of the contract need to be adjusted, they shall be completed by the end of September 2019.  Where the default penalty is charged based on the unpaid principal balance before the acceleration clause is exercised, it cannot be calculated on that basis from 1 July 2019.  Other calculation method can be adopted in compliance with the above principle after the information system and the contract content have been adjusted.

Reported by: Stacy Lo / Eliza Lee

10. Directions for Banks to Apply for New Business Trial

On 18 June 2019, the FSC announced the Directions for Banks to Apply for New Business Trial (Directions).  We summarize the key points below:

(1) The business items the banks may apply for trial shall be the expansion of the bank's approved business items, or the business items under the regulations which stipulate "others approved by the competent authority", or the technical provisions which are not clearly stipulated.

(2) The banks may still apply for new business trial with the FSC for the same business item where it has been approved to be experimented under the sand box rules and does not involve items prohibited under the laws and regulations; if such business items are prohibited under the laws and regulations, innovative experiment shall be applied for under the sand box rules.   

(3) The banks shall submit the business plan and declaration of legal compliance when applying for new business trial.  

(4) Considering the risk control and business innovation, the FSC may restrict the target, business or trading volume, location and period based on the nature of the new business.    

(5) The bank shall take note of information security, anti-money laundering, personal information protection and clients interest protection during the trial period, and provide information relating to the entire circumstance of the trial to the FSC after the expiration of the trial period.  

(6) The electronic payment institutions, electronic stored value card issuers, trust enterprise, bills finance companies and credit cooperatives may apply for new business trial according to the Directions as well.  

Reported by: Stacy Lo / Will Chen

11. Draft Amendment to Regulations Governing the Capital Adequacy and Capital Category of Banks

On 27 June 2019, the FSC announced the draft amendment to the Regulations Governing the Capital Adequacy and Capital Category of Banks (Rules), as well as the list of the domestic systemically important banks (D-SIBs). We summarize the key points below:

(1) Draft amendment to the Rules:

(a) In response to the "Processing Architecture of the D-SIBs" issued by Basel Committee on Banking Supervision (BCBS), the draft amendment newly adds that the competent authorities may comprehensively consider the banks' size, interconnectedness, substitutability and complexity, to announce the list of D-SIBs, and require such D-SIBs to additionally contribute capital. The draft amendment also stipulates the definition of the legal capital adequacy ratio. 

(b) To amend the basis for the preparation of financial statements and stipulate the minimum standard of the leverage ratio.

(c) To stipulate the minimum standard of the bank capital adequacy ratio and amend the classification standard of the bank capital grade.

(d) To amend the definition of the common equity Tier 1 capital. 

(2) The term "D-SIBs" refers to:

CTBC Bank Co., Ltd., Cathay United Bank Co., Ltd., Taipei Fubon Commercial Bank Co., Ltd., Mega International Commercial Bank Co., Ltd., and Taiwan Cooperative Bank.

Reported by: Stacy Lo / Bella Chiu

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