Lexgroup Newsletter (Issue No. 324)

Date: Sep 2019

Electronic Payment

1. Amendment to Rules Governing the Administration of Electronic Payment Business

On 2 July 2019, the Financial Supervisory Commission (FSC) announced the amendment to the Rules Governing the Administration of Electronic Payment Business.  We summarize the key points below:

(1) To allow an electronic payment institution to provide the message conveyance services among users;

(2) To allow an electronic payment institution to issue the stored value cards dedicated for the electronic payment accounts and to permit an electronic payment institution to outsource the sales of such stored value cards;

(3) To establish the database of connections between an electronic payment institution and recipient users, and reinforce the review mechanism for recipient users;

(4) To specify the contents of investigation and evaluation by an electronic payment institution for recipient users in order to control risks;

(5) To amend the information required for user payment instruction with certain exceptions ;

(6) To allow an electronic payment institution to collect certain government fee and mass transportation fees as an agent; and

(7) To allow an electronic payment institution to advance the single payment for users of mass transportation or parking business. 

Reported by: Stacy Lo / Eliza Lee

2. Ruling related to Act Governing Electronic Payment Institutions

On 2 July 2019, the FSC issued a ruling interpreting that issuance of stored value cards dedicated for electronic-payment accounts is "other businesses approved by the competent authority" under Subparagraph 4, Paragraph 1 of Article 3 of the Act Governing Electronic Payment Institutions.

Reported by: Stacy Lo / Deborah Lee

Banking

3. Rules Governing Applications of Banks for Concurrently Conducting the Underwriting and Proprietary Trading of Bonds, Beneficiary Securities and Asset-backed Securities

On 10 July 2019, the FSC issued a ruling amending the rules governing applications of banks for concurrently conducting the underwriting and proprietary trading of bonds, beneficiary securities and asset-backed securities (Rule).  We summarize the key points below:

(1) The Rule applies to offshore banking units (OBUs) as well.  

(2) The capital amount allocated or designated by the bank for such business shall comply with the Standards Governing the Establishment of Securities Firms, as well as the requirements under the Regulations Governing Securities Firms that the securities firm’s total debts shall not be more than 6 times of its net worth, and its total current liabilities shall not exceed its total current assets.  

(3) The position held for more than one year of the firm commitment underwriting for such business, and proprietary trading for such business shall be included in its balance in investment in securities.  

(4) For the bonds held by the bank for such business not involving equities and not acquired due to underwriting, the total cost for holding the bonds issued by any local or foreign companies shall not exceed 10% of the calculation basis.  

(5) If any equity product is involved in this business, the requirements under the Securities and Exchange Act shall be complied with. In addition, the bank currently conducting the business of securities underwriting shall be subject to the restrictions under Article 26 of the Regulations Governing Securities Firms in respect of related party transactions.  

(6) The bank conducting such business shall establish risk management policy and internal control system of product suitability, which shall be approved by the board, and shall ensure its business units fully understand and implement the requirements.  

(7) Banks and OBUs which have conducted such business shall comply with the Rule within three months.

Reported by: Stacy Lo / Will Chen

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

On 2 July 2019, the FSC announced the draft amendment to the "Regulations Governing the Capital Adequacy and Capital Category of Banks" for public consultation.  We summarize the key points below:

(1) The "statutory capital adequacy ratio" is defined as the minimum capital adequacy ratio plus the capital additionally set aside.

(2) The competent authority may designate and announce the domestic systemically important banks (D-SIBs) and require such banks to set aside additional capital according to the factors such as the scale of the bank, inter-relevance, substitutability and complexity.

(3) The basis for preparation of financial statements adopted for the calculation of consolidated capital adequacy ratio and leverage ratio is amended, and the minimum standard of leverage ratio is provided.

(4) The minimum standard of capital adequacy ratio of banks is provided and the criteria for the classification of the capital level of banks is amended.

(5) The definition of the common share equity Tier 1 capital is amended.

(6) The requirements for a bank to redeem or buy back from the market the issued and outstanding additional Tier 1 capital and Tier 2 capital (other than common share equity) before maturity are amended. 

Reported by: Stacy Lo / Paul Hsu

Securities and Exchange Act Related

5. Announcement of Draft "Regulations for Filing Reports on Acquisition of Shares in accordance with Paragraph 1, Article 43-1 of Securities and Exchange Act" for public consultation

On 5 July 2019, the FSC announced the draft "Regulations for Filing Reports on Acquisition of Shares in accordance with Paragraph 1, Article 43-1 of Securities and Exchange Act" for public consultation (Regulations).  The Regulations are in reference to the existing "Directions for Filing Reports on Acquisition of Shares in accordance with Paragraph 1, Article 43-1 of Securities and Exchange Act."  We summarize the key points as follows:

(1) Any person acquires, either individually or jointly with another person(s), more than 10% of the total issued equity shares of a public company, or any change of the reporting matters, shall file a report and make public announcement;

(2) The “shares acquired” included any and all shares acquired by him/her/it and his /her spouse, minor children and nominees;

(3) Acquiring shares jointly with another person(s) means acquiring shares with any contract, agreement, or other form of mutual understanding between acquirers, for which if any written document is made, it shall also be submitted;

(4) The registration of share transfer is not a prerequisite for acquisition of shares;

(5) When initially acquiring of shares, the acquirer shall, within 10 days from the acquisition date, report to the competent authority and make public announcement, including the identification information of acquirer, the total amount of shares, the method and purpose of the acquisition of shares, etc..  The said announcement must be made on Market Observation Post System; 

(6) After the initial acquisition of shares, if any matters reported are changed, the acquirer shall, within 2 days from the occurrence date, report to the competent authority and make public announcement.

Reported by: Jeffrey Liu / Deborah Lee

6. Specific Persons under Subparagraph 3, Paragraph 1, Article 22-2 of Securities and Exchange Act

On 10 July 2019, the FSC issued a ruling clarifying that for any director, supervisor, managerial officer, or shareholder holding more than 10%of the total shares of a public company who is an offshore foreign institutional investor with investment account defined under the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, where they have conducted a merger under the laws in the relevant jurisdictions and have conducted share in accordance with under the FSC's ruling dated 19 December 2005, such offshore overseas Chinese or foreign nationals transferees are the specific persons referred to under Subparagraph 3, Paragraph 1, Article 22-2 of Securities and Exchange Act.

Reported by: Jeffrey Liu / Deborah Lee

7. Virtual Currencies with Nature of Securities Being Deemed as Securities

On 3 July 2019, the FSC issued a ruling announcing that virtual currencies with the nature of securities are deemed as “securities“ under Article 6 of the Securities and Exchange Act.  The virtual currencies with the nature of securities shall refer to those (1) using cryptography and distributed ledger technology or other similar techniques to represent value that can be stored, exchanged or transferred in digital way, (2) with liquidity, and (3) with specific investment nature.

Reported by: Jeffrey Liu / Caitlyn Kao

8. Draft Amendments to Standards Governing the Establishment of Securities Firms, Regulations Governing Securities Firms and Regulations Governing Responsible Persons and Associated Persons of Securities Firms

To include the virtual currencies with the nature of securities into supervision, on 28 June 2019, the FSC announced the draft amendments to the Standards Governing the Establishment of Securities Firms, Regulations Governing Securities Firms and Regulations Governing Responsible Persons and Associated Persons of Securities Firms.  The major amendments are to allow securities dealers to engage in proprietary dealing business of virtual currencies with the nature of securities.  As such business is different from the traditional securities dealers in nature, the minimum capital required shall be NTD 100 million and certain requirements such as internal control system and fund utilization requirements under the Regulations Governing Securities Firms are not applicable. Furthermore, criteria for personnel qualifications and trainings shall be further specified by the Taipei Exchange.

Reported by: Jeffrey Liu / Eliza Lee 

Futures/SITEs

9. Regulations regarding Special Reserve of Securities Firms, Securities Investment Trust Enterprises and Futures Commission Merchants

On 10 July 2019, the FSC issued a ruling announcing that from the fiscal year of 2019, securities firms, a securities investment trust enterprise (SITE) and a futures commission merchant (FCM) is no longer required to allocate additional special reserve for the purpose of fintech development and protection of employees.

Reported by: Jeffrey Liu / Eliza Lee

Unmanned Vehicles

10. Promulgation of Regulations Governing the Information Announcement and Security Incident Assessment of Unmanned Vehicles Technology Innovative Experimentation

On 2 July 2019, the Ministry of Economic Affairs (MOEA) and Ministry of Transportation and Communications announced the Regulations Governing the Information Announcement, Security and Incident Assessment of Unmanned Vehicles Technology Innovative Experimentation (Regulations), as enforced on 1 June 2019.  The Regulations provide (i) the information announcements and notices of the applicants before the commencement of the innovation experiment, (ii) the notification procedures after incidents and (iii) suspension of the experiment and other relevant provisions to improve the operation of the unmanned vehicle technology innovation experiment and to ensure the personal and property safety of stakeholders and those who participate in the experiment.

Reported by: Kang-Shen Liu / Aaron Lai

Income Tax Act

11. Amendment to Articles 14 and 17 of Income Tax Act

On 1 July 2019, The Legislative Yuan passed the amendment to Articles 14 and 17 of Income Tax Act to adjust upward standard and certain special deductions. In addition, the necessary expenditure of occupational clothing fee, training fee and occupational tools expenditure directly related to provision of services and paid by the income receiver can be deducted from income if the total amount of such expenditures exceeds special deduction amount of income from salaries/wages.

Reported by: Stacy Lo / Bella Chiu

Intellectual Property

12. Draft Amendment to the Enforcement Rule of Patent Act

On 28 June 2019, the MOEA announced a draft amendment to Articles 29, 89-1, and 90 of the Enforcement Rule of Patent Act.  We summarize the key points below:

(1) The original provision for the permission of filing a divisional application after the approval of parent application has been provided in paragraphs 6 and 7 of Article 34 of the Patent Act currently so that it is deleted (Article 29 deleted).

(2) The standards for determination whether a patent is worthy to be permanently preserved are stipulated, including: a patent involved in a compulsory licensing, a patent invented by a Nobel Prize winner, a patent which won a National Invention Creation Award, a patent involved in a cancellation (invalidation) case which appeals for administrative remedy, a patent involved in an opposition case which appeals for administrative remedy, and other cases, which are deemed to have historical significance of technological development, economic value, or involves an important litigation case (Article 89-1 added).

(3) The effective date of the amendment is set forth (Article 90 amended).

Reported by: Jolene Wang / Huaili Lu

13. Regulations for Patent Linkage of Drugs

On 1 July 2019, the Ministry of Health and Welfare announced the Regulations for Patent Linkage of Drugs (Regulations) for implementation of the Patent Linkage System.

The Chapter 4-1 newly added under the Pharmaceutical Affairs Act (Act), establishing the Patent Linkage System, was promulgated on 31 January 2018 while the enforcement date is to be further determined by the Executive Yuan (Please refer to Item 8 of Issue No. 288 of the Lexgroup Newsletter for details).  The Regulations were enacted in accordance with Paragraph 3, Article 48-20, and Article 48-22 of the Act.  The main points include:

(1) The method and content of submission of patent information, the change or deletion thereof, and the recordation and publication of said patent information; 

(2) The declaration made by the applicant of a generic drug permit, the written notification regarding the review procedure for the drug permit application, and the issuance of the drug permit; 

(3) The notification by the holder of a new drug permit to inform the Central Competent Health Authority of the filing of a patent infringement complaint by the patentee or the exclusive licensee and the obtaining of a final and binding judgment confirming the patent infringement; 

(4) The approval of marketing exclusivity; 

(5) The applicability to drug permit applications for new drugs not having a new ingredient and that for biosimilar drugs; and

(6) The exclusion of indications, declarations and other matters that shall be abided by.

Reported by: Jolene Wang / Linda Cheng

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