Watchdogs chew the fat over possible Taiwan RQFII programme
Category: Asia, Taiwan
By Hui Ching-hoo
Uncertainties surround scheme’s introduction and who it is aimed at
Taiwan’s fund industry landscape is expected to see significant changes following a meeting of representatives of China Securities Regulatory Commission (CSRC) and the island’s Financial Supervisory Commission (FSC) in Taipei on January 29. The aim was to exchange ideas around the introduction of an Renminbi Qualified Foreign Institutional Investor (RQFII) programme to Taiwan.
Meanwhile, the FSC is stepping up efforts to further regularise the domestic fund market by encouraging offshore fund managers to improve the quality of their products. However, market practitioners expressed doubts on the effectiveness of this new policy initiative, given it contradicts the restrictions it previously imposed on offshore fund registrations.
The CSRC and FSC reached a consensus at the meeting regarding the Chinese government’s plans to set aside 100 billion RMB (US$15.8 billion) of RQFII quotas for Taiwanese institutions. The pilot scheme is aimed at channelling the overseas RMB deposits in Taiwan back to the Mainland.
Julian Tsung-sheng Liu, president and CEO of Yuanta SITC, states that the move is a complementary measure for the RMB settlement agreement inked by the Chinese and Taiwanese governments in 2012.
Mr. Liu notes that the RQFII scheme helps the firm to differentiate its product mix through which it will link its funds with wealth management and insurance products. Yuanta is also considering leveraging its Hong Kong entity to access the untapped 200 billion in RMB quotas designated for financial institutions in Hong Kong.
Taishin Securities Investment Trust President Bill Lan points out that the 100 billion RMB quota is sufficient to accommodate the island’s market demand for the next one to two years. “We are eager to access the program,” he says. “However, the regulators have yet to outline the timeline and details of the proposed measures, for example, which types of companies are eligible to apply for the quota.”
Apart from granting the RQFII quota, CSRC will also double the quota for Qualified Domestic Institutional Investor (QDII) institutions from US$500 million to US$1 billion when they come to invest in Taiwan.
However, Mr. Lan states that the increased quota remains small compared to the size of the island’s equities market.
The Chinese market watchdog will also loosen the proportion of Taiwanese company holdings in Sino-Taiwan Securities joint ventures registered in Shenzhen, Shanghai, and Fujian to 51% from the current 49%.
Separately, the FSC unveiled a scheme in January to encourage offshore asset managers to improve the quality of their products and services.
Under the scheme, the regulator will grant any one of the following concessions to managers that commit to the scheme:
1. Acceleration of their fund approval process
2. A relaxation of limits on the number of funds they can apply for
3. Permission for fund managers to introduce new fund products, and
4. A loosening of restrictions on fund distribution.
The FSC notes that the initiative is intended to reinforce offshore fund managers’ services in order to boost the scale of the Taiwan’s fund industry.
Aberdeen International Securities Investment Consulting General Manager, Martin Tan, remarks that the consultation paper was first published for discussion and further fine-tuning by the FSC for Securities Investment Trust and Consulting Association (SITCA) members in 2011.
“The essence of the initiative was to encourage foreign houses to invest more in Taiwan, and to help develop talent and skill by encouraging more local hiring and the transfer of know-how,” says Mr. Tan. “The FSC was hoping to introduce a points system whereby the more that fund managers contributed to the development of the local asset management industry, the more points they’d be awarded based on criteria set out by the regulatory body.”
However, he has reservations about the effectiveness of the system and its tracking mechanism: “The further tightening of policies by the FSC in December 2012 with regard to the registration and distribution of offshore funds from three-to-one contradicts their earlier initiative to encourage foreign houses to invest and contribute more to the development of Taiwan’s financial services industry.”
According to statistics from SITCA, the total AUM of Taiwan’s offshore funds grew to NT$2.69 trillion (US$89.6 billion) in December 2012 from $2.22 trillion in December 2011.
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