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Taiwan regulator drops ETFs from preferential plan for local managers

April 20, 2020

Taiwan’s financial regulator has excluded assets of exchange-traded funds (ETFs) from a five-year old plan that gives preferential treatment to domestic fund managers, in a move to encourage them to diversify away from passive investing.

It’s one of several new amendments to the plan, sometimes called a “concessionary scheme”, in which Taiwanese fund managers that fulfill several criteria, including asset size and research capabilities, are given concessions such as the ability to submit multiple fund products for approval at one time. The managers are chosen for one-year periods.

Others changes unveiled by the Financial Supervisory Commission (FSC) are a loosening of the asset growth benchmark from at least 20% to “positive” – without specifying a figure – and the inclusion of managers’ performance in green investing, socially responsible funds and retirement planning as a new benchmark.

“Top asset managers have been active in developing ETF business in recent years, but small managers with no ETF exposure have lagged way behind in terms of assets size,” the FSC says in a statement on April 16, adding that “the new rule is aimed at encouraging the island’s asset managers to diversify their business strategies”.

ETFs accounts for over 44% of total fund assets in Taiwan, according to figures from the Securities Investment Trust and Consulting Association.

The FSC reiterated that money market funds, which account for over 20% of total fund assets, remain excluded from the plan.

According to Patrick Liao, vice president in the equity division of Taipei’s Fuh Hwa Securities Investment Trust Co, the new rules will help provide a “level playing field” for the fund industry.

“The plan’s concessions are very important for fund managers. They will save a lot of resources and working hours in product launches if they are allowed to submit applications for multiple funds for regulatory approval at the same time,” Mr. Liao tells Asia Asset Management (AAM).

The changes mean more than ten small- and mid-sized managers can be expected to qualify whereas only a handful could fulfill the criteria in the past, says Ellen Kuo, financial service deputy leader at PricewaterhouseCoopers Taiwan.

“We believe the new rule will drive Taiwanese managers to put more focus on active funds,” Ms. Kuo tells AAM.

Previously, the overall fund assets of qualified managers had to be in the top one-third in Taiwan, or their assets under management had to be at least NT$10 billion (US$332 million) with an annual growth rate of a minimum 20% in the year prior to application.

Applications are open annually between June and August and managers are appointed in October.

In the last round, the FSC chose Yuanta Securities Investment Trust Co, Fuh Hwa Securities Investment Trust Co, Cathay Securities Investment Trust Co, and Fubon Asset Management.