The Financial Supervisory Commission of Taiwan (FSC Taiwan) announced certain measures in context of the pandemic as well as a disclosure rule for environmental, social, and governance (ESG) funds. The regulatory authority decided to defer the implementation of Basel III reforms by one year, as part of the response to the pandemic. In addition, the 2% additional internal capital requirement that the domestic systemically important banks, or D-SIBs, must meet has also been postponed by one year, to ensure that domestic banks will be in a position to support economic activity. Furthermore, FSC Taiwan has adopted a number of measures to spur financial institutions to improve mechanisms related to digital finance amid COVID-19 pandemic. Banks are encouraged to handle COVID relief loans digitally whenever possible and are allowed to handle identity confirmation online for relief loans.
FSC Taiwan has approved a security mechanism (filed by the ROC Bankers Association) that allows existing corporate customers of banks to take loans online and allows for corporate COVID relief loans to be handled digitally. FSC Taiwan also asked the ROC Bankers Association to further study security mechanisms that would allow new corporate customers to take loans and handle identity confirmation online. This new approach will be implemented after the Bankers Association has completed the necessary model contracts and self-regulatory rules. FSC Taiwan also published an administrative rule on the screening criteria of systemically important banks. A bank designated by the FSC Taiwan as a systematically important bank shall meet the enhanced supervision requirements, as listed in the rule, from the year following the designated date. The administrative rule came into effect on July 30, 2021.
Additionally, FSC Taiwan is encouraging "bill finance companies" to introduce ESG concepts into business operations; a bill finance company is a financial market participant and has the function of allocating credit resources. In July 2021, FSC Taiwan also announced a disclosure rule for ESG funds issued by Securities Investment Trust Enterprises (SITEs) to strengthen the integrity of the prospectus on ESG investment funds. FSC Taiwan has set out the following key supervisory principles for review of ESG fund disclosures:
- When a SITE offers an ESG fund, the issuance plan, prospectus, and other such documentation must disclose ESG investment objectives and measurement standards, investment strategies and methods, investment ratios and allocations, performance indicators, exclusion criteria, risk warnings, participation in stewardship, and regular disclosures.
- An existing ESG fund whose prospectus does not make all of the aforementioned disclosures must correct the deficiency within six months of the date of issuance of the review principles.
- For an existing non-ESG fund whose prospectus has an "Investment Strategy and Features" section that already includes references to "sustainability" and "corporate social responsibility," or whose investment strategies or asset allocations take ESG concepts into consideration, if a proposal is made to rename the fund as an ESG fund, the SITE may do so without convening a beneficiaries meeting as long as the name change would not change the product positioning or basic investment strategy of the fund. However, the SITE must file an attorney's opinion affirming that the proposed name change would not have any material impact on the interests of the beneficiaries and apply with FSC Taiwan for approval to amend the trust agreement. The SITE must also publicly announce and inform beneficiaries of the change 30 days before the amended trust agreement enters into force.
- Press Release on Deferred Basel Reforms
- Press Release on Financial Digitalization
- Rule on Screening Criteria of Systemic Important Banks (in Chinese)
- Press Release on ESG Concepts by Bill Finance Companies (in Chinese)
- Press Release on ESG Fund Disclosures
Keywords: Asia Pacific, Taiwan, Banking, Securities, Basel, COVID-19, Regulatory Capital, ESG, Climate Change Risk, Disclosures, Credit Risk, Sustainable Finance, D-SIB, FSC Taiwan
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