The Financial Supervisory Commission (FSC) last week announced that it would finalize regulations on the listing of active exchange-traded funds (ETFs) in Taiwan by the end of this year, with the nation’s first active ETF expected to debut next year and the market estimated to reach NT$200 billion (US$6.1 billion) by 2026.
Active ETFs invest in a portfolio of securities selected by fund managers for specific purposes, unlike traditional or passive ETFs, which track particular indices or sectors. Fund managers can adjust the constituent securities based on their view of market trends. Similar to mutual funds, ETFs are designed to help investors with limited capital to allocate assets and diversify risks.
The regulator’s plans for active ETFs, along with passive multi-asset ETFs, would make the local market’s ETF offerings more complete and give investors more options. It also represents a new opportunity for global asset managers to enter the market, which has been running red-hot lately. As of the end of last month, Taiwan’s ETFs had total assets of NT$5.29 trillion, the third-largest in Asia, and accounted for 62.95 percent of the nation’s overall onshore funds, FSC data showed.
The easing of regulations is part of the commission’s efforts to develop Taiwan into an asset management center in Asia. Since taking office in late May, FSC Chairman Peng Jin-lung (彭金隆) has shown ambitions of expanding Taiwan’s financial industry and enhancing the industry’s global competitiveness. He is keen on collecting industry players’ views, and is willing to promote new policies and relax regulations. Consequently, the financial industry has shown optimism and momentum rarely seen in many years.
The commission — which is celebrating its 20th anniversary this year — has faced seemingly ceaseless complaints from the industry over the years about its policy focus, which is more on supervision and risk control, and less on industrial development and investment return. As a result, the financial industry’s ability to innovate has been restrained by strict regulations, while the gap with foreign peers continued to widen. The FSC has just a 1.5-star rating from reviews on Google Maps, placing it at the bottom among government agencies.
In the past few weeks, Peng said the commission intended to work with the industry to expand its output value, which accounted for nearly 10 percent of Taiwan’s GDP before 2000, but fell in the years that followed due to the rapid growth of the technology industry. The ratio plummeted to 4.15 percent after the global financial crisis in 2008-2009, before rebounding to about 6.5 percent on average in the past 10 years.
The FSC chairman has also discussed his strategies for developing financial technology and promoting virtual asset management. He said the regulator would announce plans later this month about promoting Taiwan as one of the asset management centers in Asia with its unique characteristics. Developing an asset management center was one of President William Lai’s (賴清德) major policy proposals during his election campaign last year. It aims to keep the wealth of local people onshore, while attracting more foreign funds to invest in industries in Taiwan.
Clearly, Peng is gearing up for a new page in the local financial industry. However, challenges remain, as the commission is tasked with safeguarding the nation’s financial stability while the industry wants to introduce more products with fewer restrictions. Finding a sweet spot in managing financial risks and rewards is still the same problem facing the commission. If it aims to bring new momentum to the financial industry, it should not solely focus on supervision, but also seek to facilitate innovation and development.
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