“High Dividend ETF Craze” – FSC Strengthens Regulation with Three Approaches, Targeting Sponsored Content Issues in Trust Fund Platforms

By admin Mar 17, 2024
Abbreviation ETF on the background of one hundred dollar bills

A craze has swept Taiwan, with people rushing to buy ETFs, even resorting to canceling time deposits and mortgaging houses to make purchases. This has caught the attention of regulatory authorities. FSC Chairman Huang Tien-mu will appear before the Legislative Yuan on the 18th to discuss plans for strengthening regulations with three approaches. Firstly, collaboration between trust funds and influencers will face stricter scrutiny, with self-regulatory guidelines expected to be completed by the end of June. Secondly, oversight of peripheral units to ensure proper risk assessment and management of ETF trading will be enhanced. Thirdly, there will be a focus on strengthening ETF-related inspections.

The recent surge in buying of the Yuanta Taiwan Value High Dividend ETF (00940-TW) has raised concerns in the capital market. The Legislative Yuan’s Finance Committee has invited Huang Tien-mu, Chairman of the Taiwan Stock Exchange Lin Hsiu-ming, Chairman of the Gretai Securities Market Chen Yung-cheng, and representatives from the Central Bank to present special reports on “How the government guides private capital through investment channels to prevent excessive hot money inflows into the housing market from the ETF buying frenzy.” They will also be questioned.

As of the end of February this year, there were a total of 241 listed ETFs in Taiwan, with 227 being securities trust ETFs and 14 futures trust ETFs, totaling NT$4.199 trillion in ETF fund size. There are 48 Taiwan stock ETFs with a total size of NT$1.5278 trillion.

By the end of January, the 48 listed Taiwan stock ETFs held stocks valued at 2.38% of the total market capitalization. Over the past two years, the trading value and volume of constituent stocks in Taiwan stock ETFs accounted for less than 1% of the overall stock market trading value and volume.

The FSC has submitted a written report to the Finance Committee in advance, outlining three planned measures to strengthen management. Firstly, there will be a focus on “enhancing the management of collaboration between trust fund businesses and influencers.” If trust fund businesses engage in paid influencer marketing through social media, they must disclose clearly in advertisements that it is sponsored content. The self-regulatory guidelines are expected to be revised to strengthen the management of influencer advertising behavior by fund businesses and sales agencies by the end of June this year.

Furthermore, IOSCO has recently set up a working group to address investor protection issues related to financial influencers (Finfluencers) and their impact on investment decisions among young investors influenced by social media, social circles, and celebrities, rather than professional investment advice. The working group has sought consultations from member countries on this issue, and the FSC will continue to monitor IOSCO’s subsequent reports and enhance supervision as needed.

Secondly, there will be a focus on “supervising peripheral units to ensure proper risk assessment and risk management in ETF trading.” The FSC has instructed the Taiwan Stock Exchange and Gretai Securities Market to supervise trust fund businesses in controlling investment risks for larger ETFs and enhancing risk resilience mechanisms. They have also been asked to assess overall market trading risk and consider implementing relevant control measures.

Lastly, there will be a focus on strengthening ETF-related inspections. The FSC will prioritize inspections on trust companies regarding recent issues of using stabilization funds and the implementation of enhanced ETF supervision measures. They will intensify their understanding of trust company operations and conduct special inspections as needed.Jump to latest

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