The easing of dozens of regulations by the Financial Supervisory Commission could boost Taiwan’s attractiveness for asset management.
With its tightly regulated banking sector focused on domestic industry and retail clients, Taiwan has not historically been a regional center for asset management like neighboring Hong Kong and Singapore. Still, the government launched an ambitious initiative at the beginning of former President Tsai Ing-wen’s second term in 2020 that sought to persuade both institutional investors and households to repatriate some of their vast overseas assets.
Taiwanese investors hold about NT$20 trillion (US$609.2 billion) in assets. Most of it is allocated to overseas bonds, foreign equities, or other types of international investment instruments, according to the Financial Supervisory Commission (FSC).
The plan Tsai outlined in August 2020 aimed to position Taiwan as a regional financial hub, emphasizing wealth management and what she described as “capital movement.” She proposed easing regulations to encourage international financial firms to establish offshore banking units (OBUs) in Taiwan and called for expanding the wealth management sector to attract more global institutions and capital to the island.
Over four years later, results from the initiative have been modest. To be sure, the wealth management sector is growing. The FSC points to brisk growth of assets under management (AUM) at the 12 banks approved for the “New Wealth Management Plan.” As of May 2024, their AUM had swelled to NT$1.04 trillion, compared to NT$208 billion at the end of 2021.
However, all the approved banks, except for HSBC, are domestic. The London-based lender, which has operated in Taiwan since 2010, remains the only foreign institution among them. No foreign private banks have expanded to Taiwan since the initiative’s launch, and the asset management market remains dominated by domestic investors.
Describing the policy as an effort to build a financial “hub” is a stretch, as the term implies a central role in a broader regional or global network. While Hong Kong and Singapore serve investors from across Asia, Taiwan’s approach – at least so far – has primarily focused on repatriating Taiwanese assets rather than attracting foreign capital.
“Hong Kong and Singapore have mature asset management sectors that have been developed over many years, with regulations that are designed with an international clientele in mind,” says Joe Jelinek, research director for Singapore-based financial services consultancy Kapronasia. “Taiwan’s situation is very different. The financial sector is domestically oriented, and there is a greater emphasis on minimizing perceived risk, even if that may entail fewer market opportunities.”
Taiwan’s asset management industry also lags significantly behind Hong Kong and Singapore in terms of scale, says William Lai, a researcher at the Financial Institute of the Taiwan Academy of Banking and Finance (TABF), a think tank and training center overseen by the FSC. Hong Kong’s AUM totaled about US$4 trillion at the end of 2023, according to the city’s Securities and Futures Commission. Meanwhile, Singapore’s AUM increased 10% annually to reach US$4 trillion in 2023, according to the city-state’s central bank.
Lai describes a two-track approach by the Taiwan government, which aims to bring back asset trading and management services that Taiwanese financial professionals conduct overseas while attracting foreign investors to Taiwan.
“At the initial stage, it takes time for the first wave of industry players and clients to test the new environment,” he says. “Once the system matures, rapid growth is expected – similar to how Taiwan’s ETF (exchange-traded fund) market only gained significant traction after an initial period of gradual adoption.”
Headed south
In recent months, the Lai Ching-te administration has focused on promoting Kaohsiung as an asset management hub within Taiwan. In December, the Kaohsiung City Government hosted a launch ceremony for the initiative, which was attended by FSC Chairperson Peng Jin-lung and 40 representatives from the financial services sector, according to a news release published by the regulator.
The Kaohsiung asset management hub is part of the FSC’s Asia Asset Management Center initiative. Leveraging Taiwan’s strong industrial base and substantial private wealth, the FSC aims to attract and retain capital by relaxing over 30 regulations related to wealth and asset management operations by the end of 2024. The hub will offer one-stop financial services, flexible fund utilization, cross-border financial services, and diversified service offerings.
Regulations for the establishment of the Kaohsiung hub are slated for a March 2025 release. Financial institutions will be able to submit applications in April, with operations expected to begin as early as July. “The FSC hopes that this successful model will be replicated by other local governments in the future,” the commission said in its news release.
“Selecting Kaohsiung as a pilot zone for the asset management hub is an innovative and bold move,” says TABF’s Lai. He notes that that Kaohsiung’s status as a port city provides a logistical advantage, facilitating transportation to Hong Kong and Southeast Asia. Additionally, the city offers ample commercial and residential space at relatively affordable prices, making it an attractive option for development.
However, he points out that the development of an asset management hub requires some regulatory relaxation and the creation of a clustering effect. Currently, more than 10 major banks have “expressed willingness to align with government policies and establish asset management business locations in Kaohsiung,” he says. “If any regulatory issues arise in the operation of the asset management hub, experimental regulatory relaxations can be applied first to these business locations within the ‘Kaohsiung financial zone.’”
There is likely another reason for the selection of Kaohsiung as a hub. Compared to Taiwan’s other major cities, Kaohsiung has been slower in transitioning away from traditional industries. Although the semiconductor industry is increasingly investing in the southern port city, Kaohsiung is still best known for traditional manufacturing, such as steel, petrochemicals, and shipbuilding.
If realized, the initiative could support broader efforts to diversify and modernize Kaohsiung’s economy, aligning with the central government’s long-term strategy to promote more balanced economic development across Taiwan.
Next steps
With four and a half years having passed since former President Tsai first announced the asset management hub initiative, it appears that the Lai administration will speed up the project’s pace, emphasizing targeted deregulation. The administration aims to complete the initiative in three stages over six years, starting September 2024.
Some of the guidelines are broad. For instance, the FSC says that it will promote the development of family offices for wealth management and consider “capital investment in public construction to guide private capital investment.” Additionally, it plans to encourage investment into national strategic industries.
“If Taiwan can attract foreign institutional investors and high-net-worth individuals, the overall asset management scale will grow substantially, elevating Taiwan’s financial industry’s global significance,” says TABF’s Lai. “This would also lead to higher salaries for financial professionals, enabling the financial sector to contribute to Taiwan’s economic growth alongside other industries, such as the semiconductor sector. Ultimately, this could significantly boost Taiwan’s per capita GDP,” he says.
Kapronasia’s Jelinek sees space for Taiwan to carve out a niche for itself in asset management. Growth is expected to accelerate initially in the wealth management sector, which has gained momentum following recent regulatory easing. Jelinek says that the FSC has gradually been allowing more banks to provide wealth management services. In some cases, banks have been permitted to offer high-net-worth clients products that are more complex or have higher risk profiles. These products include structured notes denominated in foreign currencies or derivatives linked with local shares.
One factor that may boost institutional investor interest in Taiwan’s asset management sector is the highly anticipated introduction of active exchange-traded funds (ETFs), which are managed by an investment manager or team that decides about portfolio allocation. The term “active” refers to specific investment decisions designed to achieve specific outcomes, such as outperforming an index, according to J.P. Morgan Asset Management.
In early January, the FSC formally opened the market to active ETFs. The regulator reported that 15 companies expressed interest, with Japan’s Nomura Asset Management becoming the first to apply for an active ETF a month later.
As of late 2024, Taiwan’s ETF market was the third largest in Asia, with a total AUM of about US$195 billion, according to the Taiwan Stock Exchange (TWSE). The “explosive growth” of the ETF market in recent years can be mainly attributed to rising investor interest in equities as well as low-cost, high-liquidity investment instruments, the TWSE said in a January research note.
The TWSE will support “the growth and internationalization of Taiwan’s capital market” in line with the government’s plan to build “an Asian asset management center with local characteristics,” the research note added.
