Taiwan Plans New Board Oversight for Seven Fund Managers After Cathay Investment Violations

NT$1 Trillion Managers Face New Governance Requirements

Taiwan's Financial Supervisory Commission (FSC) announced 10 measures on October 13, 2026, to strengthen investment trust governance after a Cathay Securities Investment Trust case exposed failures in conflict checks, investment controls and public disclosure. Seven large managers are expected to be required to appoint directors without relevant conflicts of interest and establish corporate governance committees by the end of June 2027.

The proposed threshold is NT$1 trillion in domestic assets under management, calculated using the previous calendar year's monthly average. Based on preliminary figures for January through August 2026, the seven firms are Cathay, Yuanta, Capital, Fubon, Fuh Hwa, Allianz and Uni President. Their inclusion is an estimate rather than a final determination under the full annual calculation.

The package follows a NT$6 million penalty announced against Cathay on September 1. Eight funds and 22 discretionary investment accounts bought shares in Alchip Technologies after a director failed to disclose his outside board position at that company. The investments breached restrictions on dealings involving related parties and resulted in losses.

Only the new board and committee requirement is limited to managers meeting the asset threshold. The other nine measures apply across the investment trust industry. They cover management accountability, internal and external checks, outside appointments, director training and disclosure of serious incidents.

Five measures are targeted for completion by the end of 2026, with five more planned by the end of June 2027. Detailed rules still require regulatory notice procedures, making these the regulator's planned implementation dates rather than proof that every requirement is already in force.

How an Undisclosed Board Position Became an Investment Breach

The Cathay case began with former director Guo Mingjian's simultaneous appointment as an independent director of Alchip Technologies, whose Taiwan stock code is 3661. He did not report that position to Cathay, leaving the manager's records of relevant relationships incomplete.

Those records matter because a director's connection to another company can bring that company's shares within restrictions governing investments involving related parties. A relationship that is missing from the records can also be missing from the checks used to screen proposed transactions.

The violations ran from late May 2025 through January 2026. They affected both funds and discretionary accounts, in which a client authorizes the manager to make investment decisions. Together, the eight funds and 22 accounts represented 30 affected investment vehicles or mandates. That figure is not a count of individual investors.

Periodic checks by the responsible departments also failed to identify the unreported appointment. The case therefore involved more than one person's missing declaration: the controls intended to verify that declaration did not catch the omission. Although losses were reported, no total loss amount is specified, so the NT$6 million fine should not be treated as a measure of investor losses.

Why the New Directors Have a Different Legal Name

The FSC plans to introduce directors without relevant conflicts of interest, a role intended to resemble that of an independent director. These directors would form a corporate governance committee responsible for identifying conflicts, planning preventive measures and developing internal rules and operating procedures.

Huang Houming, deputy director general of the FSC's Securities and Futures Bureau, explained that investment trust firms manage large sums for many beneficiaries even though they are not publicly issuing companies. Their influence, he said, can be comparable to that of publicly issuing companies, supporting stronger governance requirements.

The distinction in terminology has a legal purpose. The Securities Investment Trust and Consulting Act does not yet provide for the independent director and audit committee system envisaged for these firms. The FSC will initially work through subordinate regulations, administrative orders and directives rather than use statutory titles that the governing law has not established.

The new committee would perform a supervisory role comparable to an audit committee, but its announced remit focuses on conflicts and related internal rules. The number of directors, their qualifications, responsibilities and accountability arrangements remain to be specified, with the existing independent director framework serving as a reference.

Which Assets Count Toward the Threshold?

The proposed calculation reaches beyond publicly offered funds. It includes private funds, discretionary investment mandates and advisory business where the firm has authority to decide how client assets are invested. The determining figure is the previous year's monthly average of domestic assets under management, not simply assets recorded on one reporting date.

That distinction matters for the preliminary list of seven firms. The January through August 2026 estimate identifies likely candidates, while the proposed annual calculation requires a longer measurement period. A firm's final status must be assessed against that calculation and the completed rules.

Reports differ slightly on the boundary: several describe the threshold as NT$1 trillion or more, while another describes assets exceeding NT$1 trillion. The difference would matter for a firm exactly at the boundary. The final regulatory wording must establish which test applies.

The narrower scope of the board requirement should not obscure the reach of the package. Smaller investment trust firms would still need to address the other nine measures, including conflict declarations, trading controls, audits, outside appointments and disclosure.

Five Measures Planned Before the End of 2026

The first phase concentrates on responsibilities and controls within the existing management structure. The FSC wants firms to put board and general manager duties into practice, establish effective accountability and strengthen compliance, internal audit and risk management functions.

The five first phase measures are:

• Strengthen governance and integrity in business operations, with clearer responsibility for senior management.
• Require firms to improve their own checks of internal controls and risk management.
• Use external checks to examine how internal control systems operate.
• Establish declarations of relevant relationships and controls over associated transactions.
• Require continuing director education on conflicts of interest and related issues.

The combination addresses separate weaknesses exposed by Cathay. Declarations help establish which relationships exist; trading controls use that information to prevent prohibited investments; internal and external checks examine whether the process actually works. Director training is intended to improve recognition and handling of conflicts before an omitted declaration becomes a wider failure.

The package also places responsibility above the employees processing individual trades. Boards and general managers are expected to ensure that compliance, audit and risk functions operate effectively, rather than treating a declaration form as a complete safeguard.

Outside Appointments and Verification Will Face New Rules

The second phase includes a directive governing outside appointments held by people responsible for investment trust firms. Managers will be required to build the relevant management arrangements into their internal control systems and implement them.

The precise restrictions remain under discussion. The FSC has not settled limits on the number of outside appointments or the types of positions covered. The announced plan should therefore not be described as a blanket prohibition on serving elsewhere.

Revised internal control and audit standards will also incorporate verification of insider information and checks on changes to relevant relationships. This responds directly to the risk that records become outdated when a director accepts another role but fails to notify the investment manager.

The distinction is between collecting information and verifying it. Cathay's experience showed that relying on a person's declaration, without an effective process to detect omissions or changes, can leave transaction controls operating with incomplete data. The planned combination of declarations, verification, audits and trading restrictions is intended to close that gap.

Disclosure Rules Address a Delay of Several Months

Cathay discovered the violations in January 2026, completed its report to the FSC in March and disclosed the matter publicly only at the end of June. The sequence exposed a separate problem: detecting an incident did not ensure that investors received timely information about it.

Huang said investment trust and consulting businesses lack a dedicated framework for reporting major unexpected incidents. Securities and futures firms already have incident reporting rules, while the investment trust industry's existing major matter announcements focus more heavily on fund business.

The FSC plans to establish requirements for investment trust and consulting businesses to identify, report and handle major unexpected incidents. Within that process, it intends to add an enforceable mechanism requiring public explanations and disclosure for specified events, alongside reports to the regulator.

A director's outside appointment leading to prohibited investments involving related parties is an example of an incident that could fall within the new framework. The final rules will distinguish which events must be reported to the authority and which must also be disclosed publicly.

A separate measure will broaden the scope of major matters requiring announcement and filing when beneficiary rights are materially affected. Announcement channels, disclosure content and information about the effect on beneficiaries are also under review. No precise reporting deadline or final disclosure format has yet been specified.

The Sequence From Violations to Reform

The events span both the underlying investments and the later response. The chronology shows why the FSC is tackling prevention, detection and disclosure as separate tasks.

• Late May 2025 to January 2026: Cathay funds and discretionary accounts made investments that breached restrictions involving related parties.
• January 2026: Cathay discovered the violations.
• March 2026: Cathay completed its report to the FSC.
• End of June 2026: Cathay publicly disclosed the matter.
• September 1, 2026: The FSC announced a NT$6 million penalty.
• October 13, 2026: The FSC announced the 10 governance measures.
• End of 2026: Target for the first five measures.
• End of June 2027: Target for the remaining five measures.

The second phase combines the new directors and governance committees, revised internal control and audit standards, outside appointment rules, incident reporting and public disclosure requirements, and broader major matter announcements. Huang cautioned that the detailed regulations still need to pass through regulatory notice procedures.

Separate Legislation Would Expand the Legal Framework

The administrative package is distinct from proposed amendments to the Securities Investment Trust and Consulting Act that remain before Taiwan's legislature. The draft would place independent directors and audit committees within the governing law and increase the maximum fine for each violation from NT$3 million to NT$15 million.

That proposed ceiling is five times the current amount, calculated from NT$15 million divided by NT$3 million. It is a legislative proposal, not an enacted penalty level. The reported NT$6 million total in Cathay's case should not be confused with the current ceiling for an individual violation.

The immediate timetable concerns measures the FSC plans to pursue within the existing legal framework. The separate bill would change that framework. No legislative vote date is specified, and the final qualifications and accountability rules for the new directors are still being developed.

For managers and investors, the central test will be whether the completed rules connect accurate relationship records with effective trading checks and timely public disclosure. The announced package addresses each of those stages, but its detailed obligations will determine how firms must carry them out.

Key Points

• Seven large investment trust firms are provisionally expected to face new director and governance committee requirements by June 2027.
• The proposed NT$1 trillion threshold uses the previous year's monthly average of domestic assets under management.
• The other nine measures apply across the investment trust industry.
• Cathay's violations affected eight funds and 22 discretionary accounts and led to a NT$6 million fine.
• Five measures are planned by the end of 2026 and five by the end of June 2027, subject to detailed rulemaking.
• New disclosure rules will specify which serious incidents require public explanation as well as regulatory reporting.
• Separate legislation on independent directors, audit committees and higher fines remains pending.