In order to strengthen corporate governance and the board of director’s supervisory function, the Financial Supervisory Commission (hereinafter "FSC") issued two rule-interpretation letters (Jin-Guan-Zheng-Fa-Zi No. 1070345233 & Jin-Guan-Zheng-Fa-Zi No. 10703452331).  These letters expanded the applicable scope of the requirement for mandatory establishment of independent directors and audit committees. The details are as follows:

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1. Expand the applicable scope of mandatory establishment of independent directors

FSC's interpretation letter Jin-Guan-Zheng-Fa-Zi No. 1070345233 states: "Financial holding companies, banks, bills finance companies, insurance companies, securities investment trust enterprises, integrated securities firms, exchange-listed (and OTC-listed) futures commission merchants and non-banking exchange-listed (and OTC-listed) companies which have issued shares under the Act, shall provide to establish positions for independent directors in their articles of incorporation. Non-banking OTC-listed companies shall provide to establish positions for independent directors starting January 1, 2020. The aforesaid companies required to establish positions for independent directors shall have no less than two independent directors, and the total number of independent directors shall be no less than one-fifth of the total number of directors...."

In comparison to previously-issued interpretation letter Jin-Guan-Zheng-Fa-Zi No. 1020053112, this new interpretation letter encompassed all "non-banking OTC-listed companies" within the scope of mandatory establishment.  Further, such companies shall provide in their articles of incorporation the establishment of independent directors starting January 1, 2020. An exception exists for directors and supervisors whose terms do not expire by 2020; in those situations, the aforesaid requirement will take effect upon expiration of the current term.

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2. Expand the applicable scope of mandatory establishment of audit committees

FSC's interpretation letter Jin-Guan-Zheng-Fa-Zi No. 10703452331 states: "Financial holding companies, banks, bills finance companies, insurance companies, securities investment trust enterprises, integrated securities firms, exchange-listed (and OTC-listed) futures commission merchants and non-banking exchange-listed (and OTC-listed) companies with paid-in capital over NTD two billion which have issued shares under the Act, shall establish audit committees in place of supervisors; non-banking OTC-listed companies with paid-in capital under NTD two billion shall establish audit committees in place of supervisors starting January 1, 2020...."

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In the old FSC interpretation letter (Jin-Guan-Zheng-Fa-Zi No. 10200531121), for non-banking exchange-listed (and OTC-listed) companies, only those with "paid-in capital over NTD two billion" are required to establish audit committees in place of supervisors. Under this new interpretation letter, non-banking exchange-listed (and OTC-listed) companies with paid-in capital under NTD two billion are also required to establish audit committees starting January 1, 2020 (if the current terms of their directors and supervisors do not expire by 2020, they are not required to establish audit committees until expiration of the current terms).  Effectively, in the future, audit committees will replace supervisors for all exchange-listed and OTC-listed companies.  This change is intended to allow independent directors and audit committees to effectuate their supervisory functions, thereby improving corporate governance.

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