Financial Supervisory Commission of the Republic o : Expansion of the applicable scope of manderatory establishment of independent directors and audit committees

Expansion of the applicable scope of manderatory establishment of independent directors and audit committees

The Financial Supervisory Commission requires all listed companies to appoint independent directors on their boards and requires these companies to establish audit committees in stages in the near future. It is expected that, beginning from 2015, all listed companies should appoint independent directors. Beginning from 2015, listed companies with paid-in capital of NT$ 10 billion or more should establish audit committees, and listed companies with paid-in capital of NT$ 2 billion or more should establish audit committees beginning from 2017.
According to the Financial Supervisory Commission, relevant information from international research shows that, the higher the percentage of independent directors on the boards, the more significant the positive correlation between the "having independent directors on the board" and "operating results." This measure helps reduce the likelihood of abnormal or unlawful acts in the company. It is believed that having independent directors and audit committees protects the rights of shareholders, improves the operation of the company, and strengthens corporate governance. These requirements are implemented in stages. In 2006, the FSC mandated that companies in the financial industry that are performing initial public offerings and listed non-financial companies with paid-in capital of NT$50 billion or more had to appoint independent directors. In 2011, the requirement was further extended to listed non-financial companies with paid-in capital of NT$ 10 billion or more. The FSC further decided at the end of February 2013 that companies required to appoint independent directors on their boards based on the 2006 requirements would be the first batch of companies required to have audit committees.
The FSC already circulated the draft regulation on December 4 of this year regarding the expansion of the applicable scope of mandatory establishment independent directors and audit committees. On December 10, the circulation notice period expired. During the circulation notice period, suggestions received by the FSC did not involve the expansion itself. The FSC therefore, issues a formal order . Relevant key issues of the new order are as follows:
I.    The blanket mandatory establishment of independent directors: all listed companies are required to appoint independent directors between 2015 and 2018.
II.    The expansion of mandatory establishment of audit committees:
(I)    Public companies that are in the securities investment trust industry, integrated securities firms, listed futures firms, and listed non-financial companies with paid-in capital over NT$ 10 billion but under NT$ 50 billion are required to establish audit committees between 2015 and 2017.
(II)    Listed non-financial companies with paid-in capital over NT$ 2 billion but under NT$ 10 billion are required to establish audit committees between 2017 and 2019.

Attachments:
1     Order for blanket mandatory establishment of independent directors
2    Order for expansion the scope on mandatory establishment of audit committees
3    Timeline for listed non-financial companies to establish and appoint independent directors and audit committees
Government unit in-charge: Ms.Brenda Hu,Section chief, Corporate Finance Division, Securities and Futures Bureau
Contact phone number: [phone]
Please direct your inquiries to:
http://fscmail.fsc.gov.tw/FSC-SPS/SPSB/SPSB01002.aspx