Legal developments in banking & finance

INDIA

MALAYSIA

TAIWAN

Key developments in India’s evolving financial framework

In recent years, India has been steadily reshaping its financial regulatory landscape in banking, debt markets, overseas investment, digital finance and asset recovery. This shift is driven by policy reforms, enhanced supervisory oversight and judicial interpretation. Many of these changes are structural and ongoing, indicating a steady shift towards a more sophisticated and more disclosure-driven financial system. This article examines the most significant legal and regulatory developments in recent years across key segments of India’s financial ecosystem.

FPI in debt

Foreign portfolio investment (FPI) allows registered non-resident entities to invest in Indian capital market instruments, including government securities and corporate debt (both listed and unlisted). Investment in debt by FPIs typically occurs via two primary routes regulated by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

1. 1. General route. Under this route, FPI investments are subject to specific regulatory conditions and oversight. Key conditions include minimum residual maturity requirements (generally more than one year for unlisted corporate debt), issue-wise limits (typically capping investment at 50% of any single corporate debt issue) and concentration limits based on the FPI’s category. It is pertinent to note that the overall investment limits applicable to various debt categories under this route are periodically reviewed and enhanced by the regulators; and
   2. Voluntary retention route (VRR). The VRR serves as an alternative channel, offering exemptions to FPIs from certain general route conditions, notably the minimum residual maturity requirement for unlisted debt and the issue-wise and concentration limits. This flexibility allows FPIs to potentially hold larger stakes or participate in instruments with shorter residual tenors. In exchange, FPIs using the VRR commit to retaining a minimum percentage (currently 75%) of their allocated investment in India for a specified minimum period, typically three years. It is important to note that allocation under the VRR occurs through auctions or on an on-tap basis, as decided by the RBI.

Separately, the SEBI continues to refine FPI oversight and has recently notified enhanced beneficial ownership disclosure requirements to FPIs that meet specific high-value thresholds (equity assets under management (AUM) of more than INR500 billion (USD5.9 billion) or more than 50% equity AUM concentration in a single corporate group.

ECBs

External commercial borrowings (ECBs) are loans raised by eligible resident entities from recognised non-resident lenders. To consolidate and simplify the regime, the RBI issued a comprehensive master direction in December 2023. Key features include:

1. 1. Rationalised framework. Borrowing categories and procedural tracks (automatic versus approval route) have been streamlined with clearer definitions and guidelines;
   2. End-use and cost ceilings. Continued emphasis on monitoring end-use (with a defined negative list) of the ECBs and market-linked all-in-cost ceilings to ensure capital controls;
   3. Revised limits. The automatic route limit is standardised at USD750 million per financial year for all eligible borrowers by replacing sector-specific caps and earlier fragmented limits, offering greater clarity to borrowers and lenders; and
   4. Structured obligations compliance. Streamlined compliance for structured obligations, particularly where foreign companies and entities issue guarantees or securities for rupee borrowings of their subsidiaries or group companies in India.

Debt instruments

India’s corporate debt market, particularly for non-convertible debentures (NCDs), has seen reforms aimed at improving transparency, standardising disclosures and strengthening the role of intermediaries. Both the SEBI and the Ministry of Corporate Affairs have driven these changes.

1. 1. Mandatory dematerialisation. A significant push towards digitisation mandates that securities, including NCDs, issued by Indian companies must be in dematerialised form;
   2. Standardised issue documents. The SEBI introduced mandatory general information documents and key information document formats for listed debt issuances, replacing varied disclosure practices and ensuring
      that investors receive consistent essential information;
   3. Enhanced debenture trustee (DT) role. The obligations of DTs have been significantly enhanced. They now have clearer responsibilities for pre-issuance due diligence, periodic monitoring of asset cover and issuer covenants, and timely reporting of defaults or breaches, shifting their role towards active investor protection; and
   4. Market stability mechanism. The Corporate Debt Market Development Fund, operational since 2023, acts as a backstop liquidity facility for specified mutual funds facing redemption pressures during market stress, aiming to prevent contagion in the secondary debt market.

Asset reconstruction companies

Asset reconstruction companies (ARCs) play a role in resolving stressed assets by acquiring non-performing assets from banks and financial institutions. Traditionally governed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, their scope and oversight were revisited by the RBI and revised guidelines were issued in late 2022 to enhance their efficacy and governance. Key updates include:

1. ARCs with a minimum net owned fund (NOF) of INR10 billion are now permitted to act as resolution applicants under the Insolvency and Bankruptcy Code, 2016, enabling more direct participation in the corporate insolvency process;
2. A comprehensive corporate governance framework (covering board composition, committees and key managerial personnel) was introduced. The minimum NOF requirement is being increased in phases to INR3 billion by 31 March 2026, aligning larger ARCs with the scale-based regulations applicable to non-banking financial companies (NBFCs); and
3. New disclosure norms mandate detailed reporting on recovery track records, valuation methodologies for security receipts (SRs), recovery ratings and management fee structures, improving transparency for SR investors.

NBFCs

Non-banking financial companies form a vital part of India’s financial landscape. Recognising their growing systemic importance, the RBI introduced the scale-based regulation framework in October 2022, moving away from a uniform approach towards layered supervision based on size, activity and risk. Under this revised regime:

1. NBFCs are classified in four layers:
   (a) base layer;
   (b) middle layer;
   (c) upper layer; and
   (d) top layer. The top layer is currently empty and will be populated if the RBI believes there is a substantial increase in the potential systemic risk from specific NBFCs in the upper layer;
2. NBFCs in the middle layer and upper layer are now subject to stricter prudential norms, governance requirements and exposure limits, aligning more closely with banks; and
3. Disclosure and capital adequacy obligations have increased for housing finance companies, infrastructure NBFCs and core investment companies.

Digital lending

The rapid rise of digital lending apps and platforms necessitated regulatory intervention to curb unfair practices and protect consumers. Accordingly, the RBI issued its guidelines on digital lending in 2022 and further clarified the status of first loss default guarantee (FLDG) structures in June 2023. This has enabled a revival of regulated co-lending and credit-enhancement models in retail and SME lending. Under the current operational framework:

1. 1. All loan disbursements and repayments must be routed directly between borrowers and regulated entities; lending service providers are no longer permitted to operate pool accounts;
   2. A key fact statement is mandatory, disclosing annualised percentage rates, charges and recovery policies; and
   3. The FLDG arrangements are now permitted, subject to a 5% cap on portfolio coverage, formal documentation and due diligence of the FLDG providing entities.

Other key developments

1. 1. Overseas direct investment (ODI). The 2022 overseas investment framework permits Indian entities to provide guarantees and create security for their overseas joint ventures or wholly owned subsidiaries under the automatic route, subject to financial commitment limits. Guarantees for second and subsequent level step-down subsidiaries are now allowed under the automatic route. Reporting via authorised dealer category I banks is mandatory;
   2. KYC (know your customer) and beneficial ownership. The recent amendments to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, have lowered the beneficial ownership identification thresholds to 10% for companies and 15% for partnerships. Reporting entities such as banks and NBFCs are now required to conduct independent verification and enhanced due diligence for high-risk clients;
   3. Banking law amendments. The Banking Laws (Amendment) Act, 2024, introduced operational changes such as revising the “substantial interest” monetary threshold (to INR2 million), adjusting director tenure norms for co-operative banks and standardising reporting timelines and auditor fee processes; and
   4. Legal entity identifiers (LEIs). The RBI has mandated LEIs for non-individuals in single payment transactions of INR500 million and above.

India is now building a clearer, more transparent financial system with stronger rules for borrowing, investing and digital finance.

AZB & Partners
AZB House, Plot No A-7 and A-8, Sector-4, Noida,
National Capital Region, India
Tel: +91 120 692 3700, +91 120 692 3700
Email: delhi@azbpartners.com
www.azbpartners.com

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ESG’s gradual integration into Malaysia’s financial sector

Consistent with global trends, Malaysia’s regulatory landscape has seen increased emphasis on integrating environmental, social and governance (ESG) considerations into regulatory frameworks across sectors including the financial sector, with growing focus on transparency, sustainability and ethical practices.

Bank Negara Malaysia (BNM)

The central bank of Malaysia, the BNM, has issued key policy frameworks and documents aimed at guiding financial institutions in managing climate-related risks and promoting sustainable finance practices, including:

1. 1. Policy document on Climate Risk Management and Scenario Analysis (CRMSA PD). Most recently, on 17 March 2025, the BNM issued the updated CRMSA PD, guiding financial institutions – including licensed banks, investment banks, Islamic banks (both local and international), prescribed development financial institutions, insurers and reinsurers, takaful operators and retakaful operators (sharia-compliant Islamic insurers), as well as financial holding companies – in managing climate-related risks and incorporating sustainable finance practices into their operations. The CMRSA PD introduces 14 principles for managing climate-related risks across six core areas, as follows:

• • 1. Governance: Management and understanding of climate risks, and integrating climate risks into internal controls;
    2. Strategy: Adopting climate risk in business strategies;
    3. Risk appetite: Integrating climate risk in risk appetite and capital assessment;
    4. Risk management: Incorporating climate risk in enterprise-wide risk frameworks; continually developing data capabilities, tools and methodologies for reporting climate risk; comprehensively assessing risks; monitoring and escalating material and potential climate risk; implementing climate risk controls and assessing the impact of climate risk on existing risk types; and ensuring risk management
       systems and processes account
       for climate risks;
    5. Scenario analysis: Using scenario analysis to assess climate risk resilience and effective scenario analysis for climate risk; and
    6. Disclosure: Providing reliable climate-related disclosures.

1. 2. Climate Change and Principle-based Taxonomy (CCPT). The CCPT issued in 2021 by the BNM was prepared in collaboration with the Joint Committee on Climate Change, with substantial additional input from the World Wide Fund for Nature (Malaysia and Singapore offices), particularly on aspects of environmental sustainability. Like the CRMSA PD, the CCPT applies to the same categories of financial institutions, providing a guiding framework to help them identify and classify economic activities that align with climate change objectives. The CCPT also outlines potential risks climate change poses to the financial system and encourages the redirection of financial resources towards initiatives that support a transition to a low-carbon and climate-resilient economy.

Securities Commission (SC)

The SC has introduced several measures as part of its efforts towards ESG integration, including:

1. 1. National Sustainability Reporting Framework (NSRF). The SC launched the NSRF on 24 September 2024 with the main objective of enhancing the standard of sustainability disclosures in Malaysia. It is being implemented via a phased and developmental approach to support widespread adoption and continuous improvement in the quality of disclosures across different categories of companies. The NSRF addresses the use of the International Financial Reporting Standards’ (IFRS) Sustainability Disclosure Standards issued by the International Sustainability Standards Board – specifically the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2 Climate-related Disclosures – as the baseline sustainability disclosure standards for companies, as well as assurance requirements for sustainability reporting.
   2. Principles-based sustainable and responsible investment (SRI) Taxonomy for Malaysia’s capital market (SRI Taxonomy). Issued by the SC in 2022, the SRI Taxonomy guides the Malaysian capital market and its constituents in identifying economic activities aligned with environmental, social and sustainability objectives, providing clarity and guidance for market participants in identifying activities that could qualify for sustainable investments.

The SRI Taxonomy provides qualitative assessment criteria in the classification of economic activities that contribute to the environmental goals upon complying with the minimum threshold. Economic activities are classified into three broad categories under the environmental component of the SRI Taxonomy, based on their contribution to its environmental objectives.

Bursa Malaysia

Malaysia’s stock exchange operator introduced the Enhancements to Bursa’s Main Market and ACE Market Listing Requirements in 2022, aiming to elevate the sustainability practices and disclosures of listed issuers.

The enhancement requires listed issuers to include climate change-related disclosures within their annual reports.

More recently, on 23 December 2024, the Bursa announced a subsequent enhancement to encourage the use of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures as the baseline standards for sustainability reporting by listed issuers.

Governance and disputes

While the environmental and social elements of ESG have yet to see significant litigation in Malaysia’s financial sector, the governance pillar has attracted increasing legal and regulatory attention.

Governance in this context refers to accountability, transparency and compliance as core principles in the regulation of financial institutions.

Key statutes such as the Companies Act 2016, Financial Services Act 2013 (FSA), Islamic Financial Services Act 2013 (IFSA), and Central Bank of Malaysia Act 2009 impose strict governance obligations. These include requirements around internal controls, board oversight, disclosure duties and fair treatment of customers.

One prominent area of litigation concerns the duty of confidentiality. Under section 133 of the FSA (and its equivalent under the IFSA), financial institutions must safeguard customer information. Breaches may result in civil suits or regulatory action. In Protasco Bhd v Tey Por Yee & Anor and another appeal [2021], the Federal Court reaffirmed the strict parameters of this duty, with only narrow statutory exceptions.

Another recurring issue is mis-selling and product disclosure failures. Courts and regulators have increasingly scrutinised financial institutions for failing to conduct proper suitability assessments or for providing incomplete risk disclosures.

These obligations are canvassed in BNM’s Policy Document on Fair Treatment of Financial Consumers and the SC’s Guidelines on Sales Practices of Unlisted Capital Market Products. Financial institutions must ensure that products are suitable for the intended investor and clearly explained, or risk exposure to regulatory or civil proceedings.

The increasing complexity of financial services has also driven demand for alternative dispute resolution. The Securities Industry Dispute Resolution Centre (SIDREC), established by the SC (presently known as Financial Markets Ombudsman Service, which operates under the joint purview of the BNM and the SC), has played a crucial role.

From 2011 to 2024, the SIDREC handled more than 3,900 claims and enquiries, with more than 700 qualifying as eligible disputes. In 2024, half of the disputes were resolved through case management or mediation, highlighting the value of efficient and cost-effective resolution.

In parallel, the surge in online banking fraud has triggered legal actions challenging the extent of banks’ responsibilities under the Quincecare duty (a common law principle recognised in Malaysia), thereby testing the application of traditional legal obligations in the face of modern
digital threats.

Governance-related litigation also encompasses compliance with the BNM’s Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions Policy Document. Failures in KYC procedures and financial crime reporting can trigger enforcement and reputational damage, reinforcing the importance of effective governance.

Key takeaways

As ESG continues to evolve within Malaysia’s financial sector, the focus will shift from policy adoption to meaningful implementation, measurable impact and accountability.

With regulatory expectations rising and litigation trends emerging – particularly around governance – financial institutions must prepare for closer scrutiny, heightened stakeholder demands, and growing convergence between sustainability and legal compliance.

The future lies in building resilient, transparent and ethically grounded institutions that treat ESG not just as a regulatory obligation, but as a strategic imperative.

SHEARN DELAMORE & CO
7th Floor, Wisma Hamzah-Kwong Hing,
No.1, Leboh Ampang
50100 Kuala Lumpur, Malaysia
Tel: +603 2027 2727
Email: info@shearndelamore.com
www.shearndelamore.com

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Short selling and securities lending in Taiwan

Taiwan’s stock market, characterised by high liquidity and a tech-dominated composition, has long attracted foreign institutional investors. According to Financial Supervisory Commission statistics at the end of February 2025, foreign institutional investors (FINIs, excluding Chinese investors) and Chinese qualified domestic institutional investors hold about USD287 billion in Taiwanese equities, representing about 42% of Taiwan’s total stock market capitalisation.

Short selling serves as an important measure for institutional investors, enabling risk management or hedging, enhanced return generation and flexible investment strategies. While short selling in Taiwan can generally be conducted through either margin trading or securities borrowing and lending, FINIs can only conduct short selling through securities borrowing and lending.

Margin trading for short selling, governed by the Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms, instead of other securities borrowing and lending regulations and rules, is unavailable to FINIs.

This article examines how FINIs participate in short selling in Taiwan, and relevant restrictions, as well as providing a brief description of securities borrowing and lending mechanisms in Taiwan.

FINIs and market access

Under the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals (foreign regulations), which govern foreign investment in companies listed on the Taiwan Stock Exchange (TWSE) or the Taipei Exchange (TPEx) in Taiwan, a FINI must register with the TWSE to invest in Taiwan’s securities market. It must also appoint a qualified custodian in Taiwan to:

1. 1. Hold the securities and any cash proceeds for safekeeping;
   2. Make confirmation and settle any trades; and
   3. Report all relevant information.

Custodians typically assist FINIs in registering with the TWSE and obtaining FINI status. The custodian generally also serves as the FINI’s local agent to:

1. 1. Open a securities trading account with a local brokerage firm;
   2. Establish a bank account with a local bank;
   3. Pay Taiwan taxes;
   4. Remit funds;
   5. Exercise shareholders’ rights; and
   6. Perform other functions as designated by the FINI.

FINIs must also appoint a qualified agent in Taiwan for filing tax returns and making tax payments on their behalf.

To participate in short selling through the securities borrowing and lending system of TWSE, a FINI must enter into a securities borrowing and lending authorisation agreement with a securities firm, in the form prescribed by the TWSE, and authorise and empower the securities firm to apply to the TWSE for opening a securities borrowing and lending account on its behalf.

Only after the TWSE reviews and approves the account opening application can the FINI authorise and empower its securities firm to submit any quotes or regulatory filings related to securities borrowing or lending transactions, and perform other relevant tasks.

For short selling through a securities firm’s securities lending mechanism, a FINI must open a securities borrowing and lending account with the same securities firm where it maintains a securities trading account.

SBL mechanisms

TWSE securities borrowing and lending system (SBL). FINIs may engage in securities lending and borrowing through TWSE’s centralised securities lending and borrowing system. The TWSE securities borrowing and lending rules provide three transaction types under the TWSE SBL:

1. 1. fixed-price transactions;
   2. competitive bidding transactions; and
   3. negotiated transactions.

Most FINIs conduct only negotiated transactions. The terms and conditions and procedures of fixed-price transactions and competitive bidding transactions have to follow TWSE rules. The stock exchange will guarantee the performance of contracts between the lender and the borrower by assuming both default and performance risks.

In contrast, in negotiated transactions, borrowers and lenders negotiate the terms and conditions of the transactions, including stock name, quantity, borrowing charge rate, term, collateral types and conditions, and compensation for the rights and interests.

Unlike the other transaction types, the parties assume their own default and performance risks. The TWSE’s role is limited to notifying the Taiwan Depositary and Clearing Corporation to effect a book-entry transfer for the delivery, return and compensation for any entitlements arising from the securities, after confirming consistency of the loan terms and conditions between the lending and borrowing transaction reports.

Securities firm SBL. Licensed securities firms, acting as lenders or borrowers, may enter into direct securities and lending transactions with their clients (including individuals, unlike the TWSE SBL). A securities firm SBL offers only negotiated transactions, with processes substantially similar to the TWSE SBL negotiated transactions except for the deadline for providing additional collateral.

In 2023, the overall market trading value of SBL reached NTD7.51 trillion (USD30.8 billion), of which 76% (3% by auction and 73% by negotiation) was through the TWSE SBL, while 24% was by securities firm SBL. In terms of SBL and selling, the overall market lending and selling trading value reached NTD2.39 trillion in 2023. FINIs accounted for more than 90% of the overall market trading value of SBL.

Eligible securities for SBL

Securities eligible for SBL (excluding those listed on the TWSE’s Taiwan Innovation Board) must meet specific criteria and be recognised by the securities exchange where they are listed. The eligible securities for SBL include:

1. Securities eligible for margin trading for short:

• 1. TWSE-listed and TPEx-listed common stock and Taiwan depository receipts that meet certain conditions; and
  2. Beneficiary certificates (fund) listed on the TWSE or TPEx for six months (passive exchange-traded funds (ETFs), active ETFs, futures-based ETFs, and offshore ETFs are exempt from this requirement).

2. Securities eligible as the underlying securities for call (put) warrants;
3. Domestic component securities of ETFs; and
4. TWSE-listed or TPEx-listed securities on which any of the following derivative instruments have been issued:

• 1. Single-stock options or single-stock futures;
  2. Domestic and overseas convertible or exchangeable corporate bonds; or
  3. Overseas depositary receipts.

The TWSE publishes and updates the list of loanable securities daily on its website.

Selling requirements and limits

Taiwan prohibits naked short selling; only covered short selling is permitted. FINI sellers must first borrow the stock or ensure that the stock can be borrowed before selling. All short sell orders are normally marked at the time of order submission.

To prevent market disruption, the Financial Supervisory Commission (FSC) imposes volume-based limits on short selling:

1. 1. Maximum of the total short selling amount. The total amount of a specific eligible security borrowed and sold under the SBL transactions and margin short selling shall not exceed 25% of the listed shares and beneficiary certificates of such security. When this level is reached, new direct short selling of such securities will be suspended until the level drops below 18%.
   2. Maximum short selling via SBL. The total amount of a specific eligible security borrowed and sold through SBL transactions shall not exceed 10% of the listed shares and beneficiary certificates of such security.
   3. Daily maximum of total short selling amount. Daily maximum short selling of borrowed securities cannot exceed 30% of their average daily trading volume over the previous 30 trading sessions (exception exists for securities firms and futures dealers for hedging or market-making). On 2 April 2025, amid global market volatility, the FSC temporarily lowered this daily limit to 3% initially for one week, later extended for another week until 18 April 2025.

The TWSE calculates short sale volume market-wide rather than by individual investor. Available short sale volumes appear on the TWSE’s website in the “stock loans section” daily, with real-time available volumes for short sales in the market information system. FINIs may request their securities firms to check such information for them through computer linkage to the TWSE. Once the ceilings are reached, the short sale order will be rejected automatically.

ID-based account aggregation

Neither the “prime broker” nor “locate” concept exists in Taiwan. In Taiwan, when a FINI borrows securities for short selling from its securities broker under the securities firm SBL, it does not matter whether the source of the borrowed securities is from the securities broker’s own holdings or borrowed by the broker.

In Taiwan, investors in securities are identified by unique ID numbers. Each FINI is assigned an ID number, allowing them to open trading accounts with various securities brokers. Trades conducted under the same ID – whether long or short positions – will be consolidated.

This ID-based structure enables multiple accounts to share the same ID, allowing proprietary trading units or books to be aggregated, even if they have different trading accounts with brokers and sub-accounts with custodians. Such aggregation helps determine net long or short positions across accounts associated with the same ID, provided that all accounts comply with relevant laws and regulations, and the custodian bank supports this arrangement.

LEE AND LI, ATTORNEYS-AT-LAW
8F, No.555, Sec. 4, Zhongxiao E. Rd.
Taipei 110055, Taiwan
Tel: +886 2 2763 8000
https://www.leeandli.com/EN