Effective from April 2, 2020, the Financial Services Commission (the "FSC") amended Article 4-63 (10) of the Financial Investment Business Regulation such that collective investment companies (i.e., "asset management companies" or "investment management companies") cannot enter into agreements in advance requiring investors in their collective investment vehicles (the "Fund") to purchase additional beneficial interests where the Fund were to face losses exceeding the investment capital (i.e., so called "capital amount").  Previously, this "additional capital injection arrangement" was entered into among collective investment companies, investors (mainly institutional investors) and swap counterparties providing swap facilities to Funds in order to enhance the credit standing of the Fund.  However, under the amended regulation, collective investment companies are prohibited from entering into such arrangement and thus investors will not be able to inject additional capital to cover the loss of the Fund. 

Swap counterparties should conduct further reviews when entering into new derivative transactions with a Fund where this "additional capital injection arrangement" is contemplated.  Furthermore, the legal ramifications of this development to existing derivatives transactions executed with Funds which have the same arrangement in place with its investors may need to be re-examined.