Fri, Jul 13, 2007 - Page 12 News List

Draft law threatens huge settlements for financial sector

By Amber Chung  /  STAFF REPORTER

Financial institutions operating in Taiwan could find themselves liable for settlements totaling hundreds of millions of NT dollars as a result of the Financial Supervisory Commission's financial services law, presented in draft form yesterday.

The bill is the supreme statute for the nation's financial sector and integrates all of the nation's finance-related laws. It took the regulator three years to draft, with reference to similar legislation in the US, Japan and the UK.

Under the draft law, which will shortly be submitted to the Executive Yuan for review, the commission can require financial institutions to settle disputes out of court.

The regulation will apply in situations where there is insufficient evidence or when distances make the investigations difficult, as in international disputes, commission Secretary-General Austin Chan (詹庭禎) said at a press conference.

Based on US precedents, these settlements could be considerable, the official said. He cited the example of several mutual fund firms being required to pay a total of US$5 billion as a result of a single administrative probe.

Companies that settled out of court would not venture their reputations, Chan said. However, firms could not take this option if the commission had solid evidence of wrongdoing, he said.

Whereas the maximum fine that can be imposed on banks at present is NT$10 million (US$305,360), Kuo Tu-mu (郭土木), director-general of the commission's legal affairs department, said it was likely that financial institutions could be forced to pay much more to settle disputes in the future.

The draft law holds financial institutions liable without fault if they fail to notify their clients of all potential risks when selling financial products.

The bill also precludes those in charge of financial institutions, including board directors and supervisors, from holding similar positions in non-financial companies in which their financial institutions are investors.

This measure served to avoid conflict of interest that might hamper the performance of financial institutions, the regulator said.

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