The Financial Supervisory Commission has stepped up inspections of banks’ treasury marketing units (TMU) amid concern that some are aggressively expanding their business regardless of the risks involved for their clients.
The investigation follows reports on TMUs’ increased weighting on banks’ earnings while customers incurred losses attributable to disputable trading and promotion practices.
TMU is a corporate clientele-focused unit, which has a full strength sales force to meet clients’ requirements and provide complex solutions.
In Taiwan, TMU customers are mainly exporters and importers who need financial products and services to hedge against foreign currency losses.
“The commission will wrap up its inspections next week and hand out penalties if it discovers any rogue practices,” Jean Chiu (邱淑貞), deputy director-general of the commission’s Banking Bureau, said by telephone on Monday.
FSC Chairman William Tseng (曾銘宗) told the legislature’s Finance Committee last week that banks must not take advantage of their customers by selling them unprofitable and unnecessary products and services to boost banks’ fee income.
Tseng gave the admonition after finding that sales of non-hedging products — including currency options and other financial derivatives — accounted for more than 50 percent of several banks’ TMU business.
“The banks should explain why they operate such a high number of non-hedging deals, in which some of the cases are larger than their corporate customers’ revenue or foreign currency demand,” Tseng said.
Serious violators may have their TMU operations suspended, he said.
While the commission supports liberalization to help banks grow their business at home and abroad, it will not tolerate unfair and reckless practices that may hurt customers, the chairman said.
The commission is not against arbitrages — the practice of taking advantage of a price differential between two or more markets — as long as banks make sure customers are well aware of the risks involved and stay away from ill-advised cash management, Chiu said.
It is not wise for companies with revenue of US$500,000 a year to trade currency-based options that exceed US$1 million in value since they cannot afford potential losses, she said.
While TMU products generate better fee income and profit margins, inappropriate practices may cause lawsuits and compliance problems, Chiu said.
Banks should give serious thought when offering customers TMU products and services, Chiu said.
Neither Tseng nor Chiu would name the banks under investigation, but customers of Bank SinoPac (永豐銀行), the main subsidiary of SinoPac Financial Holding Co (永豐金控), had reportedly raised complaints with the FSC.
Lenders have halted questionable TMU operations, but the commission will press ahead with the probe and mete out punishment where necessary, Chiu said.