Wed, Aug 09, 2017 - Page 12 News List

FSC relents on multiple penalties on banks

By Ted Chen  /  Staff reporter

The Financial Supervisory Commission (FSC) yesterday reversed its stance on amendments to the Banking Act (銀行法) that would allow the regulator to exact penalties for each instance of violation, following widespread contagion risks sparked by the sale of risky derivative instruments.

Pressured by rising concerns about massive losses from yuan-linked target redemption forwards (TRF) — a structured derivative product that was designed to hedge against fluctuations in the strength of the Chinese currency — the commission had previously aimed to expand penalties to banks that had heavily promoted the risky instrument as a high-return investment to clients.

However, the commission yesterday said that it is leaning toward keeping current regulations unchanged, citing a preliminary review of a study conducted by the Taiwan Academy of Banking and Finance (台灣金融研訓院) and the Shih Hsin University Department of Law.

“The study cites a decision by the Taiwan High Court that ruled in favor of Uber drivers, as their violations are part of a recurring and continued business activity,” Banking Bureau Deputy Director-General Sherri Chuang (莊琇媛) said.

According to the ruling, drivers are not subject to multiple fines for each and every fare they pick up using the outlawed ride hailing service, Chuang said.

Similarly, a bank’s financial planner may not be penalized for each TRF contract sold to each client, Chuang said.

Chuang added that the commission would likely keep the maximum penalty against offending banks at NT$10 million (US$331,115), as smaller lenders would collapse under heavier fines, while larger players may be part of financial conglomerates.

In addition, the commission would not be seeking indemnities from financial planners employed by banks, Chuang said, adding that while the commission would instruct banks to terminate employees involved in TRF-related disputes, it is up to each bank to decide whether to take further legal action.

Earlier, the commission was mulling dividing each violation into multiple acts, with each subject to separate penalties.

In TRF-related cases, the violation would be split into separate lapses, including inadequate verification of client risk profiles, as well as contravention of a company’s internal control measures, sales strategy rules and governance of banks’ treasury marketing units, the commission has said.

However, Chuang said that once a penalty is imposed on a bank, further fines may be levied if the offenders are found to have failed to redress the same shortcoming in routine annual or quarterly checks.

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