State-run Mega International Commercial Bank (兆豐銀行) has inked a contract for New York experts to establish a compliance mechanism, newly installed chairman Michael Chang (張兆順) said yesterday.
The mechanism requires the establishment of a new information technology system in all outlets worldwide and could further strain the lender’s profitability, after it paid stiff fines for compliance failures at its New York branch, Chang told a news conference.
“The compliance costs are significant and might put Mega Bank on unequal footing with domestic peers in earning ability,” Chang said.
He declined to give numbers about the compliance costs.
The mechanism is to include a database that allows Mega Bank to gain a better understanding of its customers and track their accounts and transactions, Chang said.
It also entails the purchase of information from news media for any mention of the company so it can better plan responses, Chang said.
However, Mega Bank would not spare the costs, as financial authorities in New York and elsewhere will likely adopt stricter standards when inspecting the bank, after the New York State Department of Financial Services fined Mega Bank’s New York branch US$180 million for compliance failures, Chang said.
The Financial Supervisory Commission two weeks ago imposed a fine of NT$10 million (US$318,147) on the bank for similar violations.
In addition, Mega Bank, the main source of income for parent Mega Financial Holding Co (兆豐金控), is barred from opening new overseas branches and offices until it meets compliance requirements, the commission said.
The punishments are to constrain earning ability, as overseas and offshore banking units generate about 60 percent of Mega Financial’s profit, Chang said.
Other domestic banks might also have to introduce expensive compliance mechanisms to avoid regulatory missteps, Chang said, adding that such mechanisms are commonplace in large foreign financial institutions.
Mega Bank is to consult foreign banks in Taiwan during a special board meeting tomorrow to discuss the mechanism and the costs involved.
Following one month of investigation, Chang attributed the compliance failure to a lack of professional knowledge and the underestimation of its seriousness by former executives.
The probe into potential irregularities is ongoing, he said.
The commission is scheduled to brief lawmakers about suspicious accounts and transactions at Mega Bank’s New York branch during a private meeting of the legislature’s Finance Committee today.
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