The Financial Supervisory Commission (FSC) yesterday adjusted the rules governing banks selling of structured and derivative products in a bid to protect ordinary individuals while giving greater flexibility to qualified investors.
The changes center on banks’ management of their onshore structured products, as well as guidelines on the classification of customers according to their capabilities and investment aptitude and experience.
The change come in the wake of a spate of widespread losses and disputes in the past few years related to structured products such as yuan-linked target redemption forwards (TRF).
The revisions stipulate that the same bank employee cannot perform customer classification and product recommendation.
The new rules also require banks to electronically preserve records of customer classification processes for individuals.
Electronic records will be required for each meeting between individual clients and bank employees where new types of structured products that do not have capital protection elements to safeguard against market downturns are introduced and recommended.
Customer classifications must be updated annually, and banks are required to provide accurate price quotations and reasonable analysis of potential gains and losses for structured products.
The commission also tightened controls on the selling of structured products to those who are classified as disadvantaged individuals, defined as people 70 or older, those with less than a junior-high school education, people with documented catastrophic illnesses or injuries and those who have made fewer than five derivative product trades in the past year.
It expanded the scope of activities for qualified investors such as high-net-worth individuals and professional institutional investors to include fully owned subsidiaries and publicly traded companies.
“Rules on qualified investors have been eased to allow greater flexibility for Taiwan’s multinational companies that utilize structured products to hedge foreign exchange risks,” Banking Bureau Deputy Director Wang Li-chun (王立群) told a Taipei news conference.
“Companies had voiced concerns that their overseas subsidiaries often do not meet the stated capital requirements to gain the qualified institutional investor designation,” Wang said.
While many TRF disputes have been triggered by less experienced financial managers at small and medium-sized firms — a role often played by the wife of the owner — such situations are less common at listed companies, Wang added.
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