An investigation into questionable loans extended by SinoPac Financial Holdings Co’s banking and leasing units, as well as the discovery of transactions made without sufficient collateral and proper documentation, have raised concerns about the nation’s financial institutions.
First, SinoPac Financial’s poor corporate governance and internal controls led to a NT$10 million (US$328,947 at the current exchange rate) fine by the Financial Supervisory Commission in April and the dismissal of its former chairman Ho Shou-chuan (何壽川) last week.
The commission also suspended SinoPac Financial president and board member Yu Kuo-chih (游國治) for six months, even though Yu had resigned last month.
The Taipei District Court has approved prosecutors’ request to detain Ho and two others for suspected violations of the Securities and Exchange Act (證券交易法). As the investigation proceeds, the commission might mete out more punishments to SinoPac Financial.
The company, under its new chairman Paul Chiu (邱正雄), faces challenges in terms of heightened compliance costs and a poor reputation.
Second, the incident has led to concerns about independent directors sitting on the boards of listed companies. The duties of independent directors include assessing corporate social responsibilities, ensuring legal compliance and monitoring managerial integrity and efficiency.
The practice of hiring independent directors to help improve listed companies’ corporate governance became widespread about 10 years ago following a series of high-profile corporate scandals and accounting abuses at firms such as Procomp Informatics Co and Infodisc Technology Co.
However, last year’s XPEC Entertainment Inc fraud case had people questioning the credibility of three independent directors on the company’s board who had approved a questionable tender offer.
The probe into SinoPac Financial has left people wondering whether the three independent directors on its board had any function.
One might ask if the directors’ role had been reduced to merely a symbolic one.
Another question is whether they should take responsibility for the company’s wrongdoings, given the high rewards they have received.
Third, lax money laundering controls at Mega Financial Holding Co last year and irregularities at SinoPac show that the commission is limited in its capability to prevent irregularities at financial institutions, despite its oversight and regular inspections.
If not for some whistle-blowers at SinoPac Financial, the commission would not have found out about the firm’s questionable loans to Sun Power Development and Construction Co for a commercial building in Shanghai in 2009.
It is important to establish regulations to protect whistle-blowers so that they can safely break any non-disclosure agreements for the sake of the public interest.
There have been cases where junior employees revealed suspicious cases, but they were not given any support in terms of job protection or any reward for disclosing the irregularities.
Finally, President Tsai Ing-wen’s (蔡英文) criticism of the commission last week over its affirmation of Chiu as SinoPac Financial chairman calls for the commission’s discretion and vigilance with respect to its supervision of financial institutions.
Chiu, the nation’s vice premier from 2008 to 2009, was chairman of Bank SinoPac from 2009 to last year and has been a board director at SinoPac Financial for several years, so there are doubts about his capacity as chairman, considering the allegedly illegal loans extended under his supervision.
The commission should tighten its supervision of SinoPac Financial, not loosen it.
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