The Financial Supervisory Commission (hereinafter, the "FSC") promulgated, via the FSC-Jin-Guan-Yin-Wai-10350004320 of December 1, 2014, the Amendments to the Notice for Handling Financial Derivative Business by Banks (hereinafter, the "Notice"), which consists of 38 points and came into effect on the day of promulgation. The Notice is highlighted as follows:
- Points 2 to 4 define the terms of the Notice:
Point 2 defines derivative financial products and structural products; Point 3 defines professional customers; and Point 4 defines general customers.
- Points 5 to 9 stipulate the following procedural matters regarding the requirement that a bank which handles financial derivative business shall apply to the FSC for approval:
Points 5 and 8 provide that a bank which handles financial derivative business shall submit an application to the FSC for approval; Point 6 stipulates that a bank which handles financial derivative business shall formulate operating strategies and operating standards and submit the same to its board of directors (governors), and this shall also apply in case of revision; Point 7 provides that a bank which has obtained the approval of financial derivative business may handle all kinds of derivative financial products and product mixes except for those which are specifically excluded and submit product feature specifications, a legal compliance statement and a risk disclosure statement to the FSC within 15 days after such products are launched; and Point 9 provides that the FSC may request correction.
- Points 10 to 12 deal with risk management:
Point 10 provides that risk management guidelines shall be formulated and submitted to the FSC for reference; Point 11 imposes the restriction that such business shall be limited to hedging operation of specific banks; Point 12 points out that the International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS), interpretations, interpretation announcements and relevant laws and regulations shall be followed.
- Points 13 to 16 deal with issues such as illegal trade:
Point 13 pertains to the conversion between New Taiwan Dollars and foreign currencies, which shall be handled by relevant foreign exchange receipt or payment or trading rules; Point 14 stipulates the prevention of conflicts of interest and insider trading; and Point 15 provides that banks shall not use derivative financial products to cover up or manipulate financial reports. Point 16 provides that such transaction shall not be used for any merger or acquisition or any illegal transaction conducted for itself or in accommodation of any customer.
- Points 17 to 33 contain provisions that protect customers:
Major provisions include Point 17, which provides that professional qualifications, training and evaluation systems shall be formulated for the personnel handling such business. Point 20 requires a bank that provides derivative trading services to its customers to assume the duty of care and its fiduciary obligation as a good administrator to handle such services in good faith; Point 21 provides that with respect to customers of non-professional institutional investors, a bank shall create its internal operating procedures for matters relating to the protection of customers' rights and interests such as the notification and disclosure of the appropriateness and risks of products and dispute resolution; Point 23 provides that when promotional or advertising materials are provided to customers who are not professional institutional investors, potential returns and risks shall be clearly, fairly and equitably disclosed; and Point 24 stipulates that before transactions with general customers are completed, at least product specifications and risk disclosure statements shall be provided and dedicated personnel shall be dispatched to explain to and confirm with customers. Point 26 provides that when providing structural product trading services to customers, a bank shall not do so in the name of deposit; Point 27 stipulates the contents of the assessment that shall be conducted by a bank when structural product trading services are provided to customers; Point 28 stipulates the control of the marketing process that shall be exercised when a bank provides structural product trading services to general customers; Point 30 provides for the matters that shall be explained to customers before a bank provides structural product trading services to customers; and Point 31 stipulates prohibited circumstances when a bank recommends structural products or provides relevant information and marketing documents.
- Points 33 to 38 contain other relevant provisions. In particular, Point 38 provides that when a bank violates this Notice, the FSC may impose appropriate sanctions or suspend such business according to the severity of the violation.