Pursuant to the relevant regulations governing internal control and audit system applicable to relevant financial institutions, internal audit units of financial institutions should continuously conduct follow-up reviews pursuant to the examination opinions or audited deficiencies specified by the Financial Supervisory Committee (FSC), and should submit a written report on the status of follow-up improvements to the board of directors. The FSC issued a letter on February 15, 2019 (FSC Letter), providing that in respect of FSC's examination opinions, each financial institution should submit the report to the board of directors and internal audit units of such financial institutions should conduct follow-up reviews in accordance with the relevant requirements. The major points of the FSC Letter are as follows:
1.To ensure the board of directors place importance on the status of improvements based on the FSC's examination opinions, each financial institution should comply with the following requirements to seek for the approval of board of directors for the reply to the Material Examination Opinions (Form A) issued by the FSC:
(1)Each reply to the FSC's Material Examination Opinions (Form A) should be submitted to the board of directors, and such reports to the board cannot be replaced with reports to and approvals from other managerial officers or a meeting of managing directors.
(2)The reply to the FSC's Material Examination Opinions should be reported to the board as a stand-alone matter for discussion, and cannot be submitted as a reporting matter or be consolidated with other matters for discussion; the board of directors should thoroughly discuss the proposed improvement plan as well as its adequacy and effectiveness.
(3)Article 3 of the Regulations Governing Procedure for Board of Directors Meetings of Public Companies should be followed: each director should be notified of the matter for discussion seven days prior to the board meeting, and such matter cannot be proposed as an extemporary motion.
2.Internal audit unit of each financial institution should comply with the following requirements to conduct follow-up reviews pursuant to the examination opinions and other improvement requests, so that the board and the managerial officers can ensure the effective operation of internal control systems:
(1)Internal audit units should conduct thorough reviews and cannot replace such reviews with other audit items. Other than the specific case involved in the examination opinions, the review should also cover whether the business units have other similar cases, in order to ensure the effectiveness of improvement measures.
(2)Reviews should be conducted by making on-the-spot audit sampling, and audit records should be retained (e.g. specifying the details of sampled clients in the working papers and retaining relevant audit papers). Internal audit units should not close an audit case merely based upon the business units' replies regarding improvement measures.
(3)Replies to the FSC regarding the status of improvement should be based upon thorough review of the business units' improvement measures, in order to avoid that improvements have not been completed after several replies to the FSC, which are unfavorable to achieve timely rectification following the examination opinions.