Banking

 

8.     Draft Amendment to Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation

 

On 25 June 2019, the FSC announced the draft amendment to the Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation (Regulations) for public consultation. We summarize the key points below:

 

(1) To delete the provisions in respect of implied consent of the clients for outsourcing;

 

(2) To add provisions that asset management companies directly or indirectly wholly owned by financial institutions can accept the appointment from their parent companies to handle the debt collection of their parent companies;

 

(3) To add the compliance requirements in respect of outsourcing of cloud services, including:

 

(a) A financial institution shall ensure the risk control of operation;

 

(b) A financial institution shall have the ultimate supervisory obligation of the cloud service providers;

 

(c)  A financial institution shall ensure that themselves, competent authority, the Central Bank or the designated entities may obtain the relevant information of operation implemented by the cloud service providers;

 

(d) A financial institution may entrust the independent third parties to conduct auditing;

 

(e) A financial institution shall adopt the effective protection measures for the clients' information that transmitted to and stored with the cloud service providers;

 

(f)  A financial institution shall reserve the ownership of the information outsourced to cloud service providers for processing;

 

(g) In principle, the clients' information and storage location thereof shall be within Taiwan; and

 

(h) A financial institution shall set out the emergency contingency plan.

 

(4) Whether the approval or filing for record will be required for outsourcing of cloud service shall depend on the materiality of the outsourcing, and the criteria of determining the materiality and the required documents for the application are provided.

 

Reported by: Stacy Lo / Deborah Lee

 

Banking

 

9.      Handling Principle of Charging the Default Interest and Default Penalty of the Mortgage and Consumer Loan

 

On 25 June, the FSC made a news release providing that from 1 July 2019, a bank must follow below principles for charging default interests and default penalty of the mortgage and consumer loan:

 

(1) In the case of late payment where it is not a continuous default, the default interest and the default penalty which is not a fixed amount as charged by the bank shall be based on the due principal in the current period. 

 

(2) If the borrower faces financial difficulties and fails to duly pay monthly, and the bank exercises the acceleration clause where the full principal amount is deemed due, the bank may charge the default interests based on the unpaid principal balance for the delay period; the default penalty may be charged based on the unpaid principal balance as well.

 

(3) Where in practice the bank may waive the charge or provide a favorable calculation method to the borrower, it may act accordingly.

 

(4) As banks shall adjust their current policy in accordance with the principle above.  If the relevant information system and the contents of the contract need to be adjusted, they shall be completed by the end of September 2019.  Where the default penalty is charged based on the unpaid principal balance before the acceleration clause is exercised, it cannot be calculated on that basis from 1 July 2019.  Other calculation method can be adopted in compliance with the above principle after the information system and the contract content have been adjusted.

 

Reported by: Stacy Lo / Eliza Lee

 

10.   Directions for Banks to Apply for New Business Trial

 

On 18 June 2019, the FSC announced the Directions for Banks to Apply for New Business Trial (Directions).  We summarize the key points below:

 

(1) The business items the banks may apply for trial shall be the expansion of the bank's approved business items, or the business items under the regulations which stipulate "others approved by the competent authority", or the technical provisions which are not clearly stipulated.

 

(2) The banks may still apply for new business trial with the FSC for the same business item where it has been approved to be experimented under the sand box rules and does not involve items prohibited under the laws and regulations; if such business items are prohibited under the laws and regulations, innovative experiment shall be applied for under the sand box rules.  

 

(3) The banks shall submit the business plan and declaration of legal compliance when applying for new business trial. 

 

(4) Considering the risk control and business innovation, the FSC may restrict the target, business or trading volume, location and period based on the nature of the new business.   

 

(5) The bank shall take note of information security, anti-money laundering, personal information protection and clients interest protection during the trial period, and provide information relating to the entire circumstance of the trial to the FSC after the expiration of the trial period. 

 

(6) The electronic payment institutions, electronic stored value card issuers, trust enterprise, bills finance companies and credit cooperatives may apply for new business trial according to the Directions as well. 

 

Reported by: Stacy Lo / Will Chen

 

11.   Draft Amendment to Regulations Governing the Capital Adequacy and Capital Category of Banks

 

On 27 June 2019, the FSC announced the draft amendment to the Regulations Governing the Capital Adequacy and Capital Category of Banks (Rules), as well as the list of the domestic systemically important banks (D-SIBs). We summarize the key points below:

 

(1) Draft amendment to the Rules:

 

(a) In response to the "Processing Architecture of the D-SIBs" issued by Basel Committee on Banking Supervision (BCBS), the draft amendment newly adds that the competent authorities may comprehensively consider the banks' size, interconnectedness, substitutability and complexity, to announce the list of D-SIBs, and require such D-SIBs to additionally contribute capital. The draft amendment also stipulates the definition of the legal capital adequacy ratio.

(b)  To amend the basis for the preparation of financial statements and stipulate the minimum standard of the leverage ratio.

(c)  To stipulate the minimum standard of the bank capital adequacy ratio and amend the classification standard of the bank capital grade.

 

(d) To amend the definition of the common equity Tier 1 capital.

 

(2) The term "D-SIBs" refers to:

 

CTBC Bank Co., Ltd., Cathay United Bank Co., Ltd., Taipei Fubon Commercial Bank Co., Ltd., Mega International Commercial Bank Co., Ltd., and Taiwan Cooperative Bank.

 

Reported by: Stacy Lo / Bella Chiu

 

Editors:

Mike Lu (Partner)

Stacy Lo (Partner)

Jeffrey Liu (Partner)

Kang-Shen Liu (Partner)

David Tsai (Partner)

Counselors:

Echo Yeh

Sue Su

Shih-Jung Lee

Jolene Wang (Lexcel Partners IP)