Financial Crime World

Taiwan Banks Face Stricter Regulations to Ensure Financial Stability

In an effort to maintain financial stability and protect consumers, Taiwan’s Financial Supervisory Commission (FSC) has implemented new regulations for banks operating in the country. The measures aim to enhance capital adequacy, liquidity, and risk management practices.

Capital Adequacy Requirements

  • Banks must meet minimum paid-in capital requirements of NT$10 billion to establish a commercial bank in Taiwan.
  • Branches of foreign banks engaging in retail deposit business must allocate at least NT$250 million in operating capital.
  • The FSC has also introduced stricter capital standards for Domestic Systemically Important Banks (D-SIBs), which are required to allocate an additional 2% of statutory and internal management capital over a four-year period.

Liquidity Coverage Ratio

  • To enhance banks’ short-term liquidity recovery ability, the FSC implemented the Liquidity Coverage Ratio (LCR) framework in 2015.
  • Banks must maintain an LCR of at least 100%, calculated by dividing high-quality liquid assets by total net cash flows over a 30-day period.

Leverage Ratio

  • The FSC introduced the leverage ratio to prevent banks from engaging in excessive leverage, requiring a minimum ratio of 3% for banks to maintain.
  • This measure aims to align with the Basel III framework and address limitations in the Bank Capital Adequacy Ratio.

Total Loss-Absorbing Capacity (TLAC)

  • In response to the current practice of domestic banks investing in TLAC-eligible debt instruments, the FSC has made amendments to capital accrual regulations.
  • The changes aim to enhance capital quality and risk-taking capacity for banks.

Customer Protection

  • Taiwanese banks are required to conduct thorough know-your-customer processes and assess financial product suitability for different customer types.
  • Banks must also provide comprehensive product information and refrain from offering products that are not aligned with customers’ risk tolerance levels.

Financial Ombudsman Institution (FOI)

  • The FOI was established to address customer complaints and establish a reliable alternative dispute resolution mechanism.
  • Customers can file complaints with financial institutions, which will respond within 30 days. If the response is unsatisfactory, customers may apply to FOI for further review.

These new regulations aim to ensure that Taiwan’s banking system is robust and resilient, protecting consumers and maintaining financial stability in the country. The FSC will continue to monitor banks’ compliance with these measures to prevent risks and promote a healthy banking environment.