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Taiwan Banks Face Tougher Regulations to Boost Capital Adequacy

In an effort to strengthen the financial sector, Taiwan’s Financial Supervisory Commission (FSC) has implemented a series of regulations aimed at improving capital adequacy and risk management practices among local banks.

New Capital Requirements

Under the new rules, banks are required to maintain a minimum paid-in capital of NT$10 billion, with promoters subscribing up to 80% of the total capital. The FSC has also set stricter capital adequacy requirements, including:

  • Common equity tier 1 ratio: 7%
  • Tier 1 capital ratio: 8.5%
  • Total capital adequacy ratio: 10.5%

Enhanced Liquidity Requirements

To further enhance liquidity, banks are required to maintain a minimum leverage ratio of 3% and a liquidity coverage ratio (LCR) of at least 100%. The LCR is calculated by dividing a bank’s high-quality liquid assets by its total net cash flows over a 30-day period.

Designation of Domestic Systemically Important Banks

The FSC has designated six domestic systemically important banks (D-SIBs), which must allocate an additional 2% of statutory capital and internal management capital over a four-year period. These banks are also required to:

  • Report their contingency measures
  • Undergo annual stress tests

Customer Protection Measures

To protect customers, Taiwanese banks are required to:

  • Conduct thorough know-your-customer (KYC) processes
  • Assess the suitability of financial products for different types of customers
  • Provide customers with comprehensive product information and disclose any risks or potential losses associated with a particular investment

In addition, the Financial Consumer Protection Act (FCPA) requires banks to:

  • Establish an internal complaints handling mechanism
  • Provide customers with alternative dispute resolution options through the Financial Ombudsman Institution (FOI)

FOI: A Reliable Alternative Dispute Resolution Mechanism

The FOI was established by the government in 2019 to provide a reliable alternative dispute resolution mechanism for handling disputes between financial consumers and financial institutions. The institution is funded by the government and has three main objectives:

  • Establish a fair and transparent dispute resolution process
  • Improve communication between financial institutions and customers
  • Promote a culture of consumer protection

Conclusion

The new regulations aim to strengthen Taiwan’s banking sector by improving capital adequacy, risk management practices, and customer protection measures. By enhancing the resilience of local banks, the FSC hopes to boost investor confidence and support economic growth in the region.