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Banking Regulations in Taiwan

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Taiwan has implemented various regulations to ensure the stability and soundness of its banking system. This article highlights some of the key regulations that are in place.

Liquidity Coverage Ratio (LCR)

The LCR is a critical ratio that measures a bank’s ability to meet its short-term liquidity needs. Since January 1, 2019, banks incorporated under the laws of Taiwan must maintain an LCR of at least 100%. This means that they must hold sufficient high-quality liquid assets to cover their total net cash flows over a 30-day period.

Leverage Ratio

The leverage ratio is another key metric that measures a bank’s capital adequacy. It is calculated by dividing the net Common Equity Tier 1 (CET1) by the total risk amount. Mandatory for banks to maintain a leverage ratio of at least 3% and disclose it accordingly.

Total Loss-Absorbing Capacity (TLAC)

The FSC has made amendments to the capital accrual regulations, which will be implemented from 2024, with the aim of enhancing the capital quality and risk-taking capacity of banks. This is an ongoing effort to strengthen the banking system and reduce systemic risks.

Domestic Systemically Important Banks (D-SIBs)

Six banks have been designated as D-SIBs in Taiwan:

  • CTBC Bank
  • Cathay United Bank
  • Taipei Fubon Commercial Bank
  • Mega International Commercial Bank
  • Taiwan Cooperative Bank
  • First Commercial Bank

These banks are subject to stricter capital standards and additional regulatory requirements.

Rules governing banks’ relationships with their customers and other third parties

The Banking Act requires banks to conduct know-your-customer (KYC) processes and assess the suitability of financial products for different types of customers. Banks must provide comprehensive product information, including:

  • The structure of the product
  • Risks associated with the product
  • Scenario analysis

This is mandatory for all customers unless they are professional investors.

Customer Protection

The FCPA provides further protection to bank customers who are not professional investors or high-net-worth individuals. This includes:

  • More requirements on due sale process and information disclosure
  • Alternative dispute resolution mechanisms
  • Punitive damages for non-compliance

Financial Ombudsman Institution (FOI)

The FOI is established and funded by the government to address customer complaints. Customers must first file a complaint with the financial institution involved in the dispute before seeking review from the FOI.

This concludes our overview of banking regulations in Taiwan. If you have any further questions or need clarification on any points, please let me know!