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Regulatory Framework for Banks in Taiwan

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Banks operating in Taiwan are subject to a robust regulatory framework designed to ensure their stability, soundness, and customer protection. In this article, we will delve into the key aspects of the regulatory framework governing banks in Taiwan.

Regulatory Oversight

The Financial Supervisory Commission (FSC) and the Central Bank of China (CBC) serve as the primary regulators for banks in Taiwan. Their oversight ensures that banks adhere to stringent standards, maintaining a delicate balance between allowing institutions to operate efficiently while protecting depositors’ interests.

Key Regulatory Requirements

  • Banks must maintain a liquidity coverage ratio (LCR) of at least 100% since January 1, 2019.
    • This requirement is aimed at ensuring that banks hold sufficient liquid assets to meet their short-term obligations, preventing potential disruptions in the financial system.

Capital Requirements

The capital adequacy framework plays a crucial role in maintaining the stability of banks. The regulatory requirements for capital are designed to ensure that banks maintain adequate buffers to absorb losses and withstand potential shocks.

Leverage Ratio

  • Banks must maintain a minimum leverage ratio of 3%.
    • This requirement ensures that banks hold sufficient Common Equity Tier 1 (CET1) to cover their total risk exposure, mitigating the risk of excessive leverage.
  • The leverage ratio is calculated by dividing net CET1 by total risk amount.

Total Loss-Absorbing Capacity (TLAC)

  • TLAC regulations will be implemented from 2024 to enhance capital quality and risk-taking capacity.
    • This requirement ensures that banks hold sufficient loss-absorbing capacity to absorb potential losses, reducing the likelihood of bank failures.

Domestic Systemically Important Banks (D-SIBs)

  • D-SIBs are subject to stricter capital standards, including allocating an average of 2% additional statutory capital requirement and 2% internal management capital requirement over a four-year period.
    • This requirement aims to ensure that systemically important banks maintain adequate buffers to absorb potential losses and prevent systemic disruptions.

Customer Protection

The regulatory framework in Taiwan places significant emphasis on customer protection, ensuring that banks treat customers fairly and transparently.

Know-Your-Customer (KYC) Processes

  • Taiwanese banks must conduct KYC processes and assess the suitability of financial products for customers.
    • This requirement ensures that banks understand their customers’ needs, risk tolerance, and financial situation before offering them financial products.
  • Banks provide comprehensive product information to customers, including risk disclosure statements.

Financial Consumer Protection Act

  • The Financial Consumer Protection Act provides additional protections for non-professional investors or high-net-worth individuals.
    • This act ensures that these groups are treated fairly and transparently by banks, preventing potential exploitation.

Financial Ombudsman Institution

The Financial Ombudsman Institution (FOI) serves as an alternative dispute resolution mechanism established by the government to handle disputes between financial consumers and institutions.

Dispute Resolution Process

  • Customers must first file a complaint with the financial institution before applying to FOI for review.
    • This process ensures that customers exhaust all avenues of dispute resolution within the financial institution before seeking external assistance from the FOI.