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Amendment of “Operating Guidelines for Banks Engaging in Wealth Management Business”
From: Financial Supervisory Commission, Executive Yuan
Date: 2006/06/30
Ref. No.: Jin-Kuan-Yin-(5)-Zi-No. 09585001070
Subject: The amended Operating Guidelines for Banks Engaging in Wealth Management Business submitted by your Association has been approved as attached. Please advise your member institutions to observe the Guidelines accordingly.
Explanation:
1. This is in response to your letter dated April 12, 2006 (Ref. No. Chuan-Feng-Zi- No.0410).
2. With respect to your proposed amendment to subparagraph 2, paragraph 1, Article 4 of the Guidelines concerning the qualifications of financial advisors to recommend financial derivative products, in light that the qualifications of bank personnel to engage in financial derivatives business have been regulated in Regulations Governing Foreign Exchange Business of Banking Enterprises and Guidelines For Banks Engaging in Financial Derivatives, we decide that a financial advisor is not required to obtain the qualification of Futures Specialist or the qualification of Futures Trading Analyst for recommending domestic or foreign financial derivatives, unless otherwise required by the Futures Exchange.
Operating Guidelines for Banks Engaging in Wealth Management Business
Article 1
To enhance the quality of wealth management services offered by banks, ensure the interests of banking customers, and implement the risk management, The Bankers Association of the Republic of China (referred to as the “BAROC” hereunder) hereby sets forth these Guidelines pursuant to Point 5 and Point 10 of the Directions for Banks Engaging in Wealth Management Business promulgated by the Financial Supervisory Commission.
Article 2
A bank shall establish a set of product suitability policy for its wealth management business, which shall include at least classification of customers and products by risk level, and based on which, offer appropriate products to customers in line with their risk tolerance. A bank shall establish a surveillance mechanism to prevent its financial advisors from engaging in improper sales or recommendation. The content of the product suitability policy may be adjusted, but should observe the basic principles outlined in the Guidelines herein.
The term “product suitability policy” means when a bank sells or recommends a product to its customer, the bank should not only disclose the features and risks of the product, but also vigorously consider whether the complexity of product design, its risk level and cash flow requirement are congruous with customer’s risk preference, expectation of cash flow, planned investment duration, financial literacy and income, to ensure the product truly meeting customer needs. When engaging in wealth management business, a bank should understand extensively the customer’s family background and career planning in order to sell or recommend more precise products suitable for the customer.
When engaging in wealth management business, a bank should undertake the following procedure to understand the customer and help the customer understand his or her investment preference and suitable product or investment portfolio before accepting the customer’s business:
1. Asking the customer to fill out a customer information form, setting up a file and keeping it properly.
The customer information form should include the following particulars:
(1) Basic customer data
a. Name
b. Date of birth
c. Gender
d. Mailing address/telephone
e. Educational background
f. Annual personal/household income
g. Occupation
(2) Purpose of investment
(3) Investment experience (including length of investment and products invested)
(4) Risk preference
(5) Cash flow expectations
(6) Planned investment duration.
(7) Expected returns
2. Carrying out analysis, evaluation and classification based on the information obtained above to identify customer’s investment preference and risk tolerance.
The bank should identify the risk level of an individual product or portfolio after carrying out product analysis, evaluation and classification based on the complexity of product design, risk level, cash flow requirement, market risk, term of product, degree of principal guaranty, and price volatility.
The bank should sell or recommend customers suitable products or portfolios according to a risk level based on customers’ investment preferences and risk tolerance. The bank should also establish exception handling mechanism. With that mechanism, the bank should ask the customer to sign a statement and may also reject the customer’s request in view of the actual circumstances if the customer insists on investing in a product or portfolio that incurs risks greater than the customer’s risk tolerance.
The bank should regularly examine customers’ investment preferences ,the risk levels of invested products or portfolio and make proper adjustment based on the actual circumstances. Moreover, the bank should, based on the aforementioned adjustment result, re-examine the matching between the customer’s investment portfolio and preference, and inform the customer if incongruity exists.
The bank should exercise due diligence and fiduciary duty as a bona fide conductor when engaging in the wealth management business, and sell or recommend customers suitable products or portfolios based on their risk tolerance. Unless with proper authorization, the bank shall not sell or recommend customers products beyond the customer’s financial capability or unsuitable for the customers.
Article 3
The personnel of a bank’s wealth management business unit will be classified into the following three categories based on the nature of their duties. The bank shall prepare a roster of wealth management personnel for reference:
1. Managing personnel: Executive and deputy executive officers of the wealth management unit.
2. Financial advisors: Personnel other than the managing personnel who directly provide customers with wealth management services.
3. Other personnel: Staff of the wealth management unit other than the managing personnel and financial advisors.
Bank employees that hold responsibilities comparable to those of aforementioned personnel in accordance with other regulations of the competent authority or bank’s own organizational rules concerning wealth management shall be regarded as wealth management personnel.
Article 4
Financial advisors should meet the following qualification requirements based on the products they recommend to customers:
1. Meeting one of the following qualifications for recommending domestic or foreign securities, including stocks, bonds, short-term notes, shares or investment units, and securitized products; for recommending offshore funds or domestic investment trust funds, provisions in the Regulations Governing Offshore Funds shall apply:
(1) Having passed the qualification examination of the Senior Securities Specialist and received a credential.
(2) Having passed the qualification examination of the Securities Investment Trust and Consulting Professionals and received a credential.
(3) Having passed the qualification examination of the Securities Investment Analyst and received a credential.
(4) Having worked as a domestic or foreign fund manager for more than one year.
(5) Having passed the Professional Test on Trust Business for Trust Personnel and the test on Securities Investment Trust and Consulting Regulations.
(6) Having graduated from a domestic or foreign university accredited by the Ministry of Education or higher, or equivalent and having worked as a personnel of a securities or futures firm, or a trust enterprise for at least three years.
2. Unless otherwise required by the Futures Exchange, a financial advisor for recommending domestic or foreign financial derivative products, including futures, options, forwards and swaps, shall comply with the provisions in Article 12 of Regulations Governing Foreign Exchange Business of Banking Enterprises and Article 15 of Guidelines For Banks Engaging in Financial Derivatives.
3. To recommend insurance products, a financial advisor shall respectively meet the following qualification requirements:
(1) Having passed the qualification examination for property insurance agent and received a credential for recommending property insurance products.
(2) Having passed the qualification examination for life insurance agent and received a credential for recommending life insurance products.
(3) Having passed the examination for investment-linked insurance agent and received a credential for recommending investment-linked insurance products.
4. To recommend trust products, a financial advisor shall have passed the Professional Test on Trust Business for Trust Personnel and received a credential.
5. To recommend structured products, a financial advisor shall possess the qualification specified in subparagraph 2 hereof if the structured products recommended involve products mentioned therein.
Where the offer of any of the products provided in the preceding paragraph falls under the regulations governing chartered financial business, a bank shall first apply to the competent authority for approval to operate the business and meetthe qualification requirements for respective business.
When a bank offers a customer several types of products mentioned above, it is advisable that several financial advisors meeting respective qualification requirements jointly sell or recommend the products to the customer.
In addition to provisions specified in the first paragraph hereof, a bank may, at its own discretion, adjust the qualification requirements for its financial advisors depending on the complexity of products offered.
Aside from meeting the qualification requirements described above, a financial advisor is required to take at least eight (8) hours of courses on wealth management business offered by the bank or a professionally financial training institute sanctioned by BAROC, or received a credential for passing the proficiency test held by the aforementioned institute.
A financial advisor is considered to have met the requirements in paragraph 5 hereof if he or she has received a Certified Financial Planner certification (CFPTM).
Managing personnel should attend training courses sponsored by professionally financial training institutes and receive a certificate. A managing personnel who also performs the role of a financial advisor shall meet the same qualification requirements as those for financial advisors.
Any person having any of the following situations is considered unqualified to be a managing personnel or a financial advisor:
(1) Not having full legal capacity.
(2) Having been convicted of a crime under the Organized Crime Prevention Act.
(3) Having been sentenced to imprisonment for counterfeiting currency or e securities, misappropriation, fraud or breach of trust and the sentence has not been completed or ten (10) years have not elapsed since the date of sentence completion, the expiration of probation period, or the pardon of such punishment.
(4) Having been sentenced to imprisonment for forging instruments or seals, offence against privacy, usury, impairing the rights of creditors or violating the Tax Collection Act, Trademark Act, Patent Act or other laws governing industrial or commercial activity and the sentence has not been completed or five (5) years have not elapsed since the date of sentence completion, the expiration of probation period, or the pardon of such punishment.
(5) Having been sentenced to imprisonment for embezzlement and the sentence has not been completed or five (5) years have not lapsed since the date of sentence completion, the expiration of probation period, or the pardon of such punishment.
(6) Having been sentenced to imprisonment for violating Banking Act, Trust Enterprise Act, Insurance Act, Securities and Exchange Act, Securities Investment Trust and Advisory Enterprises Act, Futures Trading Law, Foreign Exchange Control Act, Credit Cooperatives Act, Money Laundering Control Act, Building Code, Architects Act, Real Estate Broking Management Act, or other laws governing financial, industrial, or commercial activity and the sentence has not been completed or five (5) years have not elapsed since the date of sentence completion, the expiration of probation period or the pardon of such punishment.
(7) Having been adjudicated bankruptcy, and has not had rights and privileges reinstated.
(8) Having an ongoing event that seriously damages his or her credit worthiness or five (5) years have not elapsed since the closure of such event.
(9) Having been ordered to enter a reformatory or having been ordered to perform compulsory labor due to the offense of larceny or receiving stolen property and the sentence has not been completed or five (5) years have not elapsed since the sentence completion.
(10) Factual evidence shows that the person has engaged in, or been involved in, other dishonest or improper activities, which indicate that she/he is not suitable to serve as a managing personnel or financial advisor.
Managing personnel and financial advisors shall conform to the qualification requirements provided in the Guidelines herein in one year subsequent to its promulgation.
Article 5
When a bank conducts the wealth management business and other chartered banking business concurrently, the bank shall comply with the rules of respective businesses in the aspect of personnel training and shall design a training program for dedicated wealth management personnel to enhance their professional competence. Such training program shall contain and cover the following:
1. Two kinds of training courses for dedicated wealth management personnel:
(1) In-house training courses:
a. According to “Directions for Banks Engaging in Wealth Management Business”, the bank should set up a training and evaluation scheme for financial advisors.
b. In principle, the training courses, which include new employee orientation programs and online courses, should help enhance financial advisors’ professional skills to conduct relevant businesses.
(2) Training courses offered by outside financial training institutes
Financial training institutes under the Guidelines herein are:
a. Taiwan Academy of Banking and Finance
b. Securities and Futures Institute
c. Taiwan Insurance Institute
d. Other institutes sanctioned by the competent authorities or BAROC.
2. Managing personnel shall take wealth management training courses every year (may be taken in separate sessions) offered by the bank or outside financial training institutes. The annual accumulative training hours for managing personnel shall be no less than 8 hours.
3. Financial advisors and other personnel shall take relevant wealth management training courses every year (may be taken in separate sessions) offered by the bank or outside financial training institutes. The annual accumulative training hours for financial advisors and other personnel shall be no less than 24 hours.
When the annual accumulative training hours for financial advisors and other personnel exceed the annual minimum requirement above, the excess training hours should not be reserved for deduction from the training hours in the following year. If such personnel take the same training courses in the consecutive two years, the training hours of that course in the following year shall not be credited to the annual accumulative training hours.
4. For the purpose of supervision conducted by internal auditors or supervisors from competent authorities, banks shall retain relevant training data, records, or other documents of a recent year to certify the enrollments or accomplishments of training courses by dedicated wealth management personnel.
5. If commissioned by competent authorities, BAROC may review and approve the wealth management training courses offered by outside financial training institutes.
6. The scope of training courses for dedicated wealth management personnel shall include:
(1) Business guidelines and code of ethics and professional conducts.
(2) Basis of financial planning.
(3) Risk management and insurance planning.
(4) Employee welfare and pension planning.
(5) Investment planning.
(6) Tax and property planning and transferring.
(7) Comprehensive financial planning.
(8) Other wealth management courses offered in Taiwan or other foreign countries.
It is not advisable for managing personnel,financial advisors and other personnel to act as dedicated wealth management personnel if they have not completed the training courses stated in the preceding paragraph.
Article 6
When engaging in wealth management business, a bank shall comply with the Guidelines herein and the respective applicable regulations governing other financial business.
Article 7
These Guidelines, including any amendments hereto, will be in force after they have been passed in a meeting of the Bankers Association of the Republic of China and approved by the competent authority. |