Chapter 3 The inspection of internal control system |
Section 1 Internal audit |
| Article 9 |
The purpose of internal audit is to assist the board of directors and the managerial level to verify and evaluate whether the operation of internal control system works effectively and smoothly and provide appropriate suggestions for revision, which can ensure the on-going performance of effective internal control and serve as the basis of internal control system revisions. |
| Article 10 |
A financial holding company or banking business should set up an internal audit unit that is directly subsidiary to the board of directors, which should perform audit business independently and honestly. The unit is required to report its audit business to the board of directors and supervisors (board of supervisors) or audit committee at a minimum period of every six months.
A financial holding company or banking business should establish a chief auditor system to manage all audit business. The chief auditor should possess sufficient leadership and ability to carry out effective audit work, whose qualification should be equal to the conditions set for the responsible people of each section and has the power as an general co-manager. The auditor is not allowed to take a job that will cause conflicts or limitations to the audit work.
The employment, dismissal, or transfer of the chief auditor should have the consent of the majority of audit committee members as well as the consent of more than two-thirds of the board of directors and report to the competent authority for ratification.
Where the matter in the preceding paragraph did not have the consent of the majority of audit committee members, the resolution adopted by the audit committee shall be recorded in the board meeting minutes. If there is no audit committee but independent directors set up and an independent director objects to or expresses reservations about the matter, it shall be recorded in the board meeting minutes.
The appointment, dismissal, promotion, reward/ discipline, rotation, and performance review of personnel in the internal audit unit shall become effective after being reported by the chief auditor to chairman of the board. However, if a matter involves personnel of other management or business units, the chief auditor shall first consult the personnel department to refer the matter to the president for approval, and then report to the chairman of the board for final approval.
The regulations in Paragraph 1 to 5 of this article doesn't apply to a company who operates financial and trust business concurrently other than a banking business.
The chief auditor of a financial holding company is allowed to, if required by business, dispatch the internal auditors of a subsidiary company to conduct the internal audit task on the financial holding company or its subsidiary company. The chief auditor should also take up the final responsibility to ensure appropriate and effective internal audit system in the financial holding company or its subsidiary company. |
| Article 11 |
When any of the following circumstances applies to a chief auditor in overseeing internal audit work, the competent authority may, having regard to the seriousness of the event, issue an official reprimand, order the chief auditor to make improvements within a specified time limit, or otherwise order the financial holding company to release the auditor general from duty.
A. Has made any improper loan extension, been involved in a material breach of the principles for giving credit, or otherwise engaged in any improper transfer of funds with customers, as established by factual proof.
B. Has abused authority of office, there is evidence showing that he or she has carried out improper activities, or he or she has misused power, in an attempt to seek profits for him or herself or for a third party, or to damage the interest of its belonging financial company (including its subsidiary company) or banking business; and therefore, his or her abuse or misuse of power has thus cause losses for its belonging financial company or its subsidiary company or banking business or a third party.
C. The auditor disclose, deliver, or publicize all or part of the contents of its financial examination reports to a person not related to such job without the consent from the competent authority.
D. Has failed to notify the competent authority of any significant malpractice that due to poor internal management has occurred in the financial holding company (including its subsidiary company) or the banking business.
E. Has failed to disclose in an internal audit report any significant deficiency identified in the financial and business operations of the financial holding company (including its subsidiary company) or the banking business.
F. Has issued a fraudulent internal audit report on internal audit findings.
G. As a result of obviously insufficient staffing or staffing operations by obviously incompetent internal auditors in the financial holding company (including its subsidiary company) or banking business, has failed to identify a serious deficiency in financial and business operations.
H. Has failed to follow the instructions of the competent authority in conducting audit work or in providing relevant information.
I. Has otherwise committed any act that impairs the reputation or interests of the financial holding company (including its subsidiary company) or the banking business. |
| Article 12 |
A financial holding company or banking business shall, after having regard to its investmentscale, business condition (the number of its branches and amount of business), managementneeds, and relevant provisions of rules and regulations, staff competent persons in anappropriate number as full-time internal auditors who shall perform their duties in adetached, independent, objective, and impartial manner. Personnel of the internal audit unitshall be deputy to each other to cover each other's absence.
An internal auditor of a financial holding company or banking business shall meet thefollowing qualification requirements:
1. Having not less than two(2) years of experience in financial examination; or havinggraduated from a college or university, or passed a senior civil service examination or anequivalent examination, or the examination of certified internal auditor and having not lessthan two(2) years of experience in financial business; or having not less than five(5) years ofexperience in financial business. A person is deemed to meet such requirements if he or shehas worked as a professional, such as an auditor in an accounting firm, or a computerprogrammer or system analyst for not less than two(2) years, and has received not less thanthree(3) months of training in the business operations and management of a financialinstitution. However, the number of this type of auditor cannot exceed one-third of the totalauditors.
2. Free of any record of demerit or more serious from employer in the last three(3) years,unless the demerit record was a result of joint and several disciplinary action on account ofthe violation or offense of another person, and the demerit has been offset by other merits;and
3. If a lead auditor, have no less than three(3) years of experience in auditing or financialexamination, or have no less than one(1) year of experience in auditing and no less thanfive(5) years of experience in financial business.
The qualifications of the dedicated internal audit personnel of banks’ foreign business unitsmust comply with the local regulations and the requirements of the local competentauthority. However, if the local competent authority does not specify the qualifications forinternal auditors hired locally, the foreign business unit shall hire employees in accordancewith the evaluation and selection regulations passed by the board of directors, and theaforementioned regulations do not apply.
The financial holding company or the banking business shall examine at all time whether theinternal auditors have violated the regulations in the preceding three paragraphs. If theauditor has violated the rules, the company should order the auditor to make improvementwithin two(2) months and should be transferred to other job if he or she fails to make suchimprovement. |
| Article 13 |
The internal auditors of a financial holding company or banking business shall perform their duties in good faith, and may not do any of the following:
A. Conceal or make false or inappropriate disclosures of any of the financial holding company's or the banking business's business activities, reporting, or compliance with rules and regulations that they know to directly cause damage to any interested party.
B. Act beyond the scope of audit functions or engage in other improper activities, or externally disclose any acquired information, attempt to profit therefrom, or otherwise use the information against the interest of the financial holding company (including its subsidiary company) or banking business.
C. Cause losses to the financial holding company (including its subsidiary company) or the banking business or harm the interests of its stakeholders
due to negligence.
D. Conduct audit work within one (1) year to the department where the auditor used to work at.
E. Fail to recuse himself or herself from auditing of cases or business within the scope of his or her past duties or matters in which he or she has a personal interest.
F. Directly or indirectly provide, promise, demand or accept any unreasonable gift, hospitality or other improper benefits of any form to or from employees or customers of the same financial holding company (including its subsidiaries) or the banking business.
G. Fail to audit matters that the competent authority has instructed to him or her to audit or to provide relevant information.
H. Any other violation of rules, regulations or practices prohibited by the competent authority.
The financial holding company or the banking business should examine at all time whether the internal auditors have violated the regulations in the preceding two paragraphs. If the auditor has violated the rules, the company should order the auditor to make improvement within one(1) month and should be transferred to other job if he or she fails to make such improvement. |
| Article 14 |
The internal audit unit shall undertake the following tasks:
A. Plan the organization structure, size and duty of the internal audit unit. Prepare internal audit working manuals and working papers, which shall at least include assessing the various rules and operating procedures of the internal control system to determine whether adequate internal controls are already in place in the current rules and procedures, whether each department has realistically carried out the internal controls, and whether the internal controls are carried out in a reasonably effective manner, and from time to time provide recommendations for improvement.
B. Monitor the formulation of rules and procedures for self-inspection and assessments of the internal control system by business and management units, and the implementation of periodic self-inspection by each unit.
C. Formulate annual audit plans and, based on the business risk profile of and implementation of internal audits by each subsidiary or department, determine audit plans targeted at each individual subsidiary or department.
For the purpose of self-inspecting its internal control system, a financial holding company (including its subsidiary companies) or a banking business shall see to it that all of its internal departments and subsidiaries carry out self-inspection, and have its internal audit unit review the self-inspection reports of each department and subsidiary (including its subsidiary companies if it is a financial holding company); such self-inspection, together with the reports on the correction of any deficiencies and irregularities discovered in the internal control system by the internal audit unit, shall serve as a basis for the board of directors, president, chief auditor, and chief compliance officer to evaluate the overall efficacy of the internal control system and to issue internal control system statements. |
| Article 15 |
A banking business shall conduct a routine audit at least annually, and a special audit on its and all its subsidiaries' operation, finance, asset quality and information departments; a special audit at least annually on other management departments; a routine audit at least annually on its all business centers, foreign business units and foreign subsidiary companies. The auditing method for a foreign office can be replaced with a report auditing or adjust the auditing frequency flexibly.
The contents of the routine audit or the special audit, which is performed by the audit unit of a banking business to its business unit, should cover whether there are improper marketing activities when dealing with trust business, financial management, and the sale of financial products; whether the contents of the products are clearly disclosed; whether the risks are well notified; whether the contract is fair and other obligations are performed appropriately following the law or self-regulatory guidelines.
The internal auditing unit of a financial holding company shall conduct a routine audit at least annually; a special audit on its finance, risk management, and compliance with applicable acts and regulations at least semiannually; where the routine business has covered the scope of the special audit and its audit results reveal no significant deficiency, and it expressly states such in the internal audit report, it is not required to conduct a special audit for that current half-year.
The internal audit unit should include the execution status of the regulatory compliance system into the routine audit or special audit of the business and management units. |
| Article 15- 1 |
A domestic bank may apply to the competent authority for approval to adopt a risk-basedinternal auditing system. A subsidiary that was evaluated and exempted from adopting thesystem for implementation in accordance with Paragraph 2 of Article 16 shall provideevaluation documents. The competent authority may ask a domestic bank to apply forapproval to adopt a risk-based internal auditing system in view of the bank's asset size,business risks, and other necessary conditions.
A domestic bank thatapplies for approval to adopt a risk-based internal auditing system mustmeet the following criteria:
1. The bank's most recently filed ratio of regulatory capital to risk-weighted assets meets therequirements set out in Article 5 of the Regulations Governing the Capital Adequacy andCapital Category of Banks;
2. The bank does not show insufficient loan loss provision and reserves based on the mostrecent financial examination and the most recent CPA-audited and certified financialstatements;
3. The bank's non-performing loan ratio of the most recent quarter does not exceed 1%; and
4. The bank has an effective internal control system.
The provisions on auditing frequency in Paragraph 1 of the preceding article and Paragraph 2of Article 16 do not apply to domestic banks that have been approved to adopt a risk-basedinternal auditing system. |
| Article 16 |
A financial holding company or a banking business shall formulate annual audit plans and, based on the business risk profile of and implementation of internal audits by each subsidiary, determine audit plans targeted at each individual subsidiary.
The internal audit unit of a financial holding company or a banking business, except those foreign branches of a banking business and other business ratified by the competent authority, conduct a target audit on its subsidiaries' finance, risk management, and compliance with applicable acts and regulations at least semiannually and incorporate the audit results into its annual audit project.
All subsidiaries shall submit to the financial holding company or the banking business their board meeting minutes, CPA audit reports, examination reports issued by the financial examination agency, and other relevant materials, and, for subsidiaries having established an internal audit unit, audit plans and reports on significant deficiencies identified in internal audit reports and the status of improvements thereof; the mother company shall review such documents and monitor the implementation of improvements by each subsidiary.
The chief auditor of a financial holding company or a banking business shall periodically evaluate the efficacy of the internal control activities of a subsidiary as set forth in the preceding paragraph and, after having reported to the board of directors, send the evaluation results to the relevant subsidiary's board of directors for their reference in personnel evaluations. |
| Article 17 |
A financial holding company or the banking business shall disclose at least the following information in its internal audit report for routine business audits.
A. Audit scope; summary commentary; financial status; capital adequacy; operation performance; asset quality; management of shares; management of the operation of board of directors and audit committee; compliance with major acts, regulations, and rules; internal controls; interested party transactions; the control and internal management of all business tasks; protection and management of customers' data; information management; management of customer data confidentiality; protection measures of consumers and investors and the results of self-inspection, and the evaluation to above matters.
B. Opinions for the major illegal errors or faults in all departments, and the suggestions for punishment for employees fail to fulfill their duties.
C. The examination comments or faults listed by the financial examination agency, accountants, internal audit unit (including the internal audit unit of the mother company), and self-inspection people, and the improvement status of items that enlisted as 'need further improvement' by the internal control statement.
The record of the results in working papers shall be preserved together with the self-inspection or internal audit reports and relevant materials for no less than five(5) years. |
| Article 18 |
Where a financial holding company or a banking business makes any concealment of poor internal management, unsatisfactory internal controls, inadequate implementation of the internal audit system and regulatory compliance system, or the results of implementation of improvement of any deficiency specified by a financial examination agency in an examination opinion requiring review and follow-up, or the internal audit unit (including the internal audit unit of parent company) otherwise conceals any audit findings, and where such concealment constitutes significant malpractice, the personnel involved shall be held responsible for negligence in their duties. A financial holding company (including its subsidiaries) or a banking business shall commend an internal auditor who identifies any significant malpractice or negligence and thereby averts material loss to the company.
When a significant deficiency or malpractice arises within the management or business departments of a financial holding company or a banking business, the internal audit unit shall have the power to suggest penalties and shall make a full disclosure of the responsible negligent personnel in an internal audit report. |
| Article 19 |
The internal audit report of a financial holding company or banking business shall be delivered to the supervisors (board of supervisors) or audit committee for review and unless it is otherwise provided by the competent authority, shall be submitted to the competent authority within two (2) months following completion of the audit. The audit report shall also be delivered to the independent directors if such positions are set up by the financial holding company or the banking business. |
| Article 20 |
Before assuming the following post, the person should enroll in the following trainings heldby the institutes recognized by the competent authority and obtain completion certificatefrom them:
1. When acting as an internal auditor for the first time, the auditor should participate in theaudit training course, computer audit training course or billing audit training course for noless than sixty (60) hours. The auditor should also pass the exam and obtain the completioncertificate.
2. An internal auditor with leadership duty should participate in the internal auditor leadertrain course for no less than nineteen (19) hours.
3. The chief auditor and official, deputy managers should participate in audit managertraining course for no less than twelve (12) hours.
The regulations in the preceding paragraph do not apply to the training required for locallyhired internal audit personnel hired by the foreign business unit. However, where the localcompetent authority has other regulations, such regulations shall apply.
Internal auditors (including the official, deputy managers and chief auditor) of a financialholding company (including its subsidiary companies) or a banking business (including theparent company) each year shall attend a finance-related professional training held by acompetent authority-designated institution or by the financial holding company or asubsidiary thereof. For the minimum number of training hours, the total hour should be noless than twenty(20) for the official, deputy managers and chief auditors; no less thanthirty(30) for the other internal auditors. If an auditor has obtained an international internalauditor certificate within the current year, the certificate can be transferred to the traininghours.
The total hour of a finance-related professional training held by a competent authority-designated institution shall not be less than half of the training hours in the precedingparagraph.
The number of required training hours each year for an auditor stationed in a foreign countryor locally hired internal audit personnel hired by the foreign business unit shall meetrequirements in local regulations, and the regulations in the two preceding paragraphs do notapply. However, where requirements are not specified in the local regulations, the number of on-the-job training hours required each year for the supervisor and the personnel of the internalaudit unit of the head office in Taiwan shall be adopted. The training hours can also berecognized by enrolling with a financial training institute established according to the localregulations.
The financial holding company or the banking business should organize self-inspectionprograms for every year and continue proper training courses for auditors in accordance withthe nature of each department.
A financial holding company or a banking business shall verify that its internal auditors meetthe qualification requirements set forth herein. The verification documentation and recordsfor such purpose shall be kept on file for future reference. |
| Article 21 |
A financial holding company or banking business shall, in a prescribed format and via anInternet-based information system, file with the competent authority for recordation theinformation on the name and years of service of its internal auditors by the end of Januaryeach year.
When preparing the basic information of internal auditors, the financial holding company orthe banking business should verify whether these auditors have met the requirementsstipulated in Paragraph 2 and Paragraph 3, Article 12 and Article 20. If the auditor fails tomeet the requirements, it should be improved within two(2) months, if not, the auditor shouldbe re-assigned to another job. |
| Article 22 |
A financial holding company shall, in a prescribed format and via an Internet-based information system, file with the competent authority for recordation its next year's audit plan by the end of each fiscal year and a report on the execution of its preceding year's annual audit plan within two(2) months from the end of each fiscal year.
By the end of each accounting year, the financial holding company or the banking business shall deliver a written audit plan for the next year to the supervisors (supervisors, board of supervisors) or the audit committee for examination and compilation. If the company doesn't have an audit committee, the report shall be delivered to the independent directors for comments. The annual audit plan and changes thereof shall be approved by the board of directors.
The contents of audit plan mentioned in the preceding paragraph shall at least include: an explanation of the audit plan, annual audit points, units that will receive the audit, nature of audit (routine audit or special audit), and whether the frequency of audit comply with the regulation of the competent authority. If the audit is a special audit, then it is necessary to notify the range of audit. |
| Article 23 |
A financial holding company or banking business shall, in a prescribed format and via an Internet-based information system, file with the competent authority for recordation its improvements of deficiencies and irregularities identified in the internal control system in previous year within five (5) months from the end of each fiscal year. |
| Article 24 |
For a banking business, officers at various levels with the authority to approve business and transactions shall meet any of the requirements below prior to taking office:
A. Have served as auditors in the internal audit unit and worked for over one(1) year with actual auditing affairs.
B. Have enrolled in the audit training course or computer audit training course held by a competent authority-designated institution and passed the exam and obtained the completion certificate.
C. Obtaining the qualification certificates in banking business internal control and internal audit exam held by a competent authority-designated institution. The contents of the exam should be similar to the contents mentioned in the preceding paragraph.
For the heads of individual levels at foreign business units that have authorization in business or transactions, they are allowed to enroll in professional audit training held by a foreign professional institute or obtain a similar certificate from a foreign institute to replace the certificate mentioned in Paragraph 1.
When acting as the manager of a local business unit, the manager should meet the conditions listed in Paragraph 1, besides, if the manager qualifies the conditions in Subparagraph 2 or 3 of Paragraph 1, the manager should participate in more than four(4) times of audit practices with the internal audit unit before actually assuming the post or within six(6) months after assuming the post. Each practice should be responsible for as least one(1) item, practicing at least four(4) items, write a report on the practice, and send to the chief auditor for verification. The chief auditor should present a certificate and keep the report for further reference.
For the heads of individual levels in the banks of a foreign bank in Taiwan, if they are responsible for tasks involving the authorization in business or transactions, and they have finished the internal audit trainings requirement by the bank, when the training is higher than the requirements listed in Paragraph 1, then they can be exempt for the regulations in this article. |
Section 2 The Examination of self-inspection and Statement for Internal Control System |
| Article 25 |
The banking business should establish a self-inspection system. The bank shall conduct a self-inspection on all business, financial, asset safekeeping, information, and foreign business units at least semiannually; a special self-inspection at least every month. However, if the company has conducted a routine self-inspection, an internal audint unit (including the internal audint unit of the mother company) has conducted a routine business audit, a financial examination agency has conducted a routine business audit or self-evaluation on affairs concerning compliance with applicable acts and regulations in that month, a special self-inspection can be exempted in that month.
All departments and the subsidiaries of a financial holding company should conduct a self-inspection on internal control system at least annually; a legal compliance self-inspection at least semiannually.
For the self-inspection affairs mentioned in the preceding two paragraphs, the head of the unit should assign a person of another duty to conduct the audit and be kept secret.
The results of self-inspections mentioned in paragragh 1 and 2 shall be made as working papers and shall be preserved together with the self-inspection or internal audit reports and relevant materials for no less than five(5) years. |
| Article 26 |
The internal audit unit (including the internal audit unit of the mother company) shall continually conduct follow-up reviews on any examination opinions or audit deficiencies brought up by the financial examination authority, CPA, or internal audit unit, and on matters specified in the internal control system statement as requiring stronger improvement efforts, and submit a written report on the implementation of improvement of deficiencies to the board of directors, together with a copy to the supervisors (supervisors, the board of supervisors), and list these as an important factor in the relevant department's performance evaluations.
The major points of audit task for a financial holding company or a banking business should be prescribed by the competent authority. |
| Article 27 |
A financial holding company or a banking business shall supervise all departments (for thefinancial holding company, including its subsidiaries) to carefully assess and review thestatus of the operation of its internal control system, and, separately for self-inspectionresults and internal audit reports, submit internal control system statements jointly signed andissued by the chairperson, general manager, chief auditor, and compliance officer (asattachment) to the board of directors for approval, and subsequently within three (3) monthsfrom the end of each fiscal year disclose the information contained therein on the company'swebsite and publish the same on a website designated by the competent authority.
The internal control system statement under the preceding paragraph shall be duly publishedin the annual report, stock issue prospectuses, and other prospectuses.
The regulations in Paragraph 1 are not applicable to the banking business taken over by thecompetent authority. |
Section 3 The Audit of a Banking Business by an Accountant |
| Article 28 |
If the annual financial report of a banking business is audited and certified by CPA the business should also delegate the CPA to conduct an audit on its internal control system. The CPA should also comment on the correctness of the report submitted to the competent authority for the banking business, the execution status of internal control system and regulatory compliance system, and the appropriateness of policies for loan loss reserves, including those of the foreign business units of the banking business.
The competent authority may request a banking business to provide the examination report of its personal data protection and AML/CFT mechanism
issued by CPA.
The audit fees for the CPA should be negotiated by the banking business and the CPA. The business should pay the CPA as negotiated.
The provisions of Paragraph 1 and Paragraph 2 are not applicable to banking business taken over by the competent authority. |
| Article 29 |
When necessary, the competent authority is allowed to invite the banking business and its delegated accountant to conduct further discussion concerning the affairs of such audit. If the competent authority finds the delegated accountant is not competent for the audit affairs delegated by the business, the authority should demand the banking business to alter the delegation to another accountant for another audit. |
| Article 30 |
When an accountant conducts audit affairs following the regulations of Article 28, the accountant should inform the competent authority immediately when the following conditions are found:
A. During the process of audit, the business fails to provide the required reports, certificates, books of accounts, and meeting minutes for the accountant, or refuses to make further explanation on the queries submitted by the accountant, or there are other objective environment restrictions to cause the accountant unable to continue his or her audit work.
B. When there are severe false, forged data, or missing in its accounting or other records.
C. Its assets are insufficient to pay its debts or its financial condition is worsened.
D. There is evidence indicating that its transactions will cause great damage to the bank's net asset.
If an audited banking business has conditions listed in Paragraph 2 to 4, the accountant should submit in advance a summary report to the competent authority based on the auditing results. |
| Article 31 |
When a banking business delegates a CPA to conduct audit as provided in Paragraph 1 of Article 28, the business should provide the CPA audit report of the previous year to the competent authority by the end of April each year for recordation. The audit report should at least entail the scope, basis, procedure, and results of the audit.
When a credit cooperative conducts such audit in accordance with the preceding paragraph, the audit report shall be submitted via the finance department of municipal government or the county (city) government.
When the competent authority has queries concerning the contents of the audit report, the CPA should provide relevant information and explanation based on facts. |
Section 4 legal compliance System |
| Article 32 |
The head office of a financial holding company or a banking business shall set up a compliance unit under the president to take charge of the planning, management, and execution of the regulatory compliance system. Another high level manager shall also be assigned to act as chief compliance officer for the head office to conduct compliance affairs. The chief compliance officer shall make a report to the board of directors (council), supervisors (board ofsupervisors) or the audit committee at least semiannually, and in case of major regulatory violation or rating downgrade by the financial competent authority, immediately inform the directors (council members) and supervisors (board of supervisors), and report to the board of directors (or the council) on compliance matters.
The requirements for setting up the foregoing compliance unitand the chief compliance officer for the head office are as follows:
1. A banking business, if the total assets of the previous year as audited by a CPA have exceeded NTD 1 trillion,shall set up a dedicated compliance office that may be in charge of AML/CFT, but shall not be in charge of legal affairs unrelated to the planning, management, and implementation of the legal compliance system, or any affairswith conflict of interest.The chief compliance officerof its head office may be appointed as the AML/CFT compliance officer but shall not serve as the chief officer of legal affairs or other internal posts.
2. The chief compliance officer at a financial holding company or the head office of a banking business that is not governed by the foregoing paragraph cannot be appointed to internal posts other than chief legal officer or chief AML/CFT compliance officer, except as otherwise provided by the competent authority with respect to the credit cooperatives and bills finance companies.
The chief compliance officer at a financial holding company or the head office of a banking institution shall hold a post comparable to that of vice president and meet the qualification requirements set out respectively in the Regulations Governing Qualification Requirements for the Promoter or Responsible Persons of Financial Holding Companies and Concurrent Serving Restrictions and Matters for Compliance by the Responsible Persons of a Financial Holding Company and in the Regulations Governing Qualification Requirements and Concurrent Serving Restrictions and Matters for Compliance by the Responsible Persons of Banks.
The compliance unit of the head office, domestic and foreign business units, information unit, assets safekeeping unit, and other management units of a financial holding company or a banking business shall each assign the personnel to act as the compliance officer to take charge of related affairs. Arranging the compliance officer position in the foreign business unit shall comply with the local regulations and the requirements of the local authorities and the compliance officer should not hold other posts except in any of the following situations:
1.The compliance officer serves concurrently as the AML/CFT compliance officer.
2.The compliance officer holds concurrent posts that do not constitute a conflict of interest according to the local regulations.
3.It is not strictly prohibited in the local regulations regarding the holding of concurrent posts, provided the holding of concurrent pots does not result or potentially result in conflict of interest and the matter has been communicated with and confirmed by the local competent authority and reported to the competent authority for recordation.
The chief officer and personnel of thecompliance unitof a financial holding company or the head office of a banking business, as well as the compliance officer of its domestic and foreign business units, information department, assets management department, and other management departments shall meet one of the following qualification requirements:
1.Having worked as personnel or chief officer of legal compliance office at any financial institute forfive years in aggregate.
2.Having attended not less than 30 hours of courses offered by institutions recognized by the competent authority, passed the exams and received completion certificates therefor.
3.The compliance officer of a foreign business unitwho is hired locally,has shown his/her familiarity with local regulations and competence in related matters according to the self-assessment of the assessment procedures resolved by the board of directors, or the review and acknowledgement by the local competent authority.
The chief compliance officer and personnel of the compliance unit of a financial holding company or the head office of a banking institution as well as the compliance officer of its domestic and foreign business units, information department, assets safekeeping department, and other management departments shall attend at least fifteen (15) hours of training a year offered by institutions recognized by the competent authority or held internally by the financial holding company (including its subsidiaries) or the banking business (including its parent company), and the training courses shall cover at least the latest regulatory amendments, new businesses or new financial products launched.
The compliance officer of a foreign business unit shall attend at least fifteen (15) hours of on-the-job training courses a year offered by the local competent authority or relevant institutions, or the training courses offered by the competent authority, the institutions recognized by the competent authority, or held by the employing financial holding company (including its subsidiaries) or the banking business (including the parent company).
The training methods for the on-the-job training as set forth in the foregoing two paragraphs held by the company itself shall be approved by the board of directors.
The head office shall keep the attendance records of relevant personnel for review.When a dedicated AML/CFT compliance unit is set up under the legal compliance unit, the required training for AML/CFT compliance unit personnel before their appointment/assignment and every year shall observe the relevant AML/CFT regulations and is not subject to the provisions of Paragraph 5 and Paragraph 6 hereof.
Financial holding companies and banking businesses shall file the list of head office chief compliance officers, the chief officers and personnel of the compliance unitas well as their training records with the competent authority via an online information system. |
| Article 33 |
The head office and branches of a financial holding company or banking business should establish advisory and communication channels for regulatory compliance matters to keep employees informed of rules and
regulations, swiftly clarify any questions of the employees on rules and regulations, and ensure regulatory compliance.
When the legal compliance unit of a financial holding company or banking business makes a report to the board of directors in accordance with Paragraph 1 of the preceding paragraph, the report should contain at least an analysis of the causes of significant deficiency or malpractice in compliance matters within respective departments as well as recommendations for improvement. |
| Article 34 |
A compliance unit should conduct the following tasks:
1. Establishing a system for clear and adequate conveyance, consultation, coordination and communication of rules and regulations.
2.Keeping operating and management rules and procedures updated in line with relevant regulations to make sure all business activities comply with regulatory requirements.
3.Before a banking business introduces a new product or service, or applies to the competent authority for approval to offer a new business, the chief compliance officer shall issue and sign an opinion statement undertaking that the new product, service or business complies with applicable regulations and internal rules.
4.Drafting rules and procedures for evaluating regulatory compliance and overseeing the periodic implementation of self-evaluation by respective units; assessing the compliance self-evaluation operations of respective units and producing a report thereon, which, after being signed off by the president, will be used as reference in the performance evaluation of the unit.
5.Providing pertinent regulatory training to employees.
6.Supervising the introduction, establishment and implementation of relevant internal rules by the compliance officer of respective department.
The internal audit unit may draft the rules and procedures for evaluation of compliance by its subordinate units and perform self-evaluation of compliance by its subordinate units, to which the provisions in Subparagraph D of the preceding paragraph do not apply.
If a banking business has a foreign business unit, the legal compliance unit should supervise the following tasks of the foreign business unit:
1.Collecting data on local financial regulations, conducting self-evaluation of compliance operation, and ensuring the suitability of compliance officer and the adequacy of compliance resources (including personnel, equipment and training) so as to ensure compliance with the laws and regulations of the host country or jurisdiction.
2. Establishing self-evaluation and monitoring mechanism for compliance risks, and for large business operation, highly complex business or business involving higher risk, engaging a local, outside, independent expert to verify the effectiveness of the self-evaluation and monitoring mechanism.
A financial holding company or banking business should perform self-evaluation of compliance at least semiannually. The results should be sent to the compliance unit for further reference. The head of a unit should designate a specific person to conduct the self-evaluation affair in each unit.
The self-evaluation draft and information for the preceding affairs should be kept at least five (5) years.Article 35 |
| Article 34- 1 |
A banking business governed by subparagraph 1, paragraph 2 of Article 32 shall establish a bank-wide risk-based management and supervision framework for legal compliance. The basis of such framework, functions and responsibilities are specified as follows:
1.The compliance unit shall set up the procedures, plans and mechanisms for identifying, assessing, controlling, measuring, monitoring, and independently reporting any compliance risk in order to generally control, supervise, and support each domestic or foreign department, branch, and subsidiary with respect to individual business unit, cross-department, and cross-territorial legal compliance.
2.The compliance unitshall set up an adequate number of professional units based on the classification or business, or points of legal compliance to monitor, implement and support the legal compliance the local or foreign business units related to that business or legislation.
3.The compliance unit may asses the appointment, and enhances the independence of each chief compliance officer by risk-based approach. Notwithstanding to the requirements in the first part of paragraph 4 of Article 32, an independent chief compliance officer is not required, and the legal compliance office of the head office will be responsible for a unit with lower compliance risk.
4.The compliance unit shall establish the mechanism of independent reporting, assessment and disposition of compliance risk alert.
5.The compliance unit shall assess the risk management of legal compliant for the primary operating activities, products and services, credit or business projects, and critical customer complaints subject to potential legal violation on a regular and ad-hoc basis, and shall establish the horizontal communication mechanism with other second lines of defense.
6.The compliance unit may request each unit to provide relevant information in order to understand the compliance risks across the bank.
7.The compliance unit shall consider the evaluation of the management board, and each chief officer of department to form the opinion of their implementation of legal compliance.
8.The banking business and its compliance unit shall fully understand the compliance procedures applicable to the foreign business units, and the criteria required by the local competent authority, and provide full resources and support.
9.The compliance unit shall specify the weakness of the compliance risk management, and supervise the improvement plans and schedules with respect to the local and foreign operations across the bank when reporting the legal compliance to the board of directors (or the council), and the supervisors or audit committee at least once every half year pursuant to paragraph 1 of Article 32; the board of directors (or the council) shall provide sufficient resources and appropriate mechanism of rewards and sanctions applicable to the business units in order to progressively establish a bank-wide culture of legal compliance.
10.The internal audit unit shall include the performance of the compliance office, and the assessment opinion of the compliance status across the bank when reporting the audit tasks to the board of directors (or the council), and the supervisors or audit committee at least once every half year pursuant to paragraph 1 of Article 10.
A banking business governed by the foregoing paragraph shall set up the dedicated compliance office and appoint the chief compliance officer at the head office pursuant to subparagraph 1, paragraph 2 of Article 32 within six months upon satisfaction of the applicable conditions, and report the adjusted risk-based management and supervision framework for legal compliance across the bank to the competent authority, and file the assessment reports under subparagraphs 5 and 9 in the foregoing paragraph with the competent authority by the end of every April. |
| Article 34- 2 |
In order to promote a robust operation, financial holding companies and banking businesses shall set up the whistleblower system, and designate a unit with independent functions at the head office to accept and investigate the reported issues.
A financial holding company or a banking business shall protect the whistleblower as below:
1.The whistleblower’s identity shall be kept confidential; no information that may be used to identify that person shall be disclosed.
2.The whistleblower shall not be terminated, dismissed, downgraded/relocated, given a reduction in pay, impairment to any entitlement under the law, contract or customs, or other unfavorable disposition due to the reported case.
Any interested person shall recuse himself from the acceptance and investigation of the reported case.
The whistleblower system, in paragraph 1, shall at least cover the following procedures, and be resolved by the board of directors (or the council):
1.Expressly specifies that anyone may file the report when discovering any crime, corruption, or potential legal violation.
2.The types of reporting that willbe accepted.
3.Establishes and publishes the channel of reporting.
4.The procedures of investigation and collaborative support, rules of recusal and the standard operating procedure of subsequent disposition mechanism.
5.Whistleblower protection measures.
6.Acceptance of reported case, investigation process, investigation results, records and retention of relevant document preparation.
7.The whistleblower shall be given appropriate notice in writing or by other means with respect to the progress of the reported case.
If the alleged perpetrator is a director (or council member), supervisor (or member of the board of supervisor), or a managerial officer of an equivalent level higher than vice president, the investigation report shall be reviewed by the supervisors (or members of the supervisory board, or the supervisory board), or the audit committee.
The financial holding company or the banking business shall report or file the critical incident, or material violation discovered in the investigation with relevant authorities.
A financial holding company or banking business shall hold regular promotional program and education training of the whistleblower system for its personnel. |
Section 5 Risk Management Mechanism |
| Article 35 |
A financial holding company or a banking business shall formulate adequate risk management policies and procedures and establish operationally independent and effective risk management mechanisms, by which to assess and monitor the respective risk-bearing capacity, and current status of risks already incurred, and to determine their compliance with the risk response strategies and risk management procedures.
The risk management policies and procedures under the preceding paragraph shall be passed by the board of directors and be reviewed and revised in a timely manner. |
| Article 36 |
A financial holding company or a banking business shall establish an independent risk management task force and regularly furnish risk management reports to the board of directors; upon identifying a significant risk exposure that might adversely affect its financial or business status or compliance with applicable acts and regulations, it shall take immediate and adequate countermeasures and submit a report to the board of directors.
For a credit cooperative, the establishment of the independent risk management task force mentioned in the preceding paragraph can be replaced by a designated management unit in its headquarters. |
| Article 37 |
The risk management mechanisms of a financial holding company shall include the following matters:
A. Monitoring the capital adequacy of the financial holding company and of all subsidiaries based on their respective business scale, credit, market, and operational risks, and future business trends.
B. Adopting adequate long- and short-term financing principles and guidelines, and establishing management mechanisms for measuring and monitoring the liquidity positions of the financial holding company and of all subsidiaries, by which to measure, monitor, and manage the liquidity risks of the financial holding company and of all subsidiaries.
C. Making various investment allocations after having considered the overall risk exposure, equity capital, and characteristics of liabilities of the financial holding company, and establishing various measures to manage investment risks.
D. Establishing uniform assessment methodologies for rating and classifying the quality of assets of the financial holding company and of all subsidiaries, calculating and controlling large risk exposures of the financial holding company and its subsidiaries, carrying out periodic reviews, and faithfully setting aside allowances or reserves for loss.
E. Building information security mechanisms and contingency plans with respect to business exchanges, transactions, or other activities between the financial holding company and its subsidiaries and between its subsidiaries. |
| Article 38 |
The risk management mechanism of a banking business shall include the following principles:
A. Monitoring the capital adequacy based on its business scale, credit, market, and operational risks, and future business trends.
B. Establishing management mechanisms for measuring and monitoring the liquidity positions of the banking business, by which to measure, monitor, and manage the liquidity risks.
C. Making various investment allocations after having considered the overall risk exposure, equity capital, and characteristics of liabilities, and establishing various measures to manage investment risks.
D. Establishing uniform assessment methodologies for rating and classifying the quality of assets, calculating and controlling large risk exposures, carrying out periodic reviews, and faithfully setting aside allowances or reserves for loss.
E. Building information security mechanisms and contingency plans with respect to business, transactions, and information exchanges or other activities. |
| Article 38- 1 |
Banking businesses shall assign a manager ranked vice president or above or an individualwith equivalent powers to serve concurrently as the chief information security officer, whoshall oversee the implementation and coordination of the information security policy andresource allocation. Banking businesses shall set up a dedicated information security office,and appoint the chief officer, who shall not be appointed to other posts of information, ortasks with conflict of interest, and shall arrange suitable workforce and equipment except asotherwise provided by the competent authority with respect to the credit cooperatives andbills finance companies.
A banking business shall set up a dedicated information security office and appoint a persona level higher than associate general manager or equivalent function to be the chief officer ofsuch dedicated information security office if its total assets of the previous year as audited bya CPA have exceeded NTD 1 trillion.
The dedicated information security office is in charge of planning, monitoring, andimplementing the management processes of information security. The banking enterpriseshall submit, disclose, and publish the Internal Control System Statement in accordance withthe regulations in Paragraph 1, Article 27 and the chief information security officer shalljointly sign and issue the Statement.
The personnel of the dedicated information security office of the banking business shallattend at least fifteen (15) hours of professional courses of information security, or on-the-job training every year. The personnel of the head office, local and foreign business units,information units, financial custody unit, and other managerial units shall attend no less threehours of promotional program of information security every year.
The Bankers Association, the National Federation of Credit Cooperatives, and the BillsFinance Association shall establish and regularly review the self-disciplinary regulations ofinformation security.
Banking businesses governed by paragraph 2 shall implement the adjustments within sixmonths upon satisfaction of the applicable conditions. |