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Amendment of “Operating Guidelines for Banks Selling Financial Products to Non-Wealth Management Customers”
From: Financial Supervisory Commission, Executive Yuan
Date: 2006/06/29
Ref. No.: Jin-Kuan-Yin-(5)-Zi-No. 09585001060
Subject: The amended Operating Guidelines for Banks Selling Financial Products to Non-Wealth Management Customers submitted by your Association has been approved as attached. Please advise your member institutions to observe the Guidelines accordingly and step up the propagation of the Guidelines and related regulations.
Explanation:
1. This is in response to your letter dated February 9, 2006 (Ref. No. Chuan-Feng-Zi- No.0442).
2. With respect to your proposed amendment to subparagraph 2, paragraph 1, Article 5 of the Guidelines concerning the qualifications of a financial products salesperson to sell financial derivatives, 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 products salesperson is not required to obtain the qualification of Futures Specialist or the qualification of Futures Trading Analyst in order to sell domestic or foreign financial derivatives, unless otherwise required by the Futures Exchange.
3. The Directions for Banks Selling Financial Products to Non-Wealth Management Customers are drawn up in reference to the Directions for Banks Engaging in Wealth Management Business mainly for protecting the interests of regular bank customers. To simplify the practical operation of the banks, the aforementioned Directions need not apply to the corporate customers of the banks.
4. In accordance with the FSC letter dated July 21, 2005 (Ref. No.: Jin-Kuan-Yin-(5)-Zi-No. 0945000514), banks are required to bring their operating rules and guidelines up to requirements by August 1, 2006. But to give banks more time to respond to the newly promulgated Operating Guidelines for Banks Selling Financial Products to Non-Wealth Management Customers, banks are given until October 1, 2006 for making necessary adjustments.
Operating Guidelines for Banks Selling Financial Products to Non-Wealth Management Customers
Article 1
To enhance the service quality of banks’ business of selling financial products to non-wealth management customers, 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 3 and paragraph 2 of Point 8 of the Directions for Banks Selling Financial Products to Non-Wealth Management Customers promulgated by the Financial Supervisory Commission.
Article 2
The term “financial product” depicted in the Guidelines herein means domestic and foreign investment financial products sold by non-wealth management units of banks, excluding deposit and loan products (structured deposits are considered the subject financial products under the Guidelines herein).
Banks should sell lower risk and less complex financial products to their non-wealth management customers, set forth specific and objective criteria for determining level of risk and complexity, and evaluate the reasonableness of criteria periodically. However if following analysis a bank deems that a customer possesses considerable professional knowledge or risk bearing capacity, the bank may sell the customer higher risk and more complex financial products.
Article 3
A bank’s business personnel selling financial products to non-wealth management customers (called “financial products salespeople” hereunder) are personnel selling all kinds of financial products to customers other than those of the bank’s wealth management unit.
Financial products salespeople shall observe the principles of good faith and prudence, and follow the customer’s instructions in conducting trading.
Article 4
A bank shall establish a set of product suitability policy for its business of selling financial products to non-wealth management customers, 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 products salespeople from engaging in improper sales activities. The content of the product suitability policy may be adjusted according to the risk level and complexity of the financial product, but should observe the basic principles outlined in the Guidelines herein.
The term “product suitability policy” means when a bank sells a product to its customer, the bank should not only disclose the features and risks of the product, but also consider, in reference to the standards set forth in Article 2 herein, which 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 the business of selling financial products to non-wealth management customers, 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:
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
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 customers suitable products or portfolios according to a risk level based on customer’s 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 exercise due diligence and fiduciary duty as a bona fide conductor when engaging in the business of selling financial products to non-wealth management customers, sell customers suitable products or portfolios based on their risk tolerance. Unless proper authorization, the bank shall not sell customers products beyond the customers’ financial capability or unsuitable for the customers.
Article 5
Financial products salespeople should meet the following qualification requirements based on the business they engage in:
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 selling 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 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 products salesperson for selling 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 sell insurance products, a financial products salesperson shall respectively meet the following qualification requirements:
(1) Having passed the qualification examination for property insurance agent and received a credential for selling property insurance products.
(2) Having passed the qualification examination for life insurance agent and received a credential for selling life insurance products.
(3) Having passed the examination for investment-linked insurance agent and received a credential for selling investment-linked insurance products.
4. To sell trust products, a financial products salesperson shall have passed the Professional Test on Trust Business for Trust Personnel and received a credential.
5. To sell structured products, a financial products salesperson 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 meet the qualification requirements of respective business.
In addition to provisions specified in the first paragraph hereof, a bank may, at its own discretion, adjust the qualification requirements for its financial products salespeople depending on the complexity of products offered.
Any person having any of the following situations below is considered unqualified to be a financial products salesperson:
(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 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 activities 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 activities 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 proves 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 financial products salespeople.
Financial products salespeople shall conform to the qualification requirements provided in the Guidelines herein in one year subsequent to its promulgation.
Article 6
Where a bank’s business of selling financial products to non-wealth management customers bank involves the concurrent operation of other chartered financial businesses, the bank shall comply with the requirements of respective business in terms of personnel training and shall design a training program for related personnel to enhance their professional competence. Such training program shall contain and cover the following:
1. Two kinds of training courses for personnel relating to the sale of financial products to non-wealth management customers:
(1) In-house training courses
a. According to “Directions for Banks Engaging Selling Financial Products to Non-Wealth Management Business”, the bank shall set up a training and performance appraisal system for financial products salespeople.
b. In principle, the training courses, which include employ orientation programs, on-the-job training and professional courses should be conducive to enhance non-wealth management personnel’s professional skills to conduct relative 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. Direct supervisors of financial products salespeople shall take the sale of non-wealth management training courses every year (may be taken in separate sessions) offered by the bank or financial training institutes. The accumulative training hours per year for direct supervisors of financial products salespeople shall be no less than at eight (8) hours.
3. Financial products salespersons shall take relevant wealth management training courses every year (may be taken in separate sessions) offered by the bank or financial institutes .The cumulative training for financial products salespeople shall be no less than sixteen (16) hours
When annual cumulative training hours for sale of financial products to non-wealth management exceed the annual minimum requirement above, the excess training hours should not be reserved for deduction form the training hours in the following year.
4. For the purpose of supervision conducted by the internal auditor 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 personnel relating to the sale of financial products to non-wealth management.
5. If commissioned by competent authorities, BAROC may review and approve the sale of financial products to non-wealth management training courses offered by outside financial training institutes.
6. The scope of training courses for sales of financial products to non-wealth management shall include:
(1) Business guidelines, and code of ethics and professional conducts.
(2) Professional courses relating to financial products.
(3) Other sales of financial products to non-wealth management courses.
Article 7
When engaging in the business of selling financial products to non-wealth management customers, a bank shall comply with the Guidelines herein and the respective applicable regulations governing other financial businesses.
Article 8
These Guidelines, and 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. |