Data Source:Laws and Regulations Retrieving System of the Banking Bureau

GUIDELINES FOR BANKS ENGAGING IN WEALTH MANAGEMENT BUSINESS
(the "Guidelines")


Promulgated by the Financial Supervisory Commission

As last amended on

July 21, 2005

Article 1

Banks engaging in the wealth management business shall comply with these Guidelines.

Article 2

"Wealth Management Business" shall mean a bank's, wealth management sales representative ("Sales Representatives") preparing financial plans or engaging in asset/liability management for High Net Worth customers based on customer needs so as to provide consumers with various types of Financial Products and Services which the bank legally provides.

The bank shall define "High Net Worth Customer", as used in the preceding paragraph, according to the bank's operational strategy and shall clearly set out the scope of financial products permitted to be planned for or sold to High Net Worth Customers or non-high net worth customers. In addition, the bank shall avoid selling financial products which are overly risky or too complicated to non-high net worth customers.

Banks engaging in wealth management business which involve foreign exchange business must obtain approval from the Central Bank of China ("CBC").

Article 3

Any Wealth Management Business involving securities investment consulting services or futures consulting services shall require the approval of the Securities and Futures Bureau in accordance with the criteria for establishment of a securities investment consulting enterprises or futures consulting enterprises.

Article 4

Banks which meet the following qualifications shall, after obtaining approval to conduct the business from the bank's board of directors (board of managers) (branches of a foreign bank may obtain such approval from the person authorized by the head office) , submit a report to the competent authority together with the operating policies and handling guidelines for such business. If no objection is received from the competent authority within fifteen (15) days from the date such report is filed, such report shall be deemed to have been approved by the competent authority:

(1) The Bank's ratio of capital to risk assets shall equal or exceed eight percent (8%);

(2) The Bank shall have a credit rating of twBBB or above from Taiwan Ratings, r BBB(twn) or above from Fitch Ratings, Taiwan Branch, or Baa2.tw or above from Moody’s Taiwan Corporation, or BBB or above from Fitch Ratings Ltd., BBB or above from Standard & Poors or Baa2 or above from Moody’s Investors Service; and

(3) Have not been sanctioned under Article 61, Paragraph 1, Sections 2 to 5 of the Banking Law within the past six (6) months.

If a bank does not satisfy item (3) of the preceding paragraph but improvement has been made and substantive evidence is provided regarding such improvement, item (3) shall not apply.

The operating policies and handling guidelines described in Paragraph 1 shall include the following:

1. The operating policy shall include, at the minimum, a development strategy, a definition of High Net Worth Customers, the service scope, financial targets (e.g. income, asset management scale and/or expected target on developing new customer numbers) and risk capacity of the Wealth Management Business.

2. The handling guidelines shall include, at the minimum, organization structures, personnel qualification requirements, handling procedures, an internal control system, a risk management system and an internal audit system.

Article 5

A bank engaging in the Wealth Management Business shall establish a department and personnel independent of other departments exclusively responsible for business plans, business execution and the management of Sales Representatives.

Personnel not in the department responsible for wealth management shall not engage in the sale of products in the name of wealth management, and such personnel are prohibited from handling wealth management business using the title of Sales Representative.

A Sales Representative is not permitted to engage in the Wealth Management sales business unless he/she meets qualification requirements. The required qualification shall be established by the BA and submitted to the authority for approval. However, if the business involves other financial businesses which require approval, personnel requirements for such businesses shall be handled in accordance with regulations governing such businesses.


Article 6

A bank engaging in the Wealth Management Business shall establish and implement an internal control system and a risk management system. The above systems shall, at the minimum, include the following:

1. Personnel management guidelines for Sales Representatives;

2. Know Your Customer Guidelines;

3. Guidelines for unusual or suspicious transactions;

4. Guidelines for risk management of business expansion and customer accounts;

5. A system to prevent insider trading and conflicts of interest; and

6. Procedures for handling customer complaints.

Article 7

The personnel management guidelines for Sales Representatives as described in Article 6 shall include qualification requirements, professional training, professional ethics rules, wages and rewards, and an audit system.

For the purpose of promoting quality of wealth management Sales Representatives, the bank shall continuously provide educational training for its personnel, and establish standardized compliance procedures for business personnel .

Article 8

The "Know Your Customer Guidelines" as referred to in the above article shall, at the minimum, include:

1. Standards for Approval of a Customer’s Applications:

The standards shall specify minimum transaction amounts, transaction conditions and in which circumstances a bank may reject a customer’s application;

2. Standards for Verification of Account Opening:

(1) A bank shall establish handling procedures for verifying account opening applications and collecting, verifying and recording information (i.e. identification of a customer and his/her beneficiaries, financial condition, income and fund sources, risk preferences, past investment experience, and objectives and need for opening an account). Stricter procedures for verification and approval shall be required for customers where the customer or his/her family members have a specific background or a high risk occupation; and

(2) When a bank approves a customer’s account opening application, the competent department(s) or person(s) shall re-check the customer’s account opening procedures to determine whether the documents submitted by the customer are genuine and complete.

(3) When a customer authorizes a third party to sign and open an account, a separate evaluation shall be conducted on such third party so as to understand the ultimate beneficiary of such account.

3. Evaluation of Customer’s investment capacity: When evaluating a Customer’s investment ability and accepting the Customer’s mandates, in addition to making reference to the information described in the preceding paragraph, the following information shall also be considered:

(1) The Customer’s funds availability and professional knowledge;

(2) The Customer’s investment habits, understanding of risk and risk tolerance level;

(3) The suitability of the service provided to the customer, and the suitable scope of investment or transaction amounts.

4. Regular Examination System: A bank shall establish a system which permits Sales Representatives to periodically contact customers by telephone or in person in order to stay up to date on any changes in a customer’s financial or business status, to update the customer’s database, and to review and evaluate the Customer’s investment ability accordingly. Internal audit personnel shall periodically verify customer data to ascertain whether such data is complete and in order. The frequency of examination and verifications should be determined by the transaction amount, complexity of the transactions and the risk level of the transactions.

5. Use of Customer information and confidentiality: The scope and level of use and maintenance of Customer information, and control mechanisms for preventing inappropriate use, such as leaking, of Customer information.

Article 9

The "Guidelines for Unusual or Suspicious trades" as referred to in the Article 6 shall, at the minimum, include:

1. Establishment of a management system for identifying, tracking and controlling unusual or suspicious trades;

2. Establishment of a trading management system for high risk customers; and

3. Establishment of a training system for anti-money laundering.

Article 10

The "Guidelines for Handling the Risk Management of Business Expansion and Customer Accounts" referred to in Article 6, shall, at the minimum, include:

1. A bank promoting its Business shall put in place, rules for the production of advisements and marketing information which shall include publicly announced control procedures. The head of a department, a legal officer, or a compliance officer shall confirm all advertisements or marketing information for all products or services so as to ensure that such are not improper, misleading or illegal;

2. A bank shall establish product suitability policies, which shall include classification of customer risk levels or product risk level, so as offer appropriate products to customers in consideration of their risk bearing capacity. A bank shall establish a supervisory system to prevent Sales Representatives from improper promotion or consulting;

3. Wealth management consulting advice given by a bank shall be in writing and be kept for future verification;

4. When a bank issues specific products, it shall provide customers with product description documents. Such documents shall describe product characteristics, including risks, handling fees and other expenses. After a Sales Representative provides such product description to a client, records thereof shall be kept for verification. The bank shall examine whether the Customer is involved in any money laundering or illegal transactions and issue a report thereon confirmed by the Customer;

5. A bank shall prepare a Customer’s rights brochure and provide it to the Customer. The brochure shall include the contents, possible risks involved and other specific agreed items with respect to the financial products or services provided by the bank, and fully disclose the methods of collecting fees by the bank for handling the business. In addition, information related to maintaining customers rights such as the channel for accepting Customer comments and complaints, investigation, response and the handling of Customer comments and complaints shall also be included in the brochure.

6. If the bank recommends or sells products issued by other institutions, the bank shall be liable for disputes regarding product promotions inconsistent with the facts, or failure to fully disclose risk, and shall fully disclose such liability to the Customer in the Customer’s rights brochure described in Section (5).


7. The bank shall establish a transaction control mechanism so as to avoid providing products or services which exceed credit limits, financial status or scope of suitable investment of the Customer, and avoid unauthorized or inappropriate business behavior by Sales Representatives.

8. A bank shall establish a system to periodically or intermittently report (to customers). Unless otherwise provided by applicable laws and regulations, the contents, scope, methods and timing of such reports shall be in as agreed between the parties;

9. The periodically or non-periodically prepared statements referred to in the preceding paragraph shall not be prepared or provided by sale representatives; and

10. A bank engaging in the Wealth Management Business shall periodically assess the Wealth Management Business effect on a customer’s net worth and adopt necessary procedures.

Details of the product suitability policy referred to in Item 2 of the preceding paragraph shall be adopted by the BA and reported to the authority for approval.

Article 11

The "System to Prevent Insider Trading and Conflicts of Interest" referred to in Article 6 shall, at the minimum, include:

1. To prevent improper disclosure of information to unauthorized person(s), the bank department or person(s) engaging in the Wealth Management Business shall be separated from other departments or persons.

2. A bank shall establish criteria governing employee behavior. Such criteria shall, at the minimum, include the reporting of gifts or entertainment, keeping customers’ information confidential, a prohibition on insider trading, the mandatory reporting of money laundering;

3. Persons engaging in the Wealth Management Business shall not directly or indirectly demand, agree to or accept, accept improper money, properties or other benefits to influence the objectivity of professional judgment and duty of execution. A bank shall ensure that no compensation system will influence objectivity and fairness of Sales Representatives’ promoting specific products.

4. When a bank engages in the Wealth Management Business uses a product purchase as a condition of customers’ applying for credit line or investments, the bank shall disclose the income distribution status of such credit line or investments to the customer and not violate the Fair Trade Law and related regulations.


5. If a person engaging in the Wealth Management Business possesses information related to buying and selling a product from a customer and such information will result in the possibility of a conflict of interest or undue enrichment, such person shall not enter into the transaction.

6. The compensation system for Sales Representatives shall not be based solely on commissions, growth of assets mandated for planning by the Customer or like factors and Sales Representations shall not recommend products based on the amount of commission to be received. Solicitation of products using specified interest or untrue advertisements is prohibited.

7. A bank shall fully disclose the calculation basis and details of fees for providing various products and services.

8. A bank shall fully inform the Customer of handling fees, commissions and other fees actually received by the Bank for providing wealth management services.

Article 12

The "Procedures for Handling Customer’ Complaints" as referred to in the Article 6 shall, at the minimum, include procedures as to taking charge of complaints, procedures to respond to complaints and procedures to properly investigate complaints.

Article 13

When engaging in the business of wealth management, a bank’s management information system shall be continuously upgraded in accordance with the development of the business and the level of complexity, so as to comply with the relevant regulations set by various operating procedures, including the immediate establishment and updating of Customer information, and control of unusual and suspicious transaction by the customer, etc. Personnel of each department shall actively participate in the design and testing of the system’s function, so as to ensure that the bank is in compliance with relevant regulations when handling the business.

Article 14

A bank shall incorporate the contents of these Guidelines into its internal control/audit items and handle internal audits and verifications pursuant to the Rules for Establishment of Bank Internal Control and Audit System.

Article 15

If a bank engaging in the Wealth Management Business violates the Guidelines, the authority may, based on the severity, punish the bank in accordance with Article 61-1 of the Banking Law.