EDITORIAL: Tighter financial regulation is working

EDITORIAL: Tighter financial regulation is working

Taiwan’s banking, insurance and securities regulators issued fines of NT$66.68 million ($2.23 million) in the first half of the year, down from 60.2 % compared to the same period last year, according to data released earlier this month by the Financial Supervisory Commission. It is still unclear whether the downward trend in fines will continue in the second half. Barring large-scale fraud before the end of the year, the total penalties could reach their lowest level in years, which would certainly be good news. Nevertheless, regulators issue fines as an incentive for financial firms to fix their shortcomings, not as a way to generate revenue.

The government grants special licenses to banks, insurance companies, and securities and futures companies to operate their businesses, but it also imposes sanctions and disciplinary measures on these companies if they violate laws and regulations. In 2019, the legislature revised the Banking Law (銀行法), Insurance Law (保險法), and Securities and Foreign Exchange Law (證券交易法) to significantly increase the upper limits of fines, in the hope to fight financial crime and protect the rights and interests of Taiwanese people.

Amendments to the Banking Law increased the maximum fine for banks that violated internal control and auditing regulations or failed to comply with financial audits from NT$10 million to NT$50 million. Amendments to the Insurance Act increased the maximum fine for carrying on insurance business without approval to NT$30 million from NT$15 million, among others. As a result, fines imposed on financial companies exceeded NT$300 million for the first time in 2019, reaching NT$300.38 million, compared to NT$198.28 million in 2018. The amount further increased to NT$326. .13 million NT$ in 2020 and reached NT$334.82 million last year. , the commission’s data showed.

The increase in fines over the past three years reflects tougher penalties for financial firms following the revelation of several thefts by investment specialists and wealth management staff at local banks. As financial firms tighten their internal controls and increasingly meet regulatory compliance requirements, the maximum fine for a single case last year was NT$6 million, compared to several cases with fines of 10 to NT$30 million in previous years. As a result, sanctions imposed by financial regulators from January to last month were significantly lower than a year earlier, the data showed.

In addition to fines, regulators’ penalty actions include corrections, improvement requirements, warnings and restrictions, as well as requiring a company to fire directors, supervisors and managers. Indeed, regulatory oversight is not supposed to focus solely on imposing heavy penalties, but on improving financial firms’ shortcomings. The commission said most of the penalties it issued this year were corrections and warnings.

Fraud investigations take time, as does implementing remediation across businesses. It usually takes several months from the financial inspection stage to the announcement of sanctions, and because of this delay, it is too early to judge whether the improvements in internal controls and regulatory compliance during the first half of the year will continue in the second. half, especially as regulators scrutinize companies’ chaotic selling of COVID-19 insurance policies earlier this year, which could lead to penalties in the coming months.

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