Regulations Amended by the FSC to Raise the Qualifications for Professional Institutional Clients of Financial Derivatives(Taiwan)

Young Zheng
The Financial Supervisory Commission (hereinafter, the “FSC”) promulgated the amendments to Articles 3, 4 and 20 of the Regulations on Internal Operation System and Procedural Management of Financial Derivatives Handled by Banks (hereinafter, the “Regulations”) and add Articles 2-1, 3-1, 25-1 and 38-1 via the Jin-Guan-Yin-Wai-1055000330 Directive of January 30, 2016. The amendments to the Regulations are highlighted below:

The total asset requirement for a professional institutional client under Article 3, Paragraph 1, Subparagraph 3 of the Regulations as amended is increased from the original NT$50 million to NT$100 million, and written application is required so that the client is clearly aware of its status. A transition rule is adopted to deal with a professional client that meets the qualification requirement before the amendments but does not have assets in excess of NT$100 million, so that such client will not be subject to the product appropriateness restriction since it is currently reduced from a professional client to an ordinary client. This type of client may continue to conduct liquidation transactions or transactions that reduce its overall exposure with banks as a professional client. However, a bank shall not handle new transactions by expanding relevant limits or extend terms of contracts.

Article 25-1 of the Regulations as amended stipulates that the complex and risky products are not intended for (1) natural person clients and (2) ordinary institutional clients conducting non-hedging transactions. The amendments also restrict the contractual terms of complex and risky foreign exchange products and the loss ceiling of complex and risky non-foreign exchange products. In addition, banks are also required to consider the trading limits between clients and other financial institutions when providing or extending client limits to prevent a client’s overall exposure from exceeding its risk assumption capability. It is also additionally stipulated that a bank shall set up mechanisms for initial margins and margin calls.

Article 38-1 of the Regulations is added to stipulate that when handling financial derivatives, a bank is required to thoroughly follow the self-regulation code set by the bankers’ association.