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.