2017.3.22
Teresa Huang
The Financial Supervisory Commission (hereinafter, the “FSC”) promulgated Articles 6-8, 28, 31-34, 37, 38 and 46 of the Implementation Rules for Internal Control and Audit System of Financial Holding Companies and Banking Industries (hereinafter, the “Rules”) as amended and added Articles 5-1, 7-1 and 42-1 via the Jin-Guan-Yin-Guo-10620000150 Directive of March 22, 2017. The amendments are highlighted below.
I. The board of directors (governors) shall assume the ultimate responsibility for the internal control system.
Article 5-1 of the Rules as amended provides that the board of directors (governors) shall recognize operating risks, supervise operating results and assume the ultimate responsibility for the internal control system. Article 7-1 of the Rules as amended provides that the code of ethics for directors (governors) shall at least include the requirement that when a director (governor) identifies any likelihood of material damage to the financial holding company and the banking industry, such issue should be promptly and properly handled with prompt notification to the audit committee or the independent directors who are members of the audit committee or to the supervisors (supervisors or the board of supervisors) and with reporting to the board of directors (governors). In addition, the affiliated financial holding company and the banking industry should be asked to notify the competent authority.
II. It is specifically stipulated that three lines of defense for internal control should be set up.
Article 6 of the Rules as amended provides that a financial holding company and the banking industry shall set up three lines of defense for internal control on their own, namely, a self-audit system, a legal compliance system and risk management mechanisms and an internal audit system so as to maintain effective and proper operation of an internal control system. The implementation procedures in the practical guidelines for the three lines of defense for internal control by a bank will be formulated by the Bankers Association of the Republic of China and submitted to the competent authority for reference.
III. It is specifically stipulated that the internal audit unit of the head office shall promptly report to the board of directors and supervisors
Article 42-1 of the Rules as amended provides that after a financial holding company and the banking industry is inspected by the competent authority or the applicable local competent authority for its overseas branch office or after an inspection report is received, the internal audit unit of the head office shall promptly report to the board of directors and to the supervisors pursuant to the principle of materiality. The report should include details about the inspection communication meetings, major irregularities identified during inspection, rating downgrade by the financial authority, major rectification arrangements requested by the competent authority or potential sanctions and penalties.
IV. The reporting items of the legal compliance officer of the head office and the qualifications of compliance personnel are added.
These amendments also contain additional provisions such as the reporting items of the legal compliance officer of the head office, the qualifications and training of compliance personnel and independence of the legal compliance officer of an overseas business unit.