Newsletter
NEW FSC GUIDELINES FOR THE SALE OF FINANCIAL PRODUCTS BY BANKS
In July 2005, the Financial Supervisory Com-mission (FSC) amended the Guidelines Gov-erning Wealth Management Business of Banks (WMB Guidelines) and promulgated the Guide-lines Governing Sales of Financial Products by Banks to Non-Wealth-Management Division Customers (NWMB Guidelines).
The amendments to the WMB Guidelines deal with the assessment and determination of the eligibility conditions for wealth management customers by a bank in accordance with market conditions and its business strategy; the range of financial products that a bank may recommend or sell to its high-net-worth and non-high-net-worth customers respectively; and the restriction on the sale of financial products with excessive risk and/or excessively complex structures.
Also, as the terms "wealth management" and "wealth manager" have become widely used in the marketplace (often inappropriately), to avoid misleading the general public, the FSC requires in the WMB Guidelines that the use of the above terms should be exclusively reserved for quali-fied business activities and personnel. To en-courage banks with sound operations to conduct wealth management business, the FSC, pursuant to its policy of differentiated regulation, pre-scribes in the WMB Guidelines that a bank ful-filling certain conditions may file a report to-gether with related documents to the FSC for engagement in the wealth management business. The approval will be deemed granted if the FSC does not reject such application within 15 days.
In order to strengthen the supervision on wealth managers to ensure that when providing services to customers, they will observe relevant opera-tional rules and fully inform customers of their rights and obligations, banks are also required to draw up personnel management rules, standard operating procedures and handbook of custom-ers' rights for their wealth managers. The FSC has also introduced more stringent rules for the assessment of customers' investment capacity, the use and confidentiality of customers' data, the detection of money laundering, the control of transaction amounts, the liability of banks for the sale of fraudulent products and for the failure to duly inform customers of the risks associated with relevant products, the disclosure of com-missions and charges, and the upgrading of banks' data management systems.
In view of the similarities in basic operation rules and in risks management between the sale of financial products to ordinary customers by banks' non-wealth-management divisions and to high-net-worth customers by their wealth man-agement divisions, the FSC intends to apply consistent rules for the sale of financial products to both high-net-worth customers, and ordinary customers, and has therefore promulgated the NWMB Guidelines based on the provisions of the WMB Guidelines, which addresses the eli-gibility conditions for personnel selling such products, the "know your customers" require-ments, detection of abnormal or suspicious transactions, promotion of business, insider trading and conflicts of interest, and the handling of disputes with customers.