Taiwan banks face higher systemic risk in the long run, says Fitch

Taiwan banks can be expected to face higher systemic risk in the long run due to increasing opportunities for credit exposure to Taiwanese companies operating in China, according to a new report from ratings agency Fitch Ratings. Cherry Huang, an analyst at Fitch, told Compliance Complete that an increasing number of loans made by Taiwan banks to Taiwanese companies operating in mainland China could increase systemic risk in the island's banking system.

In a recent report on the outlook for banks in Asia-Pacific, Fitch said that while Taiwanese banks' China-related credit would remain around eight percent of total assets in the coming year, the condition could become riskier in the longer term.

Banks in Taiwan are lobbying the island's financial regulator, the Financial Supervision Commission (FSC), to lift the regulatory ceiling for China-related credit exposure. However, the Fitch report pointed out that China was ranked highest in terms of systemic risk, according to a micro-prudential index (MPI), whereas Taiwan was ranked near the bottom.

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Chinese corporate issuers should improve information disclosure and corporate governance, says Fitch

First-time Chinese corporate issuers have been urged by Fitch Ratings to improve their post-bond deal information disclosure and make sure they pass on adequate information to international bond investors promptly.

Matt Jamieson, the head of APAC Research at Fitch Ratings, told Compliance Complete that due to a lack of experience, Chinese corporate issuers often did not understand the requirements for information disclosure to international bond investors. He said their delayed pace of information disclosure prohibited investors from being sufficiently updated on the current affairs of the companies they have invested in.

In a recent report, Fitch said some investors had expressed frustration that the level of communication from many Chinese corporate treasury teams had been extremely poor, when compared to other multinational corporates issuing bonds.

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Hua Xia case highlights regulatory risks posed by mis-selling, says lawyer

A recent case involving the suspected mis-selling of a wealth management product by Hua Xia Bank in China has showcased the risks banks face from individual sales staff acting on their own, according to a Beijing lawyer. Her comments followed an announcement earlier in December that a former employee of the bank had mis-sold a high-risk wealth management product (WMP) to a customer without explaining the risks involved. The WMP later stopped making repayments.

The Hua Xia incident was an extreme example of how things could go wrong, and reflected a failure by the bank's risk management department to spot the risk, said Jane Jiang, partner at law firm Allen & Overy in Beijing. She said the case revealed that the contractual relationship between the bank and its customers was not clear. If the former Hua Xia employee sold WMPs at the bank’s counter, the bank arguably gave implied authorisation by allowing such WMPs to be sold at the bank, said Jiang.

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Chinese life insurers face new risks and challenges from investment liberalisation

Chinese life insurers face new investment risks from issues such as complexity and non-transparency, after the country’s insurance regulator earlier this year broadened the investment scope for insurers by allowing them to hold a wider range of investments, said a report by Fitch Ratings.

Joyce Huang, director of Fitch Ratings’ Asia-Pacific insurance team and author of the report, told Compliance Complete that life insurance companies in China need to be fully prepared to face challenges posed by the range of new investment products.

"Generally, products will be more complicated, [and] it is not that transparent compared to if [life insurance] companies buy government bonds or corporate bonds," she said. "Usually they [government and corporate bonds] have ratings -- that would be the main difference. Liquidity can also be an issue due to no secondary market being available."

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Training and culture vital to ensuring strong compliance, conference hears

The compliance profession is a people industry, and employers need to understand why they are training people and how training will affect their company’s business, said speakers at a Hong Kong conference. In a panel debate on compliance and training at the third Pan-Asian Regulatory Summit in Hong Kong, organised by Thomson Reuters, panellists said training and a culture of compliance was key to avoiding a wide range of risks such as reputational damage and fines.

David Nutman, regional head of compliance at Prudential in Asia, said at the conference that one of the other key factors for companies to consider was recognition for compliance officers.

"Recognition is very important, [it] is not just about positioning compliance from a financial point of view, it is equally about positioning them ...in an organisation to influence and make a direction change in behaviour generally."

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