The Financial Supervisory Commission (hereinafter referred to as FSC) approved a penalty on Cathay United Bank for violation of regulations. After receiving reports from customers, Cathay United Bank conducted internal investigations and discovered that dozens of customers’ funds had been misappropriated by a former staff of Lanya Branch. The bank failed to implement mechanisms for reviewing the process of re-encoding magnetic strip of customers’ passbooks and failed to implement the custody and control of tax payment collection stamps and credit card payment collection procedures. It also failed to effectively urge the employee to comply with the code of conduct. The FSC identified that the bank had failed to rigorously implement a comprehensive internal control system, which violated regulations in Article 45-1, Paragraph 1 of the Banking Act, and regulations in Article 3, Paragraph 1 and Article 8, Paragraph 1 and Paragraph 3 of the "Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries" established based on the authorization therein. The FSC therefore imposed a penalty of NT$8 million under Article 129, Subparagraph 7 of the Banking Act. 
I.    Penalized entity: Cathay United Bank
II.    Legal basis for penalty: Article 129, Subparagraph 7 of the Banking Act
III.    Facts and reasons of violations: The former staff of the bank's Lanya Branch, surnamed Chen, affixed customer seals on withdrawal certificates to withdraw funds without permission, and re-encoded customer data on Chen’s own passbook magnetic strip. Chen then forged customer signatures for fund withdrawals and used the delayed credited of credit card payments collection or housing tax payments collection to misappropriate customer funds. Sixty-one customers were affected and approximately NT$4.3 million was misappropriated.
IV.    The FSC identified that the bank had violated Article 45-1, Paragraph 1 of the Banking Act and Article 3, Paragraph 1 and Article 8, Paragraph 1 and Paragraph 3 of the Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries established in accordance with the authorization granted therein:
1.    Failed to implement mechanisms for reviewing the process of re-encoding magnetic strip: According to the bank's deposit and remittance business guidelines, when the staff need to process magnetic strip re-encoding procedures, they must transmit the transaction information online to the supervisor for immediate authorization after inputting related data into the system. The procedure can only be completed after being confirmed online by the supervisor. However, the supervisor of the said branch did not exercise the confirmation process to review whether the information in the system matched the information in the passbook before approving the authorization.
2.    Failed to implement the custody and control of tax payment collection stamps and credit card payment collection procedures:
(1)    The bank's tax payment collection procedures and deposit and remittance business guidelines state that staff must submit the transaction certificates and payment certificates to the authorized supervisor who is responsible for custody of the tax payment collection stamp for review after the customer has paid the tax. The authorized supervisor will affix the tax payment collection stamp and provide the receipt to the customer. The authorized supervisor who is responsible for custody of the tax payment collection stamp, in this case, failed to ensure secure custody of the stamp and Chen was able to obtain the stamp and use it without permission.
(2)    The bank's deposit and remittance business guidelines state that the staff must verify the amount of the customer's credit card payment in front of the customer before logging the payment in the system. The system automatically prints the receipt stamp on the customer's receipt after the transaction is completed. However, Chen did not log the payment immediately after collecting payment but affixed her small personal seal on the credit payment collection certificate before handing over the payment certificate to the customer.
3.    Failed to urge employee to comply with the code of conduct: Although the Bank states in its "Code of Conduct for Prohibited Actions Between Employees and Customers" that employees may not misappropriate customer funds or commit other violations, the bank failed to ensure that the personnel in these cases comply with related regulations, which led to the occurrence of the fraudulent conduct in this case.
V.    Results of penalties:
1.    Penalties: For violations of Article 45-1, Paragraph 1 of the Banking Act and Article 8, Paragraph 1 and Paragraph 3 of the Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries, the FSC imposed a fine of NT$8 million under Article 129, Subparagraph 7 of the Banking Act.
2.    Other enforcement actions:
(1)    The bank is required to set aside additional capital for operational risks under Article 18, Paragraph 3 of the “Regulations Governing the Capital Adequacy and Capital Category of Banks”.
(2)    The bank is required to follow regulations in Article 3 of the "Internal Control Principles for the Prevention of Misappropriation of Client Funds by Wealth Management Relationship Manager" of the Bankers Association of the Republic of China (hereinafter referred to as the Bankers Association) and send the patterns of criminal activities in this case for disclosure on the dedicated section on the website of the Bankers Association. The bank shall also report the personnel who violated laws or were found negligent in this case in accordance with the "Guidelines for Reporting Information of Negligent Personnel of the Banking Industry" of the Bankers Association.