FSC imposes administrative penalty on Yuanta Commercial Bank for deficiencies involving the misappropriation of overdue receivables by a former employee of its Debt Collection Department
2024-05-14
The Financial Supervisory Commission (hereinafter referred to as FSC) approved a penalty on Yuanta Commercial Bank (hereinafter referred to as Yuanta Bank) for violation of regulations. Yuanta Bank conducted its independent review and discovered the misappropriation of overdue receivables by a former employee of its Debt Collection Department . The deficiencies in this case demonstrated that the bank had failed to establish and rigorously implement a comprehensive internal control system for the collection of non-performing loans, including the monitoring and management of employees conduct, protection of customer rights and interests, etc. The aforementioned situation was in violation of regulations in Article 45-1, Paragraph 1 of the Banking Act, and regulations in Article 3, Paragraph 1 and Article 8, Paragraphs 1 and 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$4 million in accordance with Article 129, Subparagraph 7 of the Banking Act.
I. Penalized entity: Yuanta Bank
II. Legal basis for penalty: Article 129, Subparagraph 7 of the Banking Act.
III. Facts and reasons of violations:
(I) The former employee of the bank's Debt Collection Department was responsible for the collection of non-performing loans but misappropriated customers' repayments while performing duties in the period of January 2021 to September 2023. The misconduct has persisted for nearly 2 years and 8 months. Forty-six customers were affected, and approximately NT$2.88 million was misappropriated.
(II) The deficiencies in this case demonstrated that the bank has failed to establish and rigorously implement a comprehensive internal control system for the collection of non-performing loans.
1. Failure to establish a comprehensive internal control system:
(1) Failure to set up a mechanism of checks and balances: The operating procedures set forth in the manual of collection of non-performing loans indicated that the bank lacked a mechanism of checks and balances. The entire process including contacting customers to negotiate repayment plans, applying for a reduction or waiver for non-performing loans, and notifying customers of the approved amount and payment account number is handled by the same debt collection officer without any operational control mechanism.
(2) Failure to establish adequate notification and confirmation mechanisms: The bank failed to establish a proper notification mechanism (e.g., a written document or third-party notification of the results of the agreement) to confirm the results of the debt agreement with customers, which enabled the employee surnamed Lin to misrepresent the amount of the debt agreement through a loophole in the operational process and facilitated the misappropriation of funds.
2. Failure to rigorously implement the internal control system: The bank has established related operating regulations for the collection of non-performing loans. However, the employee surnamed Lin failed to comply with these internal regulations in this case and misappropriated the collected funds by contacting customers privately with a personal mobile phone to negotiate repayment plans and provided a personal account for customers to make repayments. The bank was found to have failed to implement the related operating regulations.
IV. Results of penalty: For violations of Article 45-1, Paragraph 1 of the Banking Act and Article 3, Paragraph 1, and Article 8, Paragraphs 1 and 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$4 million in accordance with Article 129, Subparagraph 7 of the Banking Act.
V. Other enforcement action: The bank is requested to follow regulations in Article 3 of the "Internal Control Principles for the Prevention of Misappropriation of Client Funds by Wealth Management Specialists" of the Bankers Association of the Republic of China (hereinafter referred to as the Bankers Association) and send the patterns of criminal activities for disclosure on the dedicated section on the website of the Bankers Association. The bank shall also report the employee surnamed Lin who violated laws or was found negligent in this case to JCIC in accordance with the "Guidelines for Reporting Information of Negligent Personnel of the Banking Industry" of the Bankers Association.
The FSC stated that as the operations of financial institutions are closely related to the rights and interests of the customer, financial institutions should actively review and ensure that their related internal operating regulations comply with laws and regulations and establish effective control and management mechanisms. They must prioritize the rights and interests of financial consumers, implement the principle of treating customers fairly, and win customers' trust. In view of the occasional disputes arising from the collection of bad debts by banks in recent years, the FSC encourages banks to rigorously review the appropriateness of the internal mechanisms of the collection of non-performing loans and the checks and balances, and continue to improve the internal control mechanisms and measures for protecting customers' rights and interests to avoid the occurrence of such disputes.
I. Penalized entity: Yuanta Bank
II. Legal basis for penalty: Article 129, Subparagraph 7 of the Banking Act.
III. Facts and reasons of violations:
(I) The former employee of the bank's Debt Collection Department was responsible for the collection of non-performing loans but misappropriated customers' repayments while performing duties in the period of January 2021 to September 2023. The misconduct has persisted for nearly 2 years and 8 months. Forty-six customers were affected, and approximately NT$2.88 million was misappropriated.
(II) The deficiencies in this case demonstrated that the bank has failed to establish and rigorously implement a comprehensive internal control system for the collection of non-performing loans.
1. Failure to establish a comprehensive internal control system:
(1) Failure to set up a mechanism of checks and balances: The operating procedures set forth in the manual of collection of non-performing loans indicated that the bank lacked a mechanism of checks and balances. The entire process including contacting customers to negotiate repayment plans, applying for a reduction or waiver for non-performing loans, and notifying customers of the approved amount and payment account number is handled by the same debt collection officer without any operational control mechanism.
(2) Failure to establish adequate notification and confirmation mechanisms: The bank failed to establish a proper notification mechanism (e.g., a written document or third-party notification of the results of the agreement) to confirm the results of the debt agreement with customers, which enabled the employee surnamed Lin to misrepresent the amount of the debt agreement through a loophole in the operational process and facilitated the misappropriation of funds.
2. Failure to rigorously implement the internal control system: The bank has established related operating regulations for the collection of non-performing loans. However, the employee surnamed Lin failed to comply with these internal regulations in this case and misappropriated the collected funds by contacting customers privately with a personal mobile phone to negotiate repayment plans and provided a personal account for customers to make repayments. The bank was found to have failed to implement the related operating regulations.
IV. Results of penalty: For violations of Article 45-1, Paragraph 1 of the Banking Act and Article 3, Paragraph 1, and Article 8, Paragraphs 1 and 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$4 million in accordance with Article 129, Subparagraph 7 of the Banking Act.
V. Other enforcement action: The bank is requested to follow regulations in Article 3 of the "Internal Control Principles for the Prevention of Misappropriation of Client Funds by Wealth Management Specialists" of the Bankers Association of the Republic of China (hereinafter referred to as the Bankers Association) and send the patterns of criminal activities for disclosure on the dedicated section on the website of the Bankers Association. The bank shall also report the employee surnamed Lin who violated laws or was found negligent in this case to JCIC in accordance with the "Guidelines for Reporting Information of Negligent Personnel of the Banking Industry" of the Bankers Association.
The FSC stated that as the operations of financial institutions are closely related to the rights and interests of the customer, financial institutions should actively review and ensure that their related internal operating regulations comply with laws and regulations and establish effective control and management mechanisms. They must prioritize the rights and interests of financial consumers, implement the principle of treating customers fairly, and win customers' trust. In view of the occasional disputes arising from the collection of bad debts by banks in recent years, the FSC encourages banks to rigorously review the appropriateness of the internal mechanisms of the collection of non-performing loans and the checks and balances, and continue to improve the internal control mechanisms and measures for protecting customers' rights and interests to avoid the occurrence of such disputes.
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Update：
2024-06-05