TAIWAN Law and Practice Contributed by: James Huang, Eddie Hsiung and Maggie Huang, Lee and Li, Attorneys-at-Law
cover all banking business activities and incor - porate five major components. The first element and the basis for the implemen - tation of an internal control system is the “control environment”, which encompasses: • the integrity and ethical values of the bank; • the supervision responsibilities of the direc - tors and supervisors; • the organisational structure; • the assignment of authority and responsibility; • human resources policies; • performance measurements; • awards and discipline; and • the code of conduct for all directors and employees. Secondly, the internal control system should adopt a “risk assessment” procedure, the results of which can assist the bank in designing, cor - recting and implementing the necessary controls in a timely manner. Thirdly, the internal control system should include various “control operations”, namely to implement proper policies and procedures at all levels, business processes and subsidiaries of the bank based on the risk assessment results to control risks. Fourthly, the internal control system should ensure an effective internal and external “infor - mation sharing and communication” mecha - nism. Last but not least, the bank should constantly “monitor” all operations. Any findings of defi - ciencies by the internal control system should be reported to the appropriate management levels.
To implement the internal control system, a bank should establish an internal audit unit and have sufficient and competent personnel as full-time internal auditors performing internal control duties independently and impartially. The inter - nal audit unit is directly under the board of direc - tors, and is required to report its audit matters to the board of directors and audit committee at least every six months. In addition, a bank should appoint a chief auditor to manage all audit matters. The chief auditor is not allowed to take a job that will cause conflicts or limitations to the audit work. The employment, dismissal or transfer of the chief auditor should be approved by the consent of the majority of audit committee members as well as by the consent of more than two thirds of the board of directors, and should be reported to the FSC for ratification. According to the Banking Act, a bank that fails to establish or diligently implement the internal control and audit systems should be subject to an administrative fine of between NTD2 million and NTD50 million. Voluntary Codes and Industry Initiatives The Bankers Association of Taiwan (BA) may issue various disciplinary rules based on the authorisation of the applicable laws and regu - lations. Such rules should be submitted to the FSC for ratification. A bank that fails to meet the requirements under the disciplinary rules would be deemed by the FSC as failing to establish or diligently implement the internal control and audit systems, and should be subject to the administrative fine as mentioned above. Diversity Requirements According to the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Com -
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