A Study On Financial Group's Regulations Of The Non-credit Extension Transactions With Related Parties In Taiwan

I have worked in compliance department of financial group in Taiwan many years and I am a Ph.D.student of Shanghai Jiaotong University.It has come to a conclusion,the non-credit extension transactions with related parties has been a significant core item of financial risk supervision over the past decade,as my long term experience in an international financial group.“The non-credit extension transactions with related parties” was derived from “the transactions with related parties”,as “the transactions with related parties”contains “the credit extension transactions with related parties”as well as“the non-credit extension transactions with related parties”.“The credit extension transactions with related parties”is a concept of loan.However,“the noncredit extension transactions with related parties”is the financial transactions except loan,such as buying equipments,renting real estate or selling derivative financial products.To a financial group,the counter-parties of “the non-credit extension transactions with related parties” are the relationship business.Therefore it will trigger some conflict interests.As concerning about the profit of cost-down on “cross-industry sale”,it is not benefit to financial groups as completely prohibiting“the non-credit extension transactions with related parties”.To widely get involved in transactions with related parties as the features of financial group “crossindustry sale”,the financial risk supervision plays the significant role in soundly and stably managing the financial group.To sum up,to supervise “the non-credit extension transactions with related parties” is a core supervision of financial risk supervision.The regulation of “the non-credit extension transactions with related parties” in Taiwan is the Financial Holding Company Act,Article 45 released in 2001 which is based on the related regulations of America.It has been revised many times by the administrative orders of Financial Supervisory Board in Taiwan.I raised five issues with the view of financial risk supervision as well as the practical experiences I have devoted to as follows:1.It is difficult to check the final beneficiary;2.It is hard to define the types of the related transactions;3.It can't timely get the resolutions of board;4.It is hard to provide the proof of the same dealing conditions on the same dealers with the same transactions;and 5.It is limp to have the transactions crossing board with related parties.The Basel II is made by Basel Committee of Banking Supervision in 2001 in order to standardize the international financial risk supervision as well as to raise the ability to control the risk of financial services.There are market risk,credit risk and operation risk regulated in The Basel II.This dissertation will discuss the issue regarding the compliance cost of the financial risk supervision of transactions with related parties,especially for the law risk of the operation risk.This dissertation will use the risk control strategy model of Hübner et al.in 2003 to review the risk attribute.The result of the risk attribute checking is that the ratio of occurrence frequency is low and the ratio of severity is high.Hence,the risk of “the non-credit extension transactions with related parties”must be transferred or mitigated.All in all,this dissertation suggests three ways to improve the regulations of “the non-credit extension transactions with related parties”: 1.Before approval:updating the regulations flexibly,including the scope of related parties,the types of transactions with related parties,the timely resolutions of transactions with related parties,the proof of fair conditions and the easy going about crossing board transactions.2.Processing approval: Corporate Governing flexibly,including information enclosing,approving with two ways,the sum of transactions controlling and speak up.3.After approval: strengthening judicial relief,including penalties and shareholder's right of litigationand litigation class action.In conclusion,the research of this dissertation has significant meanings in theory and practice.