(July 1): Taiwan’s biggest financial conglomerate will prohibit senior executives at its subsidiaries from taking external positions after the dramatic exit of the head of its banking unit following a dispute over outside roles.
Cathay Financial Holding Co will ban all senior managers across its banking, asset management, life insurance and securities units from holding outside directorships or concurrent positions, according to president Lee Chang-ken. Exceptions will only be made where such appointments are necessary for the company’s operations, Lee said in Taipei on Wednesday.
The financial giant has faced mounting scrutiny after an outside directorship held by the former chairman of its banking unit led to a regulatory breach at its asset management affiliate. The episode escalated into an alleged assault involving a member of Taiwan’s billionaire Tsai family, sending shock waves through the local financial industry.
“On behalf of the entire management team, I want to offer our sincere apologies to society,” said Lee, bowing for nearly 10 seconds along with five other high-level executives from its subsidiaries. “This is a serious issue.”
Taiwan’s Financial Supervisory Commission has launched an onsite inspection at Cathay’s asset management unit, the regulator said last week.
Kuo Ming-jian resigned as Cathay United Bank chairman last week, after his role as an independent director at chip company Alchip Technologies was found to create an investment conflict of interest across funds at the asset management arm, where he also served as a director.
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In a statement Tuesday evening, Kuo said his outside directorship was fully disclosed and approved by Cathay Financial’s internal compliance rules with no concealment or delay. He said he didn’t participate in any investment decisions or trade execution at Cathay’s asset management unit and received no improper benefits.
The compliance breach forced the unit to sell shares of Alchip and restate the net asset values of the impacted funds. Cathay Securities Investment Trust said last week that it will pay about NT$490 million in compensation to about 50,500 investors. It also resulted in separate losses of approximately NT$454 million in discretionary investment mandate accounts, local media have reported.
“The investment losses suffered by Cathay have caused losses for many investors and affected tens of thousands of people,” Lee said. “Media coverage has also drawn significant public attention to the matter.”
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According to Lee, Kuo disclosed his Alchip directorship to the banking unit but failed to report it to Cathay SITE. While directors are required to make such disclosures, the asset manager’s internal control and review process was also flawed as it failed to properly verify the information, he said.
“It was a series of mix-ups that ultimately led to the incident,” Lee said.
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