To implement the principle of maintaining transparency of examination procedure set out in the "Principles for Effective Financial Examination," the Financial Examination Bureau of the FSC hereby announces the 2023 financial examination focuses to help financial institutions gain a timely understanding of the FSC's supervisory and examination focuses and actively strengthen their businesses and operations, thus achieving self-regulation.
The FSC's 2023 financial examination focuses have been developed with reference to: (1) recent development of domestic and international political and economic conditions; (2) external stakeholders' concerns; (3) the key financial regulations and supervisory focuses issued by the FSC in 2022; (4) the key supervisory expectations of the three sector bureaus, and (5) matters requiring scrutiny, as identified by the FEB in 2022 examinations. The FSC selected a total of 93 examination focuses for different sectors of the financial industry, and there are 10 new examination sub-items and 42 revised examination items.
The 2023 examination focuses will zero in on six aspects: (1) Risk management in response to development of domestic and international political and economic conditions; (2) external stakeholders' concerns; (3) the FSC's supervisory focuses; (4) other common examination focuses across industries; (5) new (or revised) examination items in each sector of the financial industry, and (6) other existing examination focuses. Among all of these focuses, the four of most concern are (a) financial resilience (capital and financial resilience; internet security and information resilience); (b) management of risks from domestic and foreign investments; (c) fraud prevention; and (d) financial consumer protection.
1. Risk Management in Response to Development of Domestic and International Political and Economic Conditions (8 focuses, or 8.6% of the total):
(1) Management of Risks from Domestic and Foreign Investments (5 focuses): These focuses mainly cover--control of risks from overseas exposures in response to development of international financial conditions; control of risks from loans and investments in overseas and mainland China; and response measures adopted by institutions in response to risks arising from the pandemic and interest rate hikes.
(2) Management of Risks in Real Estate Lending Business (3 focuses): These focuses mainly cover--credit investigations and loan operations, interest rate risk pricing, and post-loan management with respect to mortgage and residual stock property loans as well as land and property development loans; the flow of proceeds from industrial land loans; the granting of loans for idle industrial land; the monitoring and control of concentration of business in real estate guarantees; and financial institutions' compliance with the Central Bank's rules on real estate-backed loans.
2. External Stakeholders' Concerns - Fraud Prevention (2 focuses, or 2.2% of the total): These focuses mainly cover--internal control mechanisms for prevention of loan fraud; and relevant measures to assist the public in fraud prevention (including caring questions, early warning mechanisms for suspected fraudulent accounts, abnormal transaction identification and virtual account control).
3. The FSC's Supervisory Focuses (33 focuses, or 35.5% of the total) : Related focuses fall into 6 categories:
(1) Capital and Financial Resilience (2 focuses): These focuses mainly cover--the operations of own risk and solvency assessment (ORSA) for life and non-life insurance companies.
(2) Internet Security and Information Resilience (7 focuses): These focuses mainly cover--oversight by financial holding companies of subsidiaries' information system updates; internet security control and information security maintenance; fulfillment of the functions of dedicated information security units and supervisors; the control of the prevention of host system and program abnormalities; internet security measures, supply chain risk management; information security manpower and training; and business continuity management mechanisms.
(3) Corporate Governance (communication mechanism with major shareholders, management of expenses with related parties/companies, 9 focuses): These focuses mainly cover--communications with shareholders having controlling power; the functions of the board of directors and functional committees; management mechanisms for responsible persons' concurrent positions, expense reimbursement and hierarchical responsibility; mechanisms for management of personnel, assets and finance among affiliated enterprises; the data filing and transaction control of related parties; and operating procedures related to the construction and acquisition of fixed assets.
(4) Financial Consumer Protection (personal data protection and data sharing/financial friendliness/treating customer fairly, 9 focuses): These focuses mainly cover--know your customers (KYC); product suitability assessment; treating customer fairly principles; establishment and implementation of a customer-friendly culture and service measures (including protecting the interests of elderly customers and customers with physical and mental disabilities, such as online banking and mobile apps for the visually impaired; board of directors' actions; internal supervisory mechanisms); and personal data protection (including compliance with Guidelines for Data Sharing between Financial Institutions).
(5) Digital Financial Security and Electronic Payment Business (5 focuses): These focuses mainly cover--mechanisms for maintaining personal information security/transaction security for customers conducting online account openings/online service applications; mechanisms for monitoring of identity verifications and abnormal transactions; reporting and monitoring of alert accounts and accounts opened under fake names; management of customer information inquiries; compliance of e-commerce regulations; mechanisms for management of the development and issuance of mobile applications; electronic policy operations; confirmation of the identity and willingness of customers purchasing insurance policies by mobile device or online; and management of the operation of concurrent electronic payment businesses.
(6) Sustainable Finance/Green Finance (1 focus): The key focus is required information disclosures for ESG-related funds issued by securities investment trust enterprises (SITEs).
4. Other Common Examination Focuses Across Industries (18 focuses, or 19.3% of the total): These focuses include three major categories: "Legal compliance," "Compliance with anti-money laundering, counter-terrorism financing, and non-proliferation of weapons regulations," and "Management of investee enterprises," among which the "management of investee enterprises" category includes compliance with investment and M&A regulations and control mechanisms, management of major overseas investee companies (including joint venture companies); and significant business information reporting mechanisms.
5. New Examination Items in Each Sector of the Financial Industry (6 focuses, or 6.4% of the total): This category mainly includes bills companies' compliance with regulations governing non-guarantee commercial paper, deployment of funds for investments in notes and bonds; the management of insurance agency business (including telemarketing business) and reclassification of financial assets by life insurance companies; and development and design procedures of insurance products by non-insurance companies.
6. Other Existing Examination Items (26 focuses, or 28% of the total).
By issuing the 2023 financial examination focuses, the FSC hopes to help external stakeholders better understand examination priorities and to promote the sound operations of financial institutions.
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