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The FSC Announced Six Measures to Strengthen Protections for Elderly Investors

2022/04/19

According to the National Development Council’s estimates, Taiwan’s population of age 65 or above is expected to exceed 20% in 2025. To require the securities sector to strengthen protection measures for senior financial consumers, the Financial Supervisory Commission (FSC) mandated the Taiwan Securities & Futures Union (TSFU) to draft “self-discipline rules” outlining six protection measures for people over 65. The draft rules have been approved on April 8, 2022. The measures are as follows:
1. Know Your Customer (KYC) procedure
The securities and futures firms should design appropriate risk profiling  assessment mechanism for the elderly financial customers that matches their risk characteristics to effectively assess any vulnerabilities. If the firms during routine suitability assessment identify that the risk tolerance of a senior financial customer has been changed so that it fails to satisfy the level of risks of the original terms of investment, the firms may follow a systemic investment plan according to the original terms but it may not increase the deduction amount or frequency.
2. Know Your Product (KYP) procedure
When assessing risk level of a product, the securities and futures firms should consider factors with higher impact for the elderly such as products that are long-term, low liquidity, new, or highly sophisticated, or products with content, structure and the degree of investment principal loss that may be too difficult to understand, to unveil product risk level and characteristics.
3. Conduct suitability analysis
The securities and futures firms should consider the vulnerabilities and financial characteristics of the elderly and the special risks of products on sale, and appropriately assess and explain the suitability of the product introduced and the reasons for the recommendation, to assure that the products are indeed suitable for said elderly customers.
4. Fulfill the obligations of informed consent and disclosure
The securities and futures firm should enhance the readability of its marketing materials and contractual documents, including but not limited to enlarging fonts and making languages easier to comprehend. Where major changes to the rights and benefits of customers may be involved, including but not limited to amendments, revocation, discharge, large amount of funds or abnormal transfer of assets, notifications should be provided by appropriate measures as agreed in advance.
5. Ask caring questions if necessary
When being aware of red flag behaviors of the elderly (e.g., following a third party’s instructions over the phone, transactions or wire involving a large amount of funds or assets, concentrating on high-risk products in their investment portfolios, suddenly raising their risk level and purchasing high-risk products), the securities and futures firms should remind the elderly about  the underlying risks to avoid fraud.
6. Strengthen transaction monitoring and auditing mechanisms
The securities and futures firms should strengthen their transaction review and confirmation mechanisms for the sale of high-risk financial products to the elderly (e.g., having non-sales employees to execute transactions, having transactions approved by higher management, or using a computerized system to monitor transactions) and establish transaction monitoring mechanisms appropriate for the elderly and enhance the auditing (e.g., scheduling periodic customer visits, strengthened internal audit control, etc.) so that any abnormal transactions may be early identified.

In order to support the securities and futures sectors, the FSC grants a grace period of six-month so that these self-discipline rules will be enforced starting on October 1, 2022. The FSC further mandates the TSFU to assist members in formulating the firms’ internal control and legal compliance and holding periodic training seminars for practitioners for the implementation of the rules.

(Author: Yi-Hua Lu, Associate)

 

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