The Research on Regulation of Financial Products─Focus on Structured Note
Date Issued
2009
Date
2009
Author(s)
Peng, Yung-Hsiang
Abstract
On September 15th 2009, Lehman Brothers Holdings Inc. went bankrupt. Subsequently, a domino effect ensued --- a wide worldwide financial collapse in an unprecedented scale and speed. Taiwan is no exception. Because of the financial storm, there are approximately 20,000 Taiwanese who lost their money in the scale of about NT$1.2 trillion according to the estimation of Financial Supervisory Commission. Only from this moment on, Taiwanese investors have started to think about how to claim for payback by law, but simply realized the toughness of getting compensation.n Taiwan, the obligations of the financial institutions concerning the selling of structured note in the promotion and pre-deal phases are unclear. Action for damages in the domestic law is also vague. Compare with Taiwan, the United Kingdom utilizes FSMA 2000 and COBS to set comprehensive rules in the supervision of financial institutions and the obligations has covered both promotion and pre-deal ones. In the promotion phase, COBS basically prohibits active promotions, such as direct offer financial promotion and cold calling. As for the contents of promotions, a firm must meet specific conditions when the information of promotions involves past performance, simulated past performance and future performance of relevant business, a relevant investment or a financial index. When a firm communicates with clients in relation to designated investment business, the firm must observe the rules in suitability and communication, and COBS entitles investor action for damages in a clear fashion if the firm contravenes the rules in COBS.esides that, because FSMA 2000 is a singular supervision, it adopts “regulated activity” and “investment” to build the whole complete regime. All financial products will be regulated by this regime only if it shows the nature of investment. Therefore, U.K. has differentiated itself from us. When there is a new financial product, it’s not necessary for investors in the U.K. to distinguish whether it is securities or derivatives, whereas for Taiwanese investors, they must endeavor to figure out it is regulated by Securities and Exchange Act or Futures Trading Act, and this is a troublesome situation for current domestic laws right now. Furthermore, our supervision regime also lacks client categorization setup in the COBS. Therefore, this thesis will discuss supervision of financial market based on FSMA 2000 and COBS, trying to build a complete regime of financial supervision in Taiwan. his thesis also intends to find out basis of action for damages among Securities and Exchange Act, Trust Enterprise Act and Consumer Protection Law in our domestic law. That is, when a firm delivers unfaithful advertisement or communicates before the deal in a deliberately or recklessly way without adequate descriptions, and then causes losses of the investors, this thesis will try to find the basis of action for damages and explains how the government and firm should handle these problems in practice.here are so many new financial products which are still unregulated or regulated in an unclear manner in Taiwan. It is possible that we could consult the legislation of U.K., retrieving its underlying principles of “regulated activity” and “investment” to build the regime of financial supervision. So that we may cope with any newly entered financial products, simultaneously allow for constant development of financial market, and last but not least, protect investors’ rights to construct a stable financial market.
Subjects
Structured Note
promotion
suitability
communications with clients
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