Cathay Financial apologises, bans bosses from outside roles

[TAIPEI] Taiwan’s biggest financial conglomerate will prohibit senior executives at its subsidiaries from taking external positions following a scandal that has led to the resignation of its banking chief and millions of dollars in payouts.

Cathay Financial Holding will ban all senior managers across its banking, asset management, life insurance and securities units from holding outside directorships or concurrent positions, said its president Lee Chang-ken.

Exceptions will be made only where such appointments are necessary for the company’s operations, Lee said in Taipei on Wednesday (Jul 1). 

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 shockwaves 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,” he added.

Taiwan’s Financial Supervisory Commission said last week that it had launched an on-site inspection at Cathay’s asset management unit. 

Kuo Ming-jian resigned as Cathay United Bank chairman 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 on Tuesday evening, Kuo said that his outside directorship was fully disclosed and approved by Cathay Financial’s internal compliance rules with no concealment or delay.

He said that he did not 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 (Site) said last week that it would pay about NT$490 million (US$15 million) in compensation to about 50,500 investors.

It also resulted in separate losses of about NT$454 million in discretionary investment mandate accounts, local media has 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.” 

He added that Kuo had 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. BLOOMBERG