Cathay SITC Scandal: Lee Chang-keng Says Consecutive Blunders Caused by Failure to Compare with Financial Holding Company System

(CNA, Taipei, July 1st) Cathay Securities Investment Trust (SIT C) mistakenly crossed the line on related-party investments, causing a major uproar. Cathay Financial Holding General Manager Lee Chang-keng stated today that this was indeed due to a series of blunders. When Kuo Ming-chien served as an independent director of WSC-KY, he failed to report to SIT C, and SIT C's review missed it. Last July, a failure to compare with the financial holding company's reporting system led to the error. Cathay Financial Holding Chairman Tsai Hong-tu immediately convened a meeting after the incident occurred, demanding that the problem be resolved with all efforts.

Speaking at a press conference following the Cathay Sustainable Finance and Climate Change Summit Forum hosted by Cathay Financial Holding today, Lee Chang-keng said that Tsai Hong-tu was very concerned about the matter. After the incident occurred, he immediately convened a board and compliance meeting, demanding that the problem be resolved with all efforts to prevent it from happening again in the future. Tsai Hong-tu also insisted on engaging an external consulting firm for a comprehensive review, and regular reviews will be conducted in the future to prevent new loopholes from emerging due to changes in the external environment. After all, having paid such a high price this time, similar incidents must never happen again.

The public has noted that the financial holding company and the bank received the report from Kuo Ming-chien, former Chairman of Cathay United Bank and then director of Cathay SIT C, about his role as an independent director of WSC, but SIT C did not receive the notification, leading to the mistaken crossing of the related-party investment red line in the second half of last year. Ultimately, after recalculating eight funds, the total compensation for entrusted and fund portions reached NT$948 million.

Lee Chang-keng admitted that the entire incident was a blunder. WSC-KY was the first Taiwanese listed company where Kuo Ming-chien served as a director. After Kuo Ming-chien became an independent director of WSC-KY on May 29th last year, he reported to the bank and the financial holding company. However, according to individual regulations, he did not report to SIT C. SIT C's internal controls also had deficiencies. Therefore, in addition to the reporting, SIT C's subsequent review mechanism also had flaws. If SIT C had compared with the financial holding company's system in July last year, it would have discovered that Kuo Ming-chien was an independent director of WSC.

Lee Chang-keng further explained that the regulations for related parties in financial holding companies, banks, life insurance, and property insurance are similar. Transactions can only be made after meeting specific conditions, such as a significant board resolution and terms that are not more favorable than those offered to other parties. Regulations for SIT C and investment trust companies, on the other hand, prohibit related-party transactions, and the legal regulations differ. The financial holding company's database includes information reported by individuals. Banks and SIT C are required to regularly compare their data with the financial holding company's system, but this time, SIT C's comparison was omitted.

Regarding the Financial Supervisory Commission's (FSC) statement today that the inspection of Cathay SIT C would continue until July 8th and might be extended if necessary, Lee Chang-keng stated that previously, due to the ongoing inspection, there was no further explanation to the public, and there was a fear of being perceived as interfering with the inspection. However, since the FSC has made a statement today, it has been decided to provide an explanation within the relevant scope.

Lee Chang-keng mentioned that for concurrent positions held by senior management of financial holding companies and their subsidiaries in the future, the principle will be "prohibition in principle, approval in exceptional cases." In the future, subsidiary chairmen and general managers will not concurrently hold positions as directors of listed companies.

Lee Chang-keng said that senior management of the group rarely holds concurrent positions. Most previous concurrent positions were due to investment relationships. His only concurrent position was as a managing director for international development, mainly because Cathay Life Insurance and Cathay United Bank had investments, and he served as a designated director. He has already resigned from this position.

Lee Chang-keng emphasized that in the future, subsidiary chairmen and general managers will not hold similar concurrent positions, unless they are related to the core business operations. Additionally, for example, with Cathay Life Insurance investing in Cathay Wind Energy, some managers from Cathay Life Insurance will serve as directors and supervisors of Cathay Wind Energy, and subsidiary chairmen or general managers will not hold these positions. The hope is to learn from this incident and hold ourselves to the highest standards. Those who should have resigned internally have already done so.

Regarding public doubts that Cathay Financial Holding's independent directors turned a blind eye to concurrent positions, Lee Chang-keng responded that the financial holding company's independent directors performed very well. After the incident occurred, they raised many questions in the audit committee, and SIT C management provided multiple reports. However, the financial holding company's independent directors do not serve as independent directors of SIT C, and they cannot see some business operations. Therefore, independent directors cannot be blamed for needing to manage everything. (Edited by Lin Shu-yuan, Yang Kai-hsiang) 1150701)