Taiwan FSC fines Hua Nan Commercial Bank NT$4 million over lottery prize payment errors

Taiwan's Financial Supervisory Commission (FSC) imposed a fine of NT$4 million on Hua Nan Commercial Bank on 23 January 2024, after finding that the bank had failed to properly establish and rigorously implement internal controls in connection with erroneous uniform-invoice lottery prize payments in June 2023.

According to the FSC, Hua Nan Bank replaced the information system used for its payment collection operations with a newly built NTD and foreign currency payment collection system on 1 June 2023. When the bank processed the transfer of lottery prize money to winners' accounts on behalf of Financial Information Service Co. at 1:39 a.m. on 6 June 2023, a data conversion problem shifted the amount column and added two extra zeros to the payments. The error produced 35,952 irregular payments totalling NT$2.025 billion, against a correct amount of NT$20.2589 million.

The bank carried out a correction at 4:28 a.m. the same day, but some customers had already transferred the funds out or used them to pay utility bills. In total, 142 customer accounts were affected and NT$9.18 million could not be recovered promptly.

DEFICIENCIES IDENTIFIED

The FSC said the bank had not included its customer service department in the task force for the system conversion's contingency plan, and sent SMS notifications to customers more than 13 hours after the incident. It also failed to conduct parallel testing or comprehensive exercises, as its internal rules required, before launching the new system, after identifying the misuse of a source file format, and did not assign staff to monitor the first batch of prize payments. The anomalies were discovered only when customers called the bank.

The regulator added that, although the system problem occurred at around 1 a.m. on 6 June, the bank did not report the material contingency until around 9 p.m. on 7 June, and only after being prompted by a telephone call from the FSC's Banking Bureau. The audit report the bank filed on the incident also omitted important information, compromising its accuracy and integrity.

The FSC found violations of Article 45-1, Paragraph 1 of the Banking Act and of Article 3, Paragraph 1 and Article 8, Paragraph 1 of the Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries. The fine was imposed under Article 129, Subparagraph 7 of the Banking Act.