TAIPEI, July 14 (Reuters) - Taiwan’s central bank said Thursday it will require complex, high-risk forex derivative instruments to go through regulatory approval before allowing banks to sell such products to consumers.
The move comes after local banks earlier this year were hurt by customer defaults on yuan derivatives.
Under draft revisions issued on the website of Taiwan’s central bank Thursday, “new types of complex, high-risk forex derivative financial products” will need regulatory approval before they can be sold.
Currently, some financial products can be sold by banks to their customers without much regulatory oversight.
Earlier this year, yuan-related derivatives called target redemption forwards (TRF), which allow investors to bet on the direction of the yuan, fell into the red when China unexpectedly allowed the yuan to depreciate.
TRFs pay the holder a monthly income so long as the yuan remains above a trigger price against the dollar. If the yuan falls, the investor has to pay out.
TRFs had been seen as a sure bet to a steady income as the value of the yuan rose steadily against the dollar. But when it weakened sharply, investors and banks who sold the products were on the hook.
Taiwanese regulators have been tightening oversight on such complex and high-risk financial derivatives after the emergence of TRF losses from 2014, the Financial Supervisory Commission said in a statement on Thursday.
The draft revisions could take effect later this month, after a customary public comment period.
Reporting by Liang-sa Loh and J.R. Wu; Editing by Kim Coghill