August 31, 2016 / 4:31 AM / 2 years ago

UPDATE 2-Taiwan's Mega Financial chairman resigns amid New York banking unit scandal

* Chairman seeks to quash speculation he could influence probe

* Chairman Shiu is also brother-in-law of central bank governor

* Mega fined $180 mln for violating US anti-money laundering rules

* President Tsai says scandal has damaged Taiwan’s reputation (Recasts and adds comments President Tsai)

By Faith Hung and J.R. Wu

TAIPEI, Aug 31 (Reuters) - Taiwan’s Mega Financial Holding Co said its chairman has resigned, seeking to quash speculation that he could influence a domestic probe into its banking unit after it was found to have violated U.S. anti-money laundering regulations.

Chairman Shiu Kuang-si, who was Mega Financial’s president for eight years until 2014, is also the brother-in-law of Taiwan’s central bank governor.

Mega this month agreed to pay $180 million to New York state’s financial regulator for violations that included lax attention to risk exposure in Panama.

The U.S. fine, the first for a Taiwan-based financial institution in a decade, has prompted Taiwanese prosecutors to summon current and former executives of Mega Financial for questioning.

“In the face of pointless accusations, my role is not beneficial to clearing up the problem and it is difficult to gain the trust of the people and has even hurt authorities (looking into the case),” the Mega Financial statement quoted Shiu’s resignation letter as saying.

The finance ministry, which controls state-run Mega and appoints its chairman, said it had accepted Shiu’s resignation and that Mega’s board would name an acting chairman in one or two days.

As part of the probe, Taiwan’s cabinet has also formed an emergency task force to supervise the investigation into Mega’s New York operations with financial regulators travelling this week to the United States and Panama.

In her first remarks on the matter, President Tsai Ing-wen said on Wednesday that the scandal had damaged Taiwan’s reputation and created public mistrust about supervision of the financial sector.

“We must review our financial supervision, promote reform, and not allow this ridiculous and unbelievable matter to happen again,” Tsai said.

Additional reporting by Jeanny Kao and Liang-sa Loh; Editing by Muralikumar Anantharaman and Edwina Gibbs

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