Issues: Breakthrough in Financial Regulation

Establishment of a single supervisory commission is expected to bring greater efficiency and transparency to financial regulation.


The new cabinet-level Financial Supervisory Commission (FSC) started operations on July 1, creating a central independent regulatory body to oversee all financial institutions. The purpose is to improve regulatory efficiency, transparency, and coordination, and to eliminate the potential for conflict of interest when a government agency is both the referee and a stakeholder in a public-owned institution. In addition, the establishment of a single regulator reflects the trend of convergence in the financial-services industry, as shown by the change in legislation in 2001 allowing Taiwan's banks and insurance companies to be merged into financial-holding companies.

The commission is being formed by combining several existing organizations: the Ministry of Finance's Bureau of Monetary Affairs, Department of Insurance, and Securities and Futures Commission, plus the Central Bank's Examination Department. The FSC will have some 900 employees, with policy set by a nine-member board of financial experts. The government has hired Kong Jaw-sheng, a 49-year-old former banker with Credit Suisse First Boston who most recently headed the state-owned Taiwan Sugar Corp., to be the chairman. His solid professional background has helped reinforce confidence in the new commission.

At the inauguration ceremony, Kong vowed to build Taiwan into a financial services center for the Asia-Pacific region. He said the commission would strive to remove unnecessary restrictions in the industry, relying on supervision rather than control, and promoting greater self-discipline by the financial institutions. Among the commission's top priorities, Kong said, are to make it possible for China-based Taiwan businesses to be listed on the Taiwan stock market and to enable Taiwan's banks to set up branches in China. Other major tasks include the continued encouragement of mergers among financial institutions, further development of the bond market, enhancing Taiwan's attractiveness to foreign institutional investment, and promoting innovation in insurance products and the effective use of mid- and long-term capital in the insurance market.

William Bryson, co-chair of the AmCham capital markets committee, says that establishment of the commission should contribute to improving regulatory coordination by putting all regulators under one roof. "Coordination will be more unified and consistent, so you won't run into competition or conflict between regulators," he says. "It will help financial liberalization in Taiwan and hopefully attract foreign investors to assist Taiwan to become a financial center."

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