Financial Supervisory Commission (FSC) Chairman William Tseng (曾銘宗) yesterday said that a more active monitoring system against systemic risk faced by domestic financial institutions is to be established before the end of next month.
“As financial companies expand their operations abroad, current practices are no longer sufficient to detect and prevent spikes in systemic risks, leading to immense losses,” Tseng told members of the Bankers Association of the Republic of China (銀行公會) in Taipei.
In addition, passive monitoring of financial reports, such as balance sheets and income statements, might not reveal the extent of risks faced by companies, such as the rapidly growing portfolio of overseas investments held by insurers.
PROACTIVE
“As the markets become flush with capital, regulators must step up monitoring of investments, in addition to reacting to changes in foreign exchange, lending and financing,” Tseng said.
Tseng also said that managers need to be alert of businesses and products that are reaping abnormally high profits, as well as losses — such as yuan-linked target redemption forward (TRF) financial derivative products.
Yuan-linked TRFs registered explosive sales early last year as investors aimed to speculate on the yuan’s gains, but it led to a surge in the number of customer disputes after the yuan depreciated sharply and a heavy-handed crackdown on the highly leveraged instrument by regulators.
Tseng said the commission was able to prevent a repeat of last year’s woes as the yuan fell sharply again this year.
“After much deliberation, I feel that it is not ideal for regulators to act on concerns after they have been exposed by the media. The commission needs to step up monitoring of more up-to-date data, beginning with monthly reports,” he said.
NEW MONITORING SYSTEM
The new monitoring system is to actively cross-reference findings by a number of regulators, including the commission’s Banking Bureau and Financial Examination Bureau and the Central Deposit Insurance Corp (中央存保), in an effort to prevent runaway systemic risks, Tseng said.
Regulators are also to regard customer disputes as a leading indicator for potential problems on the horizon and act before the situation escalates, he added.
Tseng also reiterated his support for a proposal to halve the supplementary National Health Insurance premium on stock and cash dividends to 1 percent, as local brokerage houses have seen losses climb in the second half amid turmoil in global stock markets and a listless turnover on the local bourse.
Furthermore, the threshold to levy the premium should also be raised from NT$5,000 to NT$10,000 or greater, Tseng said.
“I feel that this change would be the best option for preserving the interests of all investors, ranging from active traders to retail traders,” he said.
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