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Editorial: Fiscal watchdog should think ahead

The government will establish a "financial supervisory board" on July 1. The Cabinet has already appointed Taiwan Sugar Chairman Kong Jaw-sheng (龔照勝) and Vice Minister of Finance Susan Chang (張秀蓮) as chairman and administrative vice chairwoman of the board. From now on, Taiwan's financial, securities, futures, insurance and general financial sectors will all be supervised, managed and monitored by a single agency.

Authority over financial management, supervision, inspection and punishment have always belonged to different government agencies -- such as the Ministry of Finance, the Central Bank of China and the Central Deposit Insurance Corporation. This has led to repeated calls for these functions to be brought together under a single supervisory authority. When the Democratic Progressive Party took office, the government finally decided to establish a financial supervisory board with the status of a commission directly under the Cabinet. The new agency will integrate the finance ministry's Bureau of Monetary Affairs, Department of Insurance and Securities and Futures Commission, the central bank's Department of Financial Inspection and the Central Deposit Insurance Corporation's inspection division.

The success of the board lies in its ability to coordinate with these agencies. Although the central bank's Department of Financial Inspection will be incorporated into the board's functions, the bank insists on retaining its rights to supervise and discipline currency issuance and foreign exchange management. Finance inspection continues to be the province of more than one agency and originally the creation of the board was intended to simplify operations by taking care of the big picture and leaving the details to others. Because its functions are still conducted by other agencies, this might lead to an even more cumbersome financial inspection bureaucracy in which disciplinary authority is separated between many agencies.

The supervisory board will have four bureaus, for banking, securities and futures, insurance and inspection. This division replicates the Ministry of Finance's Bureau of Monetary Affairs, the Department of Insurance, the Securities and Futures Commission and the central bank's Bank Examination Department within the structure of the board. Yet modern financial products span a variety of financial sectors. A single financial product might involve exchange rates, tax rates, interest rates and insurance rates and is difficult to categorize in conventional terms. If the board still demarcates its organization according to sector rather than function, it will have difficulty responding efficiently and effectively. This underlines the importance of internal integration to the financial supervisory board's success.

As regards the composition of the board, member quotas will be assigned to all political parties to prevent it from falling under the control or working for the financial profit of any particular party. At the same time, government-instituted watchdogs often serve to blur responsibility or simply avoid offending anybody, so that they have great difficulty in actually preventing corruption.

Hopefully the supervisory board will help to work toward creating an international and multifaceted financial market. Its point of departure should be new ways of thinking. In more practical terms it also needs to integrate functions that were previously the domain of various government departments, so that they can become an organic whole, establishing a structure based on the nature and function of various financial instruments. It also needs to maintain close relations with the Ministry of Finance and the central bank. Only in this way can the financial supervisory board perform the functions expected of it -- promoting financial reforms and maintaining the security of Taiwan's financial markets.
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