Financial Supervisory Commission (FSC) Chairman Ding Kung-wha (丁克華) yesterday said more time is needed before his recent proposals are finalized into policy, as lawmakers raised viability concerns during his first question-and-answer session at the legislature during a meeting of the Finance Committee.
Over the past few weeks, Ding has drafted plans for the financial sector to play a greater role in boosting the real economy, such as increasing investments in innovative start-ups and financial technology (FinTech).
He has also proposed measures to revive waning turnover in the stock market.
Chinese Nationalist Party (KMT) Legislator William Tseng (曾銘宗), a former commission chairman, said that Ding’s plans to have financial companies allocate a portion of their after-tax profits toward investments in start-ups would expose them to considerable risk.
“An estimated 90 percent of start-ups go bust,” Tseng said.
The proposed plans for financial companies to provide mezzanine financing to start-ups — an arrangement where debt capital entitles the lender the rights to convert to an ownership or equity interest in the borrower if the loan becomes delinquent — might not be feasible as the law currently limits investments to less than 5 percent of investable funds, Tseng said.
“Mezzanine financing resides in the domain of industrial banks, not commercial banks, who have shown little interest in participating,” he said.
However, even industrial banks may not come to start-ups’ aid.
The nation’s last two industrial banks — Industrial Bank of Taiwan (台灣工業銀行) and the China Development Industrial Bank (中華開發工業銀行) — have said they plan to transform into commercial banks by the end of this year.
As for Ding’s proposal to establish an angel investment fund, where financial backing is provided to start-ups at more favorable terms than venture capital funds, Tseng said that such exposure is not appropriate for privately run institutions because of rising uncertainty and inclement macroeconomic conditions.
Ding told lawmakers that his policies have not been finalized and the commission would take their concerns into consideration, but that the investment viability of start-ups are vetted by credit rating agencies and other assessment protocols.
Tseng also voiced concern that the nation’s stock market might be marginalized in the international markets, as MSCI Inc has successively lowered Taiwan market’s weighting on its emerging markets index.
In addition, if equities traded in China, known as A-shares, are added into MSCI benchmark, Taiwanese shares are likely to feel the impact and could be displaced by Chinese stocks in the future as foreign institutional investors move their funds around, Tseng said.
MSCI is expected to announce a decision on the issue on June 15.
Ding promised to form a task force to address the concern, but said that he does not expect significant impact from MSCI’s weighting cuts.
Tseng also raised concerns over a taxation scheme in the local equity market, where investors have to pay higher taxes than their counterparts in other markets, such as the US, Hong Kong, Singapore and Japan.
Ding admitted tax has become an issue in Taiwan, but he did not elaborate on how the government will resolve it.
KMT Legislator Lu Hsiu-yen (盧秀燕) urged Ding to show more resolve in negotiating with the Ministry of Finance over lower taxes on capital gains and dividend income, as these burdens have discouraged countless active traders.
New Power Party Chief Executive Huang Kuo-chang (黃國昌) said he was disappointed by the lack of details in Ding’s FinTech plans, saying that Ding had neglected to provide estimates on market segments of payment processing, data and analytics, software and platforms, dimming prospects of a successful adjustment.
Additional reporting by CNA
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