Following a series of penalties meted out to several financial institutions in recent months, the Financial Supervisory Commission (FSC) has made it clear: It is not a paper tiger, and the market should watch out, because it is sharpening its claws.
But will these punishments prevent market irregularities from happening again? Can the FSC perpetuate a supervisory mechanism that will show it is not just bluffing? And most importantly, what kind of "market watchdog" does the FSC want to be as it celebrates its second anniversary this month, even as some of its high-ranking officials, including chairman Kong Jaw-sheng (
There had been concerns in the financial markets about the legitimacy of policies made by the FSC after Kong was suspended in May by the Executive Yuan for alleged jobbery in his previous position.
Acting chairman Lu Daung-yen (
Last week it fined Chinatrust Commercial Bank to the tune of NT$10 million (US$305,500) for taking advantage of regulatory loopholes in an offshore debt trading connected to its parent Chinatrust Financial Holding Co's controversial investment in larger rival Mega Financial Holding Co. The commission demanded that Chinatrust Financial offload a 3.9 percent stake in Mega Financial on the open market within a year. It also asked Chinatrust Commercial to punish other managers involved in the irregularities, a move that led to the resignation of the bank's chairman, Jeffrey Koo Jr (
So far this year, FSC has penalized a number of financial institutions with fines totalling more than NT$60 million. It has demanded management changes because of lenders' poor internal controls and lack of legal compliance. Industry heavyweights who were affected included Taishin Financial Holding Co's former supervisor Wu Tung-hsiung (吳統雄), China Development Financial Holding Corp's former board director Daniel Wu (吳春台) and Changhwa Commercial Bank chairman Chang Po-shin (張伯欣).
Yet, as market observers have pointed out, the fines and management changes won't restore the public's trust in the FSC overnight, since its former Examination Bureau director-general Lee Chin-chen (李進誠) was sentenced to 10 years in prison for his involvement in an insider trading scandal. The financial regulator's disciplinary actions may be a good start, but the financial markets are more concerned about the FSC itself. The key concern is whether the commission will be able to make its decisions independently under the ongoing situation of an acting chairmanship.
The FSC is facing an awkward situation, in which Kong has denied any wrongdoing, refused to resign and appealed his suspension to an Executive Yuan's petition committee. The constitutional interpretation by the Council of Grand Justices last week on the Organic Law of the National Communications Commission (國家通訊傳播委員會組織法) -- another independent administrative agency -- shed some light on the FSC's chairmanship dilemma.
Under the grand justices' interpretation, the Executive Yuan is the top administrative government office in the country, and is protected by the Constitution. Therefore there's no question about the premier's rights with regard to personnel arrangements at the NCC, FSC and other independent agencies.
But the administration needs to seek a responsible way to resolve the chairmanship problem if it wants to develop a financial regulator that has real teeth and is accountable to the financial markets.
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