Let's talk about Financial Regulator itself

Financial supervision and regulation itself is not self-executing. Certain form of organization should be empowered with clear and unambiguous mandate to carefully conduct the regulatory and supervisory regime in an impartial and professional manner. While serving as the locomotive to simulate the economy through its intermediary financing function, Financial Industry sometimes even “functioned” as the Weapons of Mass Destruction to destroy the whole financial stability. Such gigantic and powerful “engine” is essentially funded and promoted by government, sometimes even empowered with unlimited funding sources when it goes burst. Regulating and supervising the financial industry is basically the practice of democracy, through authorizing the surveillance power to an executive agency, we, the taxpayers, should be capable of cultivating a fruitful farm and choosing not to put more money and resources when that farm land becoming desolate, barren, or ravaged.

But who should be empowered with such great God like power to manage the “gigantic transformer” on behalf of the public? In Taiwan, the financial regulation and supervision is basically conducted by the Financial Supervisory Commission (FSC). The FSC is essentially  the single financial regulator, regulating by institutions through a committee accountability system. However, such face will be changed if the new organic law of Financial Supervisory Commission passed in the Legislative Yuan. The new organic law will turn the FSC from a previous committee based structure  into a Chief Executive Responsibility System and simultaneously deprive its independence as a cabinet-level independent agency. Such arrangement essentially gives the new Chief Commissioner vast power to direct or channel the financial industry into the direction which his or her boss (say the President and the President’s Party) wishes it to be.

It would be valid sometimes for the FSC allying itself with the Executive power. Less independent structure enables the quick response to deal with the financial crisis or instability, and enables a less complicated regime to better coordinate with the Central Bank, Ministry of finance and even other international financial regulators. Nevertheless, this new structure will be disadvantageous for creating a highly integrated and less contradicting rule-making system. By eliminating the Committee Accountability structure, the rules and regulations proposed by the Banking Bureau, Securities and Futures Bureau, and Insurance Bureau will directly go the Chief Commissioner’s table. Unless the Chief Commissioner has sufficient resources and staffs teams assisting him or her to coordinate those numerous rule-makings that originated based on different positions and mindsets of different financial sectors, the final rule that proposed with the FSC’s signature on it will inevitably be the similar version that was originated by the institutional bureaus.

This kind of design is unfavorable for mitigating and managing the systemic risks in the post-crash financial era in which a sophisticatedly integrated mandate for all financial functions and market conduct supervision is urgently needed. Governmental Organization Reform should be planned and executed in a systemic and thoroughly manner; every small change could result in an unexpected devastating outcome. FSC is the one who control and push the instruction button to start the Transformer, either make it in a way to promote the social well-being, or in a way to destroy the economic order.

Why not welcome more debates before we cut a deal?