Newsletter
ORGANIZATION LAW OF FI-NANCIAL SUPERVISORY AND ADMINISTRATION COMMISSION ADOPTED
Taiwan's financial regulatory system currently does not operate in an integrated manner. Ad-ministrative powers are concentrated in the Ministry of Finance (MOF), but investigatory and auditing powers over the financial services industry are delegated to different authorities: in the banking sector, the Bureau of Monetary Af-fairs of the MOF (BOMA), the Central Bank of China (CBC), and the Central Deposit Insurance Corporation (CDIC); in the securities sector, the Securities and Futures Commission (SFC) of the MOF; and in the insurance sector, the Depart-ment of Insurance of the MOF. With the estab-lishment of numerous financial holding compa-nies, the trend for financial groups to operate across multiple financial sectors has become clear, but the current framework makes it diffi-cult for the different competent authorities to effectively oversee financial groups whose op-erations encompass banking, securities, futures, and insurance.
Various developed countries have already taken heed of the problems arising from a fragmented financial regulatory system, and 17 countries have established a unified regulatory system, or are moving toward that. In Taiwan, the Or-ganization Law of Financial Supervisory and Administration Commission was adopted on 10 July 2003 and promulgated on 23 July, and is due to take effect on 1 July 2004. The law establishes the Financial Supervisory and Administration Commission (FSAC) which will integrate poli-cymaking and regulatory powers for the financial services industry. This will greatly change the administration and supervision of Taiwan's fi-nancial markets and financial services industry. The main content of the law is as follows:
When the law takes effect, it will confer the functions of developing, supervising, adminis-trating, investigating, and auditing financial markets and the financial services industry on the FSAC. The law defines financial markets as the markets for banking, bills finance, securities, futures, financial derivatives, insurance, and their settlement mechanism, while the financial services industry is defined to include financial holding companies, the Executive Yuan's re-structuring fund for the financial services indus-try, the CDIC, banks, securities enterprises, fu-tures enterprises, insurance companies, elec-tronic financial trading enterprises, and other financial services enterprises. However, the fi-nancial payments system will remain under the control of the CBC. In other words, the powers now exercised by the SFC, the BOMA, De-partment of Insurance of the MOF and the CBC and CDIC, will all be fulfilled by the FSAC un-der the law.
The FSAC will be comprised of nine commis-sioners. All commissioners will be appointed for four years, except that the initial terms of office of one deputy chairperson and some of the other commissioners will be two years. Commission-ers may serve up to two consecutive terms. All commissioners will be nominated by the Premier and appointed by the President. Commissioners need to have relevant academic and professional experience in the areas of law, economics, fi-nance, taxation, accounting, or management. No more than one-third of the commissioners may be members of the same political party, and while in office commissioners must act in a nonpartisan manner and must not take part in party activities. To uphold the public trust in the FSAC, commissioners and assistant personnel should abstain from handling cases in which they themselves are directly or indirectly involve.
The FSAC will combine both administrative and supervisory powers over the financial services industry and financial markets. Thus, the scope of its powers will be very broad, including policymaking for the financial system and su-pervisory system; drafting, amending, and re-voking financial regulations; licensing financial institutions, including the granting, withdrawal, annulment, and modification of licenses, merger, suspension of operations, or dissolution; devel-oping, supervising, and regulating financial markets; investigating and auditing financial institutions; investigating and auditing pub-lic-issuing companies; and the reviewing the handling and penalization of major violations of financial legislation. Major decisions of the FSAC regarding penalties for violations of fi-nancial legislation will be publicly announced and explained as soon as proper.
Under the investigative powers that the law grants to the FSAC and its subordinate agencies, the FSAC may, when necessary, require finan-cial institutions and their related parties and public-issuing companies to present information such as accounting records, documents, and electronic data files, and may instruct persons under investigation to submit to interrogations as requested by the FSAC. If there is suspicion of criminal activity, the FSAC may, with the per-mission of the public prosecutor, apply to the relevant court for a warrant, and accompanied by the police, FSAC officials may then enter and search premises where materials such as ac-counting records, documents, or electronic data files are suspected to be located.
A general budget will cover salaries and opera-tional costs during the initial period after the FSAC is set up. However, to ensure that there are adequate sources of funds to carry out re-search on various regulatory models and finan-cial training, so that the FSAC can respond to the needs of the financial environment and provide effective regulation, the law requires financial services enterprises to pay annual regulatory fees and investigatory fees, which, together with administrative charges and other sources of in-come, are to be paid into a financial supervisory fund to be used for certain defined purposes re-lated to financial regulation.