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Taiwan finance regulator signals hands-off approach, with nudges

Tuesday, May 24, 2016 - 14:52
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The new head of Taiwan's market watchdog signaled a preference for light-handed regulation - and a desire to get money flowing towards smaller businesses, start- ups and infrastructure to support a struggling economy.

[TAIPEI] The new head of Taiwan's market watchdog signaled a preference for light-handed regulation - and a desire to get money flowing towards smaller businesses, start- ups and infrastructure to support a struggling economy.

"With a lot of things, we shouldn't use rules to limit what financial firms can do," Ding Kung-wha, 62, chairman of the Financial Supervisory Commission, said in an interview on Monday night in New Taipei City. "They should make their own decisions." At the same time, the regulator will be giving some nudges, Mr Ding indicated. "What we're going to do is help them think about what they should pursue."

On his watch, banks and insurers will be encouraged to set up angel funds to engage in venture capital investing, Mr Ding said, without specifying the incentives or rules the FSC would pursue. The regulator will also encourage bank lending to small and medium enterprises as well as for long-term investments such as infrastructure.

CRISIS EXAMPLE

The minister cited the global financial crisis as an example of what can happen when money flows into financial speculation instead of supporting economic activity.

"In 2008 the world was flush with cash and it created the structured debt problem," Mr Ding said. "When banks cannot find investment, we need to find solutions."

Mr Ding succeeded Tseng Ming-chung, taking up his post in President Tsai Ing-wen's administration on May 20 as the new government inherited an economy that has contracted for three straight quarters, and which faces longer-term challenges such as limited corporate investment in research and a brain drain.

Ms Tsai said at her inauguration that fostering innovation and jobs growth would be central to her policies.

As head of the Taipei Exchange, the smaller of Taiwan's two bourses, Mr Ding shepherded the development of the so-called Innovation Board, where companies can crowdfund their way to a spot on a platform that allows them to market equity stakes to large corporations. The platform currently features over 70 homegrown companies.

BUDDHIST TEXTS

A student of Buddhist texts, Daoist philosophy and eastern geomancy, Mr Ding said he believes in market mechanisms rather than over-regulating.

Though he is concerned about exchange-rate and other risks associated with US$300 billion of life insurance funds invested in foreign-currency assets, Mr Ding said he wouldn't close the spigot with regulatory restrictions.

Last August, a surprise devaluation of the Chinese yuan burned investors in Taiwan who had bought derivative products tied to the currency, called Target Redemption Forwards.

Some US$4 billion of TRFs and other yuan-tied options contracts were outstanding in Taiwan. In the interview, Mr Ding said the issue isn't the products themselves - but the need for banks to provide adequate investor education.

Mr Ding also said the government would not push domestic banking consolidation but would instead reward well-governed, compliant firms with the approvals they needed to expand their businesses. Taiwan's population of 23.5 million is served by about 40 banks.

BLOOMBERG