At 8 a.m. as the sounds of the trains pulling into Panchiao station fill the air, the sounds of employees begin to fill the offices on the 14th-18th floors of the building housing the FSC. Going to work at the FSC is like entering an arena. Each desk is piled high with new business proposals, quarterly financial reports, records of shareholders' and board of directors meetings from banks, securities firms and insurance companies. Employees in their small workspaces are all but buried under tens of thousands of complaint letters and documents waiting to be reviewed.

Recently ATM and money transfer fraud as well as unfair debt collection practices have become rampant. They are the most troublesome problems the FSC faces. Only by working with other agencies to strike back at criminals or through revised legislation can the arrogant behavior of the debt collectors to whom banks have outsourced their debts be curbed.

Supervising the cash flow

This office space, more than 36,000 square feet, houses four bureaus: the Banking Bureau, Securities and Futures Bureau, Insurance Bureau, and Financial Examination Bureau. Together, they have more than 1,000 full-time staff members who supervise a national financial industry valued at NT$10 trillion.

The Banking Bureau, which has more work than any of the others, employs over 300 people divided into seven sections. It supervises bank loans valued at NT$16 trillion, preventing all kinds of abuses in the granting of loans. In this narrow market are squeezed some 47 domestic banks and more than 300 credit unions. There is an excess of financial institutions and in this environment of vicious competition, unsound financial products are appearing constantly. The problems of credit and debit cards flooding the market and bad debts are becoming increasingly serious, and the Banking Bureau must be relied upon to make adjustments and bring order into the market.

The Securities and Futures Bureau (SFB), at about the same staff level, in addition to being responsible for regulating over 400 securities- and futures-related firms nationwide, is also responsible for inspecting the almost 700 firms listed on the Taiwan Stock Exchange as well as over 1,300 whose shares are traded on the OTC and emerging securities markets. It must at all times be aware of the state of their financial assets. In order to safeguard the rights and interests of the investing public, when companies conduct stockholders' meetings the SFB may send a representative to participate and observe.

The Insurance Bureau, with the smallest staff at about 100 persons, regulates a sector with about NT$6 trillion worth of capital. Currently, as the population rapidly ages, the public is beginning to attach importance to health care insurance and insurance policies structured to confer tax benefits. And underwriters are continually promoting new products in the marketplace. Add to this the expected trend toward horizontal business alliances and increased product diversification, and it is clear that potential bankruptcies or risks that may lead to disputes will also increase. For this reason, an increase in the Insurance Bureau staff level is currently a pressing matter for the FSC.

The Financial Examination Bureau (FEB), seen as the last line of defense against financial irregularities, has from its inception shouldered the important task of preventing financial crises and bringing order to the financial industry. Also because in recent years Taiwan has been facing economic recession and marginalization that have caused long-term softness in the stock and housing markets, many listed and OTC companies have been financially hard pressed, to the point where they desperately engage in insider stock deals and cooking the books so that the FEB has been forced to come in and exercise its responsibilities to protect the investing public.

Unfortunately former FEB director Li Chin-chen's involvement in the "vulture" stock scandal last year and the public falling-out between the FSC and investigators caused a public outcry and represented a serious setback for FSC public credibility.

The FSC believes the next star industry for Taiwan will be financial services. Especially following the financial reforms it believes it will soon be able to see the vigorous development of a new financial system.

An impossible task

Financial investigation and the fight against the "evil ways" of those who seek to break the law represent two of the "missions impossible" given to the FSC.

The first "big case" for the FSC was that of Procomp Infomatics where the public was bilked of some NT$7 billion. Implicated was the chairwoman, Yeh Su-fei, and low-level warehouse and business personnel. Collectively they created a false picture of company prosperity through collusion with figurehead companies and raw materials suppliers, when in fact 70% of sales were fictitious.

To make their figures look good on paper and thus gain the confidence of investors, Procomp conspired with overseas brokers to make repeated deposits and withdrawals with foreign banks, creating the impression of hundreds of millions of US dollars in deposits. It also had complicated financial guarantees with overseas branches that even fooled the accountants responsible for doing the auditing. To deal with these fraudulent practices, investigators seized tens of thousands of documents and electronic files, to compare the accounting books of the parties involved, uncover the deceptions in the financial reports and investigate the flow of capital across international borders. Unless one were a top accounting investigator familiar with all the tricks of the financial community, it would be incredibly difficult to penetrate the many layers of window dressing and force those who play fast and loose with the law to plead guilty. The Procomp case was the first that lent the FSC some prestige. After more than a year of investigation, at the end of 2005 the Shihlin District Court issued its verdict: chairwoman Yeh Su-fei was sentenced to 14 years in prison and fined NT$180 million. Thus justice was rendered to the more than 40,000 small stock investors who had been "buried alive," and the FSC, which had been called into the fray to catch the crooks, could breathe a small sigh of relief.

The flow of money is the lifeblood of economic development, and also a decisive element in a person's life. In middle school textbooks in the future there will be information teaching students about the appropriate use of credit and finance cards so that every person will have the ability to manage money and the nation's finances will be secured.

Hope for the "financial tribunal"

"The flows of people, money and information are the lifeblood of modern national economic development, and the flow of money is the chief among them," says Lin Chung-cheng, a commissioner and spokesman for the FSC. On the negative side, the role of the FSC is to maintain the legal and regulatory environment to preserve financial stability and protect the rights and interest of those involved. On the positive side, because financial soundness is tied to national development, the FSC works hard to promote the consolidation and modernization of financial institutions to strengthen Taiwan's financial competitiveness. Lin Chung-cheng does not hide the fact that in the initial preparatory stage some of the FSC staff seconded from the Ministry of Finance did their jobs with a petty bureaucratic mindset and things went slowly. The agency was unable to respond in a timely way to a financial industry that changed from minute to minute. But after more than a year of on-the-job learning, people began to make adjustments. Not only was there now more assertiveness, there was also a less antagonistic approach. They learned how to make effective contact with entrepreneurs and work with representatives from consumer protection associations and the Securities and Futures Investors Protection Center (SFIPC). They also invited academics and experts for joint meetings and discussions to find solutions to the tough questions involved in financial reform. Six or seven such meetings were held in one day, and press conferences followed one upon the other. This was a rarely seen level of activity for the average government organization.

Despite this, the investing public still seems to criticize more than it applauds the fines and punishments the FSC metes out. "All we can say is that the public's expectations of the FSC are too high," says Lin Chung-cheng. The FSC is not a judicial organ. When problems arise with financial service organizations or public companies, they can only be subjected to administrative penalties in accordance with laws and regulations or else turned over to public prosecutors and the courts. The FSC cannot itself directly impose criminal sanctions. For example, in the recent case of United Microelectronics Corporation, which was found to have misrepresented facts in its financial statements, under existing legislation the FSC could only fine the company NT$50,000; while in the recently detected insider trading cases, it could only initiate criminal prosecutions, the outcome of which depends on the judicial system.

In recognition of financial crimes and deceptions of all sizes and variety that have become increasingly common, and methods that have become increasingly vicious, "The Judicial Yuan has announced it will as soon as possible set up an independent financial tribunal staffed with judges with expertise in financial law, and will propose legislative amendments to allow plea bargaining, so that settlements can quickly be reached that safeguard investors' interests," says Lin Chung-cheng. Although the FSC currently is unable to directly compensate the investing public and can only assist peripheral entities (like the SFIPC) to file class action suits, through a constant revision of the existing laws and regulations some problems will be able to be solved.

Addressing outside doubts about the "second-stage financial reform," Ling Chung-cheng says "It's like taking an exam. The goal is to score 100%, but you don't necessarily achieve this. As long as you make progress each time it's OK." The second-stage financial reform aims at creating "specialty" banks where "small is beautiful" or international-level banks where "big is good," and not at selling off publicly owned shares and benefiting conglomerates.

New tricks

Lin Chung-cheng emphasizes that "money has four feet, men have two." Financial problems are always new. Even if the law is changed, people will come up with new gimmicks to turn a dishonest buck. Like the case very recently of Yang Hui-ju, an MBA living in Taitung only 27 years old. Yang used her credit card to do some complicated interest arbitrage and make a pile of money off the card-issuing bank, greatly exercising the bank and greatly exhilarating consumers who had always seen themselves as the underdogs. Which side actually broke their agreement or acted in bad faith? The case looks set to be another headache for legal community.

Facing the variety of ways the human penchant for material gain can be satisfied through financial trickery, those coming to work at the FSC all have a high level of enthusiasm and idealism, like Lin Chung-cheng, who gave up his title as legislator to join the fight with the FSC. He is often nagged by his wife: "There's too much work, too little pay, it's too exhausting." But he says he has a great feeling of accomplishment because whether it's opening up a bank account, using an ATM, purchasing stock, or buying insurance--as long as it is dealing with the flow of money, the FSC is playing a supervisory role. They must keep an eye on the purse of the entire public, and this makes for very challenging work.

But Lin Chung-cheng does not conceal the fact that with the high level of challenge and the low level of compensation it is very difficult to find good people. This is the biggest problem the FSC faces. This is especially true for the agencies under the FSC. The staff of these agencies must pass the civil service examination to be hired and their salary is that of an ordinary civil servant. Compared with that of other financial industry employees at the same level, there is really a huge gap. When you add the fact that these employees are all top talents in understanding government policy and regulations as well as the realities of the financial world, you realize that not only does the nation need them, every major financial holding company is hot to recruit them away. If it were not for the provisions on revolving-door employment for public employees that bar FSC staff from working in the financial sector for three years after leaving the FSC, it might be even more difficult for the FSC to retain talent.

To solve this problem, the FSC has put together a study abroad program for top talent. Those who work at the FSC for two or three years have opportunites to apply to go to New York or London to a first-class academic institution for advanced study. Afterwards they can intern at an international-level financial group, like Citibank, and get a practical understanding of how the international financial services industry operates so they can help design more effective regulatory procedures for the future.

Star industry of the future

The FSC also hopes to expand its program for top talent and sign agreements with schools in Switzerland and other countries, and allow people from outside government to participate, and thus raise the overall quality of the domestic financial services industry.

"Taiwan's future star export industry will not be high tech, but financial services," says Lin Chung-cheng. This is because high tech is very capital intensive, very risky and offers only narrow profit margins. By comparison, for every NT$1 in assets one can extend NT$12.5 of credit, in a highly leveraged operation that yields astonishing returns. In China, Taiwanese face no obstacles to communication and are thus at an advantage over international banks; they also have a ready core clientele in the more than 300,000 Taiwanese businesspeople who work in China. China can be the training ground for internationalizing Taiwan's financial services.

But Taiwan's financial industry, which after all is largely made up of small- to medium-sized enterprises, is currently only able to service the needs of the domestic public and industry. With looming global competition the government has actively encouraged bank consolidation and horizontal business integration in the financial industry with the hope of being able to compete with international financial groups that have enormous capital and sound products. Although this financial reform policy has been criticized by many as benefiting profit-making conglomerates, Lin Chung-cheng thinks after the general policy direction has been set it will be possible to overcome the technical problems.

"The FSC will strictly monitor whether bank consolidation leads to market monopolization, and will protect consumer interests and the employment rights of banking staff. It will also focus on monitoring internal investigation and controls for financial holding companies and on corporate governance to safeguard the interests of small shareholders.

Lin Chung-cheng, at the FSC less than a year, believes the FSC's overall goal and direction are correct. Domestic financial stability should be maintained and external financial strength boosted, and the global market should be fought for. These enormously difficult tasks weigh heavily upon Mr. Lin. Only the public's cooperation and approbation can bring some relief.