FSC Chairman Sean Chen:
Returning Financial Management to the Fundamentals
Faced with a global financial crisis, how will Taiwan's Financial Supervisory Commission establish its credibility? Incoming chairman Sean Chen talks about navigating the obstacle-strewn path ahead.
Returning Financial Management to the FundamentalsBy Yi-Shan Chen
From CommonWealth Magazine (vol. 414 )
Having seen five chairpersons since its inception five years ago, Taiwan's Financial Supervisory Commission (FSC) has never had so fitting a candidate to head it as Sean Chen, whose resume abounds with high-level positions at the Ministry of Finance, the Taiwan Stock Exchange and a number of private-sector banks.
"The Commission hasn't been so vociferous in quite a while," one reporter said, congratulating a Chen aide.
"It's all thanks to everybody's support," the aide replied cheerily.
In just a brief spell, his sleepy government department has become hot news. Can Chen really burnish the image of his commission, shaken to its foundations by repeated corruption scandals? What kinds of changes will his character bring to financial circles?
On January 9 Chen publicly broke with recommendations from the Presidential Office's financial advisory board that implementation of International Accounting Standards Statement No. 10 be delayed. Citing professional principle, he added that if critics wanted to discuss his decision, they should bring him facts.
"His financial, legal and administrative background offers the best opportunity to reinvigorate the financial supervisory mechanism," avers Felice Chen, a former vice chairman for UBS Asia-Pacific and a three-decade friend of Sean Chen's. She also expects Chen to put his international outlook to work in encouraging Taiwanese banks to become truly involved in international financial services and not simply content with domestic business.
It remains unclear, of course, whether the man who has stirred up such a fuss will in the end be able to live up to the hype. Plenty of financial industry observers remain skeptical whether the commission will have a truly free and independent regulatory hand under a KMT administration possessing an unassailable majority.
"Sean has always been a supporting player, so this is the first time he's been onstage in a leading role. It'll be a real test to see if he can take the heat of the spotlight," Felice Chen observes.
Sean Chen recently sat down with CommonWealth Magazine to discuss the special calling of public service, the crucial role of character, and the importance of supporting the beleaguered financial sector. Following are highlights from the interview.
Q: The reputation of the Financial Supervisory Commission has taken a real beating over the past several years. What can you do to rebuild that institution, its systems and the morale there?
A: We've definitely been burned in the past. I remember when Ben Bernanke was appointed chairman of the U.S. Federal Reserve there were a number of newspaper reports comparing the remuneration received by central bank heads in Hong Kong, Singapore, the U.S. and other developed nations. As it turned out Bernanke was the least well compensated. He was asked how this was so in the world's biggest power. He responded that his compensation could indeed be improved but needn't be too high because the reality was that involvement in government service was a calling and not just an occupation. Salaries that are too high, as in some countries, simply attract a lot of people who weren't necessarily initially interested in making a contribution.
This issue demonstrates that the mindset of those willing to go into public service is different. These are people who want to contribute; if they were simply looking to cash in, they wouldn't be here.
We have to build morale among the civil servants in the commission. The emphasis here is what can a civil servant accomplish here on behalf of us all? The year the Monetary Affairs Division was upgraded to the Bureau of Monetary Affairs, a lot of people within the industry took a pay cut to join us. The reason they came is because they wanted to do something for their country. Making a lot of money isn't the only objective.
Q: What is the battle plan for you and your colleagues?
A: I have told our people, they must put the previous period of unpleasantness behind them. They just need to get back to why they came to do this job in the first place, take back their own core values. During the more than a month I've been back, I've had the chance to chat with some colleagues, and my feeling is that they have not lost their idealism. Actually, none of them had ever really forgotten why they became a civil servant.
Financial Regulation Must Be Practical
Q: What remains uncertain now is whether new revisions to the Organic Law of the Executive Yuan could redefine the Financial Supervisory Commission. If the commission is not an independent entity, is there a need for it?
A: I'm not saying the commission is not an independent entity – only that Taiwan is unable to achieve the kind of independence that Britain's Financial Services Authority has. If it can't be done, don't try it.
Q: So what should be done?
A: The simplest thing would be to make it part of the Ministry of Finance.
Q: You would recommend simply returning the commission to the Ministry of Finance?
A: This is a serious matter. Right now, after a lot of hardship, we're finally functioning smoothly, and it would be tough going back. If you're asking my own personal opinion, I think it would be better to get rid of the commission, because the commission system has not been successful in Taiwan. If one were to really insist on a commission system, Canada's Office of the Superintendent of Financial Institutions might be a good reference, calling meetings only under circumstances of significance. Committee posts would be held concurrently as duties of other positions, including central bank governor, chairperson of the deposit insurance corporation, deputy finance ministers and others.
Q: Is that a recommendation you're making?
A: I'm not going to make any recommendations.
Q: Why not? You're the commission chairman; you can't avoid facing up to it.
A: Because this agency is now beginning to function normally – to change it again would not be a nice experience for my colleagues.
Aggressively Seeking Bank Support
Q: When you took your post, your proposal for the National Development Fund to support banks was rejected.
A: I wouldn't put it like that. The fund is permitted under existing law to invest in banks, but the legislature has imposed all sorts of restrictions on the originally proposed NT$100 million troubled banks could apply for, with that figure now limited to NT$10 million. Right now the Council for Economic Planning and Development believes there are more urgent concerns than banks, and it is putting them on the back burner.
Q: Without National Development Fund support for banks, how can the government get the banks to support businesses?
A: The tools are definitely scarcer now. I was a proponent of the Resolution Trust Committee Fund legislation, as every financial system needs a fire extinguisher. Although the provisions of the fund have expired, I wouldn't rule out approaching the Executive Yuan and Legislative Yuan about a renewal if and when needed.
Q: Is the same true for the insurance industry? A number of insurance companies now sport negative net asset values and yet they do not sell, nor do they increase capitalization, and the commission seems powerless.
A: We have the Insurance Stabilization Fund with a combined capacity to take over one life insurer and one property insurer with no problems. If needed, the government could be approached about capital infusions. I believe that to maintain order you need to have the right financial regulatory tools. I think the significance of the current financial storm will be the establishment of a financial rescue system. I've already instructed our New York and London offices to gather information on what types of systems other countries have built.
Q: What kind of regulatory culture do you hope to establish?
A: Actually, the most important elements in the financial industry are professionalism, character and risk management. These are unchanging. The ratio of some of these elements in the mix has sometimes been lacking. Perhaps this financial crisis won't be all negative. It may possibly contribute to a new return to fundamental values.
Translated from the Chinese by Brian Kennedy
Current position: Financial Supervisory Commission chairman
Education: B.A. in law, National Taiwan University; M.A. in law, NTU College of Law
Experience: At 37, became the manager of Farmers Bank of China, the youngest bank manager at that time.
Ministry of Finance: Director of the Insurance Division; Director of the Bureau of Monetary Affairs, Administrative Deputy Minister; Political Deputy Minister
Chairman of the Board of Directors at Taiwan Stock Exchange Corporation; Taiwan Cooperative Bank; Chinatrust Securities; SinoPac Holdings
Chinese Version: 陳冲：要讓金管回到初衷