Choosing Among Authorities for Consumer Financial Protection in Taiwan: A Legal-Theory-of-Finance Perspective

Abstract

From a political economy perspective, this book chapter uses the Taiwanese case study to shed light on the significant questions about how best to design economic “safety valves”, especially on the periphery of the financial system. These issues are raised in the seminal paper by Professor Katharina Pistor of Columbia Law School, “A Legal Theory of Finance” (“LTF”): Would courts, regulators, or other agents be best placed to act as a safety valve and empowered to initiate interventions for retail investors or financial services consumers in times of economic distress? This chapter unfolds as follows: Part I deals with the question of whether the substantive aspect of the rule of changed circumstances is applicable in such circumstances as financial crises, bearing in mind the issue of whether courts are suitable bodies to create safety valves for consumer financial protection. Part II discusses the emergence of the procedural aspect of the rule of changed circumstances, a variation of its substantive form and the legislation introduced following the Global Financial Crisis. It then offers a political economy analysis of whether the Financial Supervisory Commission (“FSC”), which is the sole financial market watchdog in Taiwan, would be a better choice than courts to create safety valve waivers of law on the periphery of the financial system. Part III, from the LTF and political economy perspective, assesses why the FSC intervened in the structured notes debacle and its regulatory aftermath in Taiwan. To conclude, this paper advocates creating an independent agency such as a Taiwanese version of the the U.S. Consumer Financial Protection Bureau to act independently of the FSC and exclusively control its own rulemaking, supervision, and enforcement of consumer financial protection measures in Taiwan. This body would be better placed to offer the legal flexibility of safety valves within the financial system. In short, the structured notes saga illuminates the power relationships within the Taiwanese financial system, illustrating how law is applied under pressure.