2011 marked the 100^th anniversary for founding the Republic of China, thus a year worthy of celebrating. For our financial services sector, it was a particularly important year.

Despite the impact of the eurozone debt crisis, an unexpectedly sluggish global economic recovery, and problems plaguing the efforts of some sectors of the Taiwan economy to achieve industrial upgrading, our domestic banks nevertheless managed to post pre-tax earnings in excess of NT$200 billion, while their average NPL ratio fell to 0.43% and their average NPL coverage ratio went up to 251.83%. All these figures are the best they have been in more than a decade. However, it cannot be denied that the global economy and financial markets continue to face uncertainty. Moreover, the Basel Committee on Banking Supervision (BCBS) has required the adoption of new capital adequacy requirements from 2013 in order to bolster the quality and quantity of capital, and our domestic banks need to prepare for the new requirements. The FSC on the one hand is aligning with global financial supervisory trends by continuing to study possible changes to Taiwan''s capital adequacy regulations. At the same time, we are also encouraging banks to actively raise their NPL coverage ratios, improve their gross loan coverage ratios, and work out proper dividend policies in order to strengthen their risk-bearing capacity.

In order to better protect the interests of financial consumers, we have shepherded a "Financial Consumer Protection Act" (FCPA) through to enactment by our legislature, thus marking the beginning of a new era in the development of our financial services industry. The FCPA was promulgated by the President on 29 June 2011 and entered into force on 30 December. Moreover, the Financial Ombudsman Institution (FOI), a financial consumer dispute resolution body which was established upon the authority of the FCPA, commenced operations on 2 January 2012. The FSC will continue overseeing the FOI to ensure that it acts in line with the legislative intent of the FCPA by working in a professional, impartial, and proactive manner to handle financial consumer disputes, so as to win public trust.

In addition, an amendment to "Securities and Exchange Act" was promulgated on 4 January 2012 in order to further increase the depth and breadth of Taiwan''s securities markets. Key amended provisions include the following: (1) a new chapter focusing specifically on foreign companies has been added in order to flesh out legislative provisions governing foreign companies when they seek to list their securities in Taiwan; (2) the range of companies that are required to prepare IFRS-compliant financial reports has been specified in order to facilitate efforts to bring Taiwan more closely in line with international accounting principles; (3) a newly added provision gives shareholders of companies listed on the Taiwan Stock Exchange, GreTai Securities Market, or the Emerging Stock Market the right to apply for investigation of certain company matters in order to protect their interests; and (4) for applications to list securities, suspend a listing, reinstate a suspended listing, or permanently delist securities, the FSC has switched from a prior approval requirement to a registration requirement in order to accommodate standard operating practices within the industry.

We also completed an amendment to the "Insurance Act" in 2011, key points of which include the following: (1) life insurance enterprises engaged in foreign-currency denominated non-investment life insurance business are now allowed to apply to the competent authority for permission not to count investments made in connection with this type of business against the quota for their total foreign investments; and (2) all insurance agencies and insurance brokerages bigger than a certain size are required to establish internal control and internal audit systems in order to ensure sound development of the insurance industry. In addition, the need for prudential supervision and observance of financial accounting principles must be properly balanced with the business needs of insurers, the FSC established a foreign exchange volatility reserve mechanism in late 2011. Under the mechanism, life insurers since 1 March 2012 have had the option of regularly setting aside provisions to their foreign exchange volatility reserve to establish a buffer against foreign exchange volatility. The FSC has also adopted a coordinated set of related measures designed to afford life insurers greater flexibility in their efforts to manage currency risk and reduce costs, thereby achieving stronger financial footing.

2011 was also a very good year for cross-strait financial ties. The FSC and the mainland''s China Banking Regulatory Commission established the Cross-Strait Banking Supervisory Cooperation Platform, thus inaugurating a framework for systematic, regular meetings between supervisory authorities from the two sides. The two sides have met twice so far, and have already helped the mainland branches of six Taiwan banks commence business operations. Thanks to commitments made under the Early Harvest lists of the Economic Cooperation Framework Agreement (ECFA), these banks have been able to apply for permission to handle RMB banking business for Taiwan-invested firms in the mainland, and one of the banks has already had its application approved. In addition, financial services firms are now much less restricted in the range of business activities that they are allowed to conduct on the other side of the Taiwan Strait. For example, we have eliminated restrictions on the permissible business scope of domestic banking units (DBUs), offshore banking units (OBUs), and offshore commercial representations of Taiwan banks, as well as restrictions on what kind of counterparties they are allowed to do business with. In addition, the OBUs and offshore commercial representations of Taiwan banks are now allowed to handle RMB banking business. The FSC will continue actively seeking to win more favorable market access conditions in the mainland for Taiwan''s financial services firms, and will move forward steadily to promote closer cross-strait financial industry ties and cooperation.

To promote sound development of our financial services industry, the FSC has adopted a set of "financial services development" objectives and strategies, and these have been incorporated among the main policy focuses of the government''s "Golden Decade, National Visions" plan. Looking to the future, the FSC will continue implementing a series of initiatives in line with the Golden Decade plan and the financial services development strategies. In this regard, we have identified "the development of financial services with special cross-strait characteristics" and "development of a Taiwan-centered Personal Financial Planning Platform" as the two main strategies for developing our financial services industry. By developing financial services with special cross-strait characteristics, we hope to see domestic financial services firms: (1) make use of cross-strait economic and trade activities as a foundation for integrating their domestic branches, overseas commercial branches, and their commercial presences in the mainland; and (2) plan for the development of services related to the needs of Taiwan-invested enterprises in the mainland. By developing a Taiwan-centered Personal Financial Planning Platform, we hope to achieve the goal of "getting the money of our citizens into domestic financial institutions, where it is handled by our citizens and invested globally to obtain maximum returns for our citizens."

Yuh-Chang Chen, Chairman

Financial Supervisory Commission (FSC)