[Reporter’s Notebook] Controversy Over FSC’s Public Institution Re-designation Focused Only on 'Cost-Benefit' Calculations

Reporter Wondara

[Asia Economy Reporter Wondara] "Only the Financial Services Commission is opposing it. Because their authority is weakening." "Even within the Financial Supervisory Service (FSS), opinions are divided. Senior officials dislike becoming a public institution because their salaries would be cut, while lower-level staff expect it could resolve personnel stagnation."

On the 29th, ahead of the Ministry of Strategy and Finance's Public Institution Management Committee meeting to decide whether to re-designate the FSS as a public institution, voices from the government and financial sector were only weighing pros and cons based on various scenarios. There was no sign of concern about the 'effectiveness of strengthening financial supervision' to prevent private equity fund scandals.

Those arguing for the necessity of designating the FSS as a public institution emphasize 'strengthening the FSS's management and supervision.' However, government oversight of the FSS has been continuously strengthened. The FSS, which previously disclosed only about 30 out of 116 public disclosure items, disclosed 90 items at the end of last year. Strict management evaluations involving at least one member from the public enterprise and quasi-governmental institution management evaluation team will also be conducted. In fact, it is already under management and supervision at the level of a public institution. In this situation, designating it as a public institution is criticized for only weakening the FSS's independence.

Since the FSS is under the Financial Services Commission, which pursues policies like financial innovation, its goal of 'consumer protection' tends to be diluted. There are concerns that if it also comes under the Ministry of Strategy and Finance's supervision, the FSS could effectively lose its identity. In fact, when regulations were relaxed in 2011 to foster the savings bank industry, a massive savings bank insolvency crisis occurred, and in 2015, easing entry requirements for private equity fund investors and operators led to a large-scale suspension of redemptions. Accordingly, not only international supervisory bodies (IMF, BIS) but also the National Assembly Legislative Research Office have continuously recommended that the independence of financial supervision duties be guaranteed. Major advanced countries' financial supervisory agencies also operate independently from their governments.

There is a saying, "Do not change generals during a war." The investigation into the private equity fund scandal and compensation for victims is currently underway. In addition, the reform of the financial supervision system, which was a national agenda of the Moon Jae-in administration, remains. Designating the FSS as a public institution is a stopgap measure. It is time for FSS reform to proceed based on serious discussions about effectiveness.