Will Financial Supervisory System Reform Gain Momentum Ahead of the Presidential Election (Comprehensive)

Will the Divided Supervisory System Undergo Surgery After 13 Years?
Oh Ki-hyung, Democratic Party Lawmaker, Proposes Financial Supervisory System Reform Bill
Financial Services Commission Reorganized into Financial Supervisory Committee... Functions Transferred to Ministry of Economy and Finance

[Asia Economy Reporter Jin-ho Kim] Ahead of next year's presidential election, controversy over the restructuring of the financial supervisory system, which had subsided beneath the surface, is showing signs of resurfacing. Public opinion demanding accountability for large-scale private equity fund scandals is forming mainly within the ruling party. Attention is focused on whether the supervisory system, divided between the Financial Services Commission and the Financial Supervisory Service since 2008, will undergo reform after 13 years.

According to the National Assembly Legislative Information System and financial circles on the 16th, a total of four bills to reform the financial supervisory system have been proposed since the 21st National Assembly began. Oh Ki-hyung, a member of the Democratic Party of Korea, submitted the "Act on the Establishment of the Financial Services Commission, etc. (Complete Revision)" to the National Assembly yesterday. Oh's bill centers on separating the financial policy function from the financial supervisory function.

The proposal is to reorganize the current Financial Services Commission into a Financial Supervisory Committee that independently deliberates and decides on financial supervisory tasks, and to transfer the financial policy functions currently performed by the FSC to the Ministry of Economy and Finance. Oh said, "The current financial supervisory system concentrates both financial policy and supervisory authority in the FSC, causing a loss of checks and balances between the two functions," adding, "It is necessary for financial policy and supervision to operate in balance through legislative adjustments."

With Oh's bill submission, discussions on reforming the financial supervisory system are expected to resume in political circles. As the presidential election phase intensifies, the supervisory reform plan is anticipated to emerge as a key issue in the financial sector. Oh has effectively ignited public opinion that had been dormant.

Lee Yong-woo, also a member of the Democratic Party and regarded as a financial expert within the National Assembly, is reportedly preparing to propose a related bill on "financial supervisory system reform" soon. Lee's reform plan also centers on absorbing and integrating the FSC into the Ministry of Economy and Finance. The aim is to unify the currently bifurcated financial policies between domestic and overseas sectors. The financial supervisory part would be divided into the "Financial Supervisory Committee" and the "Financial Consumer Protection Committee."

This aligns with the financial pledges made during the Moon Jae-in administration's inauguration. President Moon pledged to separate the three functions of financial policy, supervision, and consumer protection to ensure mutual checks and balances. However, no organizational restructuring occurred after the government took office. Due to pressing issues such as household debt, the restructuring of the financial authorities naturally receded beneath the surface.

In the opposition party, Yoon Chang-hyun of the People Power Party is pushing for a plan to reform the financial supervisory system. Yoon's reform plan focuses on reducing the supervisory functions of the Financial Supervisory Service and strengthening parliamentary control. In particular, Yoon believes that to allow the FSS to concentrate on supervisory duties, all disciplinary authority above severe sanctions over banks and other financial companies should be returned to the FSC.

However, it appears realistically difficult for such demands for financial supervisory system reform from political circles to be realized within the current administration. The government reorganization should have been driven early in the administration, but the current situation is more likely to prioritize stability over change.

In fact, President Moon insisted on appointing a private-sector head of the FSS as part of the financial supervisory system reform, but recently nominated Jeong Eun-bo, a career bureaucrat, as the new head. Financial Services Commission Chairman Ko Seung-beom is also focusing on maintaining the status quo. In a written response during last month's National Assembly confirmation hearing, Ko stated, "It is necessary to strive for more effective operation while maintaining the current financial supervisory system."

A financial sector official said, "Given the current late stage of the administration, it is uncertain whether the financial supervisory system will be reformed," adding, "However, if strong public opinion forms mainly around the National Assembly, discussions on this could intensify with next year's regime change."

Meanwhile, the National Assembly Research Service, which supports lawmakers' legislative activities, reinforced calls for reform in its November report last year titled "The Necessity and Legislative Tasks for Reforming Korea's Financial Supervisory System." The report stated, "Independence and efficiency should be secured through the separation of financial industry policy and financial supervisory policy, and the responsibility of financial supervisory agencies should be strengthened."

The Research Service argued that under the current system, financial policy could overwhelm supervisory policy, and supervisory policy might be used as a tool to support economic measures. Therefore, all parts of the FSC's jurisdiction related to financial supervision should be transferred to the financial supervisory agency, and the FSC's guidance and supervisory regulations should be deleted.