As always, as the presidential election approaches, discussions about government organization reform are becoming rampant, and as usual, reforming the financial supervisory system will be at the top of the incoming administration's agenda. Currently, both academia and political parties have proposed various plans for reforming the financial supervisory system, ranging from dismantling the Financial Services Commission to elevating it to a Ministry of Finance. Reforming the financial supervisory system, which could pose systemic risks to the general public's economic life and the national economy, is far more important than typical government organization reforms. Therefore, reforming the financial supervisory system should be pursued cautiously, taking into account not only the incoming president's national governance philosophy but also the fundamental philosophy of financial regulation and the spirit of the times.
Looking at the contents of the proposed financial supervisory system reforms, the general spirit of the times for reform is strengthening financial consumer protection in response to incidents like the private equity fund scandal, and the core argument for reform is the need to separate policy and supervision and to adopt a dual-peak financial supervisory model. How valid are these claims?
First, the argument for separating policy and supervision generally uses the term "policy" to mean industrial support and promotion, while "supervision" refers to industrial regulation and market monitoring. From this perspective, it is considered inherently contradictory and a conflict of interest for the same institution to pursue opposing policies of industrial support and industrial regulation simultaneously, like pressing the accelerator and brake pedals at the same time. Therefore, it is deemed desirable to separate support agencies and regulatory agencies. While there are valid points, there are more aspects that are difficult to agree with.
The financial market is more complex and massive than any other market, and its impact on the national economy is enormous, making finance the most strictly regulated sector among all industries in modern society. Unlike general industries where the basic principle is permissive with exceptions for regulation, finance applies the principle of prohibition with exceptions for permission. Accordingly, while general industries require separate measures for promotion, finance is promoted simply by slightly loosening regulatory reins without additional measures, and tightening the reins means strengthening regulation. In other words, since regulation and promotion are like two sides of the same coin and difficult to separate, it is not essentially a conflict of interest for one institution to handle both policy and supervision, just as a car has both an accelerator and a brake, and in fact, there are many advantages to this arrangement.
Next, strengthening financial consumer protection is a task everyone agrees on, but whether it is an urgent and pressing spirit of the times that requires a major overhaul of the current financial supervisory system is questionable. The private equity fund scandal, which triggered recent calls for stronger financial consumer protection, represents only a small part of the entire financial sector and is not a systemic problem. Moreover, in response to the private equity fund scandal, the Financial Consumer Protection Act, which had not passed the National Assembly for over ten years, was enacted in March last year and is currently in effect, and strict regulations under the Capital Markets Act have also been introduced. Therefore, the justification for pushing for financial supervisory system reform is not particularly strong.
In fact, from a macro perspective of the spirit of the times, a more significant issue is the advent of the era of great convergence, reflected in the "Big Blur" phenomenon where the boundaries between financial and non-financial industries disappear, and the rapid development of fintech, big tech, and financial platforms. In this chaotic situation of boundary destruction and innovation, a unified supervisory model may be more suitable than a dispersed financial supervisory model, whether divided by industry (banking, securities, insurance) or by function (soundness, business conduct) in a dual-peak form.
Finally, one important issue that has not been much discussed in the financial supervisory system reform debate is the independence and neutrality of financial regulation. The "fool in the shower" phenomenon, where the system swings between extremes, arises more from the lack of independence of financial regulation from the executive branch and politics than from the separation of policy and supervision. Now, for the independence and neutrality of the financial supervisory system, a core infrastructure of the national economy, the Financial Services Commission, as a collegial administrative agency, should be operated stably and predictably with independence from the general executive branch and neutrality from political forces, similar to the U.S.-style independent regulatory commissions, in line with its original purpose.
Seong Hee-hwal, Professor, Inha University School of Law
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
![[Opinion] What Is the Financial Supervisory System Reform For?](https://cphoto.asiae.co.kr/listimglink/1/2021020115515356195_1612162313.jpg)

