[Why&Next] Repeated Proposals for FSC and FSS Restructuring... Is This Time Different?

The Stated Purpose: Strengthening Financial Policy and Protecting Financial Consumers
Political Motives Targeting the Ministry of Economy and Finance and the Prosecution
All Financial Regulatory Restructuring Plans Remain at the Idea Stage
A Matter That Requires Serious Deliberation and Discussion

"The Financial Services Commission should be abolished, and the supervision of financial institutions should be carried out by the Financial Supervisory Service and the Financial Consumer Protection Agency. This is the only way to resolve the dual structure issue between the FSC and the FSS."

Proposals for restructuring the financial regulatory authorities continue to emerge ahead of the presidential election. Previously, Oh Ki-hyung, a member of the Democratic Party of Korea (DPK), introduced a government organization bill in cooperation with the Democratic Research Institute, and now discussions about restructuring are also taking place within the DPK Policy Committee. The core idea is to either separate or combine certain functions of the Financial Services Commission and the Financial Supervisory Service. The stated justification is to strengthen the handling of unfair trading and misselling in order to better protect financial consumers.

Restructuring of financial authorities is a recurring issue whenever there is a change in administration. The overlapping organizations of the FSC and FSS, the limitations of their authority to investigate unfair trading, and the differences between policy and supervisory functions have been longstanding problems. For this reason, there is little agitation within the financial authorities themselves. A member of the DPK presidential campaign also drew a line, saying that these are still only ideas at this stage.

However, this year's proposals for restructuring the financial authorities are seen as somewhat different in context from previous ones. Some observers believe that, in addition to the surface-level justifications such as strengthening consumer protection and reforming the supervisory system, there are also political motivations.

Reviewing the Separation of the Ministry of Economy and Finance's Budget Office... Will International Finance Move to the FSC?

One of the ideas under consideration is to separate the budget and economic policy functions within the Ministry of Economy and Finance (MOEF). This is also a campaign pledge of DPK presidential candidate Lee Jaemyung. In the previous presidential election, Lee stated, "The MOEF acts as a superior agency to other ministries by wielding budgetary authority, so it is necessary to separate the budget function."

Within the MOEF, which is considered a powerful central ministry, the Budget Office is known to wield unchecked power. There is virtually no agency capable of controlling the Budget Office during the budget formulation and execution process. Even the overwhelmingly dominant opposition party is powerless before the Budget Office. A representative example is last year’s conflict between the MOEF and the DPK over the DPK’s proposal for an extra budget to fund the "KRW 250,000 National Livelihood Recovery Support Payment."

At that time, the DPK requested an extra budget for the livelihood support payment, but the MOEF refused to back down from its opposition. When the DPK even considered a special law to secure the budget by invoking "dispositional legislation," the MOEF reiterated its opposition by internally reviewing the legal issues. The current discussion, led by the DPK, about separating the Budget Office from the MOEF, is based on this background.

The restructuring of the FSC is also being considered in a similar context. As part of efforts to reduce the MOEF’s power, which has often clashed with the DPK, there is talk of transferring the MOEF’s international finance functions to the FSC. The stated purpose is to strengthen the expertise of the FSC, which is responsible for financial policy. Furthermore, there are calls to reorganize the FSC to focus on international finance and financial policy.

In line with this, there are also calls to split the FSS from under the FSC, creating a "FSC-FSS" system. The idea is to separate and make the FSS independent, thereby expanding its authority to investigate unfair trading and strengthening its consumer protection functions.

Expanding Financial Authorities' Unfair Trading Investigation Powers... Downsizing the Southern District Prosecutors' Office?

Seoul Southern District Prosecutors' Office Yonhap News

There is also a view that the restructuring of the FSS is politically motivated. The DPK’s stated justification is "financial consumer protection." The main content is to strengthen the financial authorities’ authority to investigate unfair trading and to make the financial consumer protection organization independent.

Currently, investigations into unfair trading in the capital market proceed in the following order: detection and review (Korea Exchange) → investigation (FSC and FSS) → prosecution (prosecutors). While the agencies cooperate in investigations, there have been ongoing criticisms about overlapping organizations and lack of authority within the financial authorities.

For example, although both the FSC and FSS have special judicial police (SJP) for the capital market, the FSS is responsible for most on-site investigations. They do not have the authority to access communications records for evidence, and must obtain the consent of the other party during investigations.

For this reason, there are voices within Lee Jaemyung’s presidential campaign think tank calling for the creation of a Korean version of the "Securities and Exchange Commission (SEC)." The idea is to concentrate the authority to investigate unfair trading within the financial authorities.

According to financial industry and academic sources, "When the Rha Deokyeon incident occurred, the FSS and prosecutors moved quickly, but investigations into stock price manipulation cases such as Deutsche Motors and Sambu Construction have not proceeded swiftly," adding, "The background for the organizational restructuring is the view that it would be better for the financial authorities to be solely responsible for unfair trading investigations." In other words, there is an intention to strengthen the financial authorities’ unfair trading role as a check on the prosecution.

However, a senior DPK official stated, "None of the reported government reorganization proposals are true," adding, "These are merely individual ideas being discussed at the conceptual level."

Both inside and outside the financial authorities, there is an emphasis on the need for sufficient discussion if organizational restructuring is to take place. A capital market investigative official said, "Restructuring the financial authorities would have a significant impact on financial companies, financial consumers, and investors," adding, "Once a government organization is changed, it cannot be altered again for at least five years, so any changes should be made only after thorough consideration of changes in the financial environment."