[The Editors' Verdict] Financial Authorities Restructuring: What Matters More Than Changing the Nameplate

Avoiding the Pitfalls of Diffused Responsibility as Seen in the UK
Separation of Policy and Supervision Requires Careful Design to Prevent Confusion
The Essence of Reform Lies in Integrating Responsibility, Not Just Dividing Authority

The ruling party and the government are set to finalize the financial regulatory reform plan at the High-Level Party-Government Council on September 7. The core of the reform is to dismantle the Financial Services Commission and revive the Financial Supervisory Commission. Under the new Financial Supervisory Commission, the Financial Supervisory Service and the Financial Consumer Protection Agency will be established, while the functions of financial policy are likely to be transferred to the Ministry of Economy and Finance. This marks the first change in the main financial authority in 17 years since the launch of the Financial Services Commission in 2008. This is not a simple name change; it fundamentally alters the distribution of authority over policy, supervision, and consumer protection.

The purpose of the financial supervisory system reform is to separate financial industry policy from financial supervision, preventing the government from excessively intervening in the financial market for specific policy objectives and allowing it to focus on its core financial policies. At the same time, it aims to enhance the expertise and independence of supervision. However, there are considerable concerns that the new organizational system may produce unforeseen side effects and confusion in practice. It is worth recalling that the Financial Services Commission system was maintained for 17 years as a lesson from the chaos caused by the absence of a control tower during the IMF foreign exchange crisis.

The potential for coordination delays due to the separation of policy and supervision is a significant issue. First, if financial policy is transferred to the Ministry of Economy and Finance, there is a risk that it could become subordinate to fiscal and industrial logic. The speed at which on-site inspections and supervisory data are fed back into policy is also crucial. If signals from the supervisory field are reflected late in policy decisions, the effectiveness of supervision diminishes and the timing of policy is missed. Furthermore, if there is a mismatch between policy signals and supervisory enforcement during a crisis, it could amplify instability in the financial market. Therefore, institutional mechanisms to clarify the ultimate decision-maker and decision-making procedures are necessary.

The establishment of the Financial Consumer Protection Agency also presents challenges. While the intention to strengthen consumer protection functions separately is valid, in reality, financial accidents or cases of misselling are intertwined with inspection, compensation, and sanctions. If the roles of the Financial Supervisory Service and the Financial Consumer Protection Agency overlap, financial companies may suffer from double regulation and consumers may become confused. If redundant investigations, conflicting corrective orders, and blame-shifting between agencies occur, the original goal of consumer protection will be undermined. The separation of protection and supervision must not devolve into the diffusion of responsibility, and a sophisticated design is required to prevent this.

In fact, after the financial crisis, the United Kingdom dismantled the single supervisory body, the Financial Services Authority (FSA), and divided its functions among the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and the Financial Policy Committee (FPC). However, overlapping authority among agencies led to frequent supervisory gaps and regulatory conflicts, and each agency was criticized for protecting its own interests while shifting responsibility. Companies suffered from excessive regulatory burdens, and Parliament criticized the fragmented supervisory system for delaying crisis response and exacerbating financial market instability. This case demonstrates that dividing organizations does not automatically lead to greater efficiency or accountability.

If organizational reform is implemented, a tightly woven safety net is necessary. Consideration should be given to strengthening the status of the Financial Stability Council, a consultative body where top financial authorities gather to discuss financial system stability and risk response. Currently, it functions only as a consultative body without binding authority, and in times of crisis, each agency tends to act independently. After the reform, it should be elevated beyond a mere consultative body and granted real authority. If a system is established in which the council is automatically convened when market instability is detected and decisions are made within a set timeframe to clarify responsibility, the market can be addressed with a unified voice even within a decentralized authority structure.

For consumer protection, the Financial Supervisory Service and the Financial Consumer Protection Agency must be able to work organically through a one-stop reception, joint investigation, and unified order system. Only then can consumer confusion be reduced and financial companies operate in a predictable regulatory environment.

In addition, even if the Ministry of Economy and Finance absorbs financial policy, it must secure specialized personnel and a separate organization. If finance is treated merely as a subordinate variable of fiscal and industrial policy, the stability and consistency of policy will inevitably be shaken. Since financial market risks are unique, dedicated expertise must be secured to manage them.

The reform of financial authorities is not about dividing authority, but about filling gaps in responsibility. As seen in the UK case, splitting agencies can lead to confusion and responsibility avoidance. Therefore, an organically coordinated and cooperative structure among policy, execution, and supervision is essential.