"Four 'Overseers': Major Overhaul of Financial Authorities Raises Concerns Inside and Out"

Financial policy functions of the Financial Services Commission to be transferred to the Ministry of Finance and Economy
Financial Services Commission to be dissolved and restructured as Financial Supervisory Commission
Financial Consumer Protec

Yoon Hojung, Minister of the Ministry of the Interior and Safety (right), and Han Jeongae, Chair of the Policy Committee of the Democratic Party of Korea, are announcing the results of the 3rd High-level Party-Government Council and the government organization reform plan on the afternoon of the 7th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Yonhap News Agency

The Financial Services Commission, which has overseen domestic financial policy, will be dismantled after 17 years. Financial policy work will be transferred to the Ministry of Economy and Finance, and the Financial Services Commission will become the Financial Supervisory Commission. The Financial Consumer Protection Agency will be separated from the Financial Supervisory Service. The ruling party and the government explained that this organizational restructuring aims to strengthen consumer protection functions and ensure consistency between domestic and international finance. However, as the number of financial supervisory agencies increases from two to four, there are concerns that confusion in the field will be unavoidable.

Financial Services Commission to Be Dissolved After 17 Years; Financial Consumer Protection Agency to Separate from Financial Supervisory Service

On the afternoon of the 7th, the Democratic Party of Korea and the government held a high-level party-government council and announced this government organization restructuring plan. The core of the financial sector announcement is the separation of the Ministry of Strategy and Finance and the dismantling of the Financial Services Commission. The ruling party and the government decided to separate the budget function from the Ministry of Strategy and Finance, establishing an independent Ministry of Planning and Budget, and reorganize the Ministry of Strategy and Finance into the Ministry of Economy and Finance, which will take over the domestic financial policy functions of the Financial Services Commission. The remaining organization of the Financial Services Commission will be renamed the Financial Supervisory Commission, which will oversee financial supervision and consumer protection.

The Financial Consumer Protection Bureau, currently under the Financial Supervisory Service, will be separated and newly established as the Financial Consumer Protection Agency. This agency will be dedicated to financial consumer protection, a priority consistently emphasized by the Lee Jaemyung administration. The Financial Supervisory Commission will also oversee both the Financial Supervisory Service and the Financial Consumer Protection Agency. Since the chairmanship of the Financial Supervisory Commission and the head of the Financial Supervisory Service will not be held concurrently, it is highly likely that Lee Eokwon, the candidate for Chairperson of the Financial Services Commission, will become the head of the Financial Supervisory Commission, while Lee Chanjin will remain as the head of the Financial Supervisory Service.

Since its establishment in 2008, the Financial Services Commission has exercised both domestic financial policy-making and supervisory authority for 17 years, but with this restructuring, it will return to a structure focused on supervisory functions, similar to its predecessor, the Financial Supervisory Commission. This reflects the view that separating financial policy and supervisory functions is necessary to ensure proper checks and balances. Yoon Hojung, Minister of the Interior and Safety, explained at a briefing the previous day, "We are transferring the domestic financial functions of the Financial Services Commission to the Ministry of Economy and Finance in order to ensure consistency between domestic and international finance and to effectively respond to financial crises."

Financial Services Commission inside the Government Complex Seoul, Jongno-gu, Seoul Photo by Yonhap News

Functions Split Among Four Agencies: Ministry of Economy and Finance, Financial Supervisory Commission, Financial Supervisory Service, and Financial Consumer Protection Agency, Creating Four Supervisors

Despite the explanations from the ruling party and the government, concerns about the restructuring plan are widespread in the market. The number of financial supervisory agencies, previously two (the Financial Services Commission and the Financial Supervisory Service), will increase to four (the Ministry of Economy and Finance, Financial Supervisory Commission, Financial Supervisory Service, and Financial Consumer Protection Agency), raising the likelihood of increased confusion and interference in the field.

A senior executive at a financial holding company said, "Even before, we had to comply with regulations from both the Financial Services Commission and the Financial Supervisory Service, but now that the number of supervisory agencies will increase to four, I am worried that this will disrupt day-to-day work. In particular, since the Ministry of Economy and Finance is located in Sejong City, traveling back and forth will be quite challenging."

The difficulty of clearly separating financial policy and supervision is also a major challenge. For example, the government's plan to promote the supply of venture capital is a policy in terms of supporting new industries and allocating funds, but its implementation requires supervisory authority, such as adjusting risk weights for financial institutions. Household debt management also requires the policy line to be set at a high level, but detailed regulations and compliance checks must be handled by supervisory agencies.

There are also expectations that the momentum for domestic financial policy, which the Financial Services Commission strongly pushed, may weaken as it is transferred to the Ministry of Economy and Finance. An official from a commercial bank said, "When the Financial Services Commission oversaw both policy and supervision, it was able to introduce strong regulatory policies such as the June 27 real estate measures. I have doubts about whether the Ministry of Economy and Finance will be able to play such a role."

The fact that the size of the new Financial Supervisory Commission and the number of Financial Services Commission employees to be transferred to the Ministry of Economy and Finance have not yet been decided also increases the possibility of future confusion. Lee Changgyu, Director of the Organization Bureau at the Ministry of the Interior and Safety, said, "The size of the Financial Supervisory Commission has not been determined yet. We need to distinguish between the financial policy and supervisory functions within the Financial Services Commission, and we will coordinate this with the Financial Services Commission going forward."

Controversy is also expected over the separation of the Financial Supervisory Service and the Financial Consumer Protection Agency. As the government has stated that it may grant various inspection and sanctioning powers to the Financial Consumer Protection Agency, there is a possibility of disputes over authority between the Financial Supervisory Service and the Financial Consumer Protection Agency. Another hurdle is the strong opposition from Financial Supervisory Service employees to the separation of the Financial Consumer Protection Agency. Employees have repeatedly issued statements opposing its establishment, saying, "If the Financial Consumer Protection Agency is created, there is a high possibility of overlapping work with the Financial Supervisory Service, which will reduce efficiency."

The fact that the Financial Consumer Protection Bureau is considered an unpopular department within the Financial Supervisory Service also increases the likelihood of internal confusion. Hundreds of employees will have to move to the Financial Consumer Protection Agency as part of the reorganization, and the selection process is expected to be difficult. An employee of the Financial Supervisory Service said, "The Financial Consumer Protection Bureau mainly handles civil complaints, so the work burden is considerable, and the staff members have a tough job. If they are separated into the Financial Consumer Protection Agency, they will have to handle only civil complaints, and I don't know who would be willing to accept that easily."