Ultimately, Financial Authorities Split into Four... Securities Industry Sighs: "Just More Overseers"

The government and the ruling party, through a high-level party-government consultation on September 7, finalized a plan to overhaul financial authorities by dismantling the Financial Services Commission for the first time in 17 years and splitting financial policy and supervisory functions into four separate organizations. While the stated aim is to separate financial policy from supervision to strengthen checks and balances, voices from the financial investment industry reveal concerns that the number of supervisory "overseers" has effectively increased to four. There are also concerns that, in the event of a major crisis, the authorities' ability to respond may be weakened, and responsibility-shifting among agencies could intensify.

The Democratic Party of Korea plans to pass the revised Government Organization Act, which was made public on this day, at the National Assembly plenary session on September 25. If the amendment passes, the Financial Services Commission will be dismantled for the first time since its establishment in 2008, and government organizations in charge of the financial sector will be divided into four: the Ministry of Economy and Finance, the Financial Supervisory Commission, the Financial Supervisory Service, and the Financial Consumer Protection Agency. Specifically, the domestic financial policy functions previously handled by the Financial Services Commission will be transferred to the Ministry of Economy and Finance, which will be separated from the budget function. The newly established Financial Supervisory Commission will be responsible for supervising financial companies. The Financial Consumer Protection Bureau, previously under the Financial Supervisory Service, will be launched as a separate organization called the Financial Consumer Protection Agency. This is an organization that the Lee Jaemyung administration has emphasized for the protection of financial consumers.

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Both inside and outside the financial investment industry, there is a consensus that, since the reorganization will take considerable time to materialize, there will not be any immediate major changes. However, there are complaints that "there is neither enough justification nor practical benefit, and only uncertainty will increase." The government and ruling party argue that separating policy from supervision will clarify market predictability and other factors, but critics point out that the more fragmented the financial organizations become, the weaker their crisis response capabilities will be.

A senior official at Securities Firm A commented, "Even during past incidents like the credit card crisis, inefficiencies were evident when multiple agencies shared supervisory functions. Wasn't this the reason why no reorganization took place before? If supervisory authority is fragmented to this extent, we cannot ignore the structural risk of making lines of responsibility even more ambiguous." A representative from Securities Firm B, speaking in a personal capacity, also said, "We need to consider whether there is sufficient justification and practical benefit to revert to the system from 17 years ago. It is not convincing. It will only increase uncertainty."

A senior official at Securities Firm C noted, "Separating policy from supervision is a global trend," but added, "From the industry's perspective, splitting up the functions means there are now four supervisory authorities watching over us." In particular, there are concerns that the dual supervisory burden between the Financial Supervisory Service and the Financial Consumer Protection Agency will be significant. As a result, the key issue will be how clearly the division of work among the organizations is defined. The official added, "Ultimately, the division of work and the existence of a control tower to oversee everything will be important. If this is not clear, it will further increase market uncertainty."

Furthermore, since numerous legal amendments are required for the organizational restructuring, there is a high possibility that legislative and political gridlock will be prolonged. In addition to the Government Organization Act, amendments to the Financial Services Commission Establishment Act, the Banking Act, and others will be needed, so it is expected to take more than a year. Even before the announcement of this reorganization, confusion and unrest among the approximately 2,400 employees of the Financial Services Commission and the Financial Supervisory Service have already been observed.

Some observers also suggest that, under the Ministry of Economy and Finance system, policies related to the capital market may not receive sufficient attention. A representative from Securities Firm D said, "Since the ministry deals with overall policy, the priority of capital market policies may be lowered. In fact, it might be better to let the market operate as it does." He added, "Because the Ministry of Economy and Finance may lack an understanding of the unique characteristics of the capital market, it would be preferable to let the market operate as it does, rather than introducing misguided policies. The specific nature of the market should be fully considered."