Fund Scandal Responsibility Debate: "Financial Services Commission's Deregulation Responsibility" vs "Financial Supervisory Service's Inadequate Supervision"

Financial Authorities Eager to Shift Blame Over Lime·Optimus Scandal
Urgent Reform Needed to Resolve Conflict... Risk of Fallout for Financial Firms and Consumers

Eun Sung-soo, Chairman of the Financial Services Commission (right), and Yoon Seok-heon, Governor of the Financial Supervisory Service, attending the '6th Real Estate Market Inspection Meeting of Related Ministers' held on the 8th of last month at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Kangwook Cho] Amid growing calls for accountability directed at financial authorities due to the Lime and Optimus scandals, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) are once again engaged in a blame game. Regarding the cause of the incident, the FSC is focusing on the FSS's 'supervisory negligence' for failing to manage its own house and has begun considering sanctions authority. On the other hand, the FSS is strongly opposing, claiming that the FSC bears the 'original sin' for implementing the 'loosening of private equity fund regulations.'

According to the financial sector on the 23rd, during the comprehensive audit of the National Assembly's Political Affairs Committee held that day, the responsibility of financial authorities was once again brought to the forefront concerning the Lime and Optimus scandals, which are showing signs of escalating into power-related corruption gates. In particular, suspicions have resurfaced that the financial authorities not only failed in supervision but also provided convenience. The opposition party has even submitted a bill to introduce a special prosecutor to investigate the overall Lime and Optimus scandals.

In the earlier National Assembly Political Affairs Committee audit targeting the FSC and FSS, issues such as the failure of financial authorities to supervise private equity funds and allegations of involvement by political figures were major points of contention. Especially, the FSS, where suspicions of involvement by internal staff and former personnel are emerging one after another, faced severe criticism for supervisory negligence and inadequate internal controls. Moreover, former FSS Director Yoon is under prosecution investigation for allegedly receiving tens of millions of won in bribes from the Optimus CEO, causing the authority of the FSS, nicknamed the 'financial prosecutor' as the highest financial supervisory body, to plummet. Consequently, opinions have emerged advocating designating the FSS as a public institution to strengthen government management control, along with calls to reduce its sanctioning authority.

Will FSS's Disciplinary Authority Be Adjusted? ... Dissatisfaction Over Shifting Responsibility

On the 12th, during a parliamentary audit, FSC Chairman Eun Sung-soo said, "In the past, it was customary to delegate disciplinary warnings for bank CEOs to the FSS Director," adding, "We will consider the procedural legitimacy of entrusting the basis for sanctions against financial company executives to the FSS." This is interpreted as the FSC signaling its intention to adjust the FSS's authority to impose heavy sanctions on bank executives, implying that the current heavy sanctions finalized solely by the FSS Director are 'customary sanctions' rather than 'procedural sanctions.'

The FSS acknowledges its responsibility but clearly shows discomfort over the blame being directed solely at it. It argues that the FSC initially relaxed regulations to foster private equity funds and that the responsibility for supervisory negligence is being unfairly shifted only to the FSS.

In fact, all cases of private equity fund redemption delays occurred after the 2015 regulatory easing. According to data received by Park Kwang-on, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, from the FSS, there were a total of 361 cases of private equity fund redemption delays over the past 10 years. Among these, there were no cases from 2011 to 2017, and all occurred after 2018. It is analyzed that the surge in redemption delays happened as the maturities of poorly managed private equity funds, created after the FSC lowered the private equity fund investment minimum from 500 million won to 100 million won in 2015 and changed the establishment of management companies from approval to registration, came due.

FSC and FSS's 'Long-standing Conflict'... Need for Fundamental Restructuring

The blame game between the FSC and FSS is not new. Earlier in June, Chairman Eun pointed out the inadequacy of investigations, saying, "In past investigations, only documents submitted by management companies were reviewed," and announced plans for a full-scale investigation of private equity funds. In response, the FSS labor union issued a statement titled "The one who farted is angry," directly rebutting by saying, "It is a shallow trick to divert blame to the FSS and cover up the FSC's original sin." At that time, the FSS did not issue any separate explanation or position regarding the union's strong criticism.

Within the industry, there are calls for fundamental restructuring to resolve the conflict between the two institutions. The conflict is not just a turf war but could also harm financial companies and consumers.

A financial company official lamented, "The current situation is like serving two mothers-in-law," adding, "We can only worry about what kind of fallout the conflict between the two institutions, who are constantly watching each other, might cause."

This content was produced with the assistance of AI translation services.