Fund Scandal Responsibility Followed by Independence Controversy... Financial Services Commission and Financial Supervisory Service Show Temperature Gap (Comprehensive)

Financial Authorities Quick to Shift Blame Over Lime·Optimus Scandal
Reform Urgently Needed to Resolve Conflict... Risks Spreading to Financial Firms and Consumers
Differences in Views Between Two Financial Authorities' Heads on FSC Independence Issue

Eun Sung-soo, Chairman of the Financial Services Commission, is attending the comprehensive audit of the Financial Services Commission and the Financial Supervisory Service at the Political Affairs Committee meeting held at the National Assembly on the 23rd, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Jo Gang-wook] 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 'poor supervision' 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, which implemented the 'loosening of private fund regulations,' holds the original sin.

In particular, FSC Chairman Eun Sung-soo and FSS Governor Yoon Seok-heon showed starkly contrasting positions on whether to reform the financial supervisory system.

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 put on the spotlight concerning the Lime and Optimus scandals, which are showing signs of escalating into power-related corruption gates. 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 entire Lime and Optimus incidents.

In the earlier National Assembly Political Affairs Committee audit targeting the FSC and FSS, issues such as the failure of private fund supervision by financial authorities and allegations of involvement by political figures were major points of contention. Particularly, the FSS faced severe criticism for poor supervision and inadequate internal controls as suspicions of involvement by internal staff and former personnel emerged one after another. Moreover, former FSS Director Yoon was investigated by prosecutors on charges of receiving tens of millions of won 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 that the FSS should be designated as a public institution to strengthen government management control, along with calls to reduce its sanctioning authority.

Will FSS Sanction Authority Be Adjusted? Dissatisfaction Over Shifting Responsibility for Failures

FSC Chairman Eun Sung-soo said at the audit on the 12th, "In the past, it was customary to delegate disciplinary warnings for bank CEOs to the FSS Governor," 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 heavy sanctions finalized by the FSS Governor were 'customary sanctions' rather than 'procedural sanctions.'

The FSS acknowledges responsibility but clearly shows discomfort with the blame being directed solely at the FSS. They argue that it was the FSC that initially relaxed regulations to foster private funds, and that the responsibility for supervisory failures is being unfairly shifted only to the FSS.

In fact, all cases of private 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 361 cases of private 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 funds, created after the FSC lowered the private 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 'Long-standing Conflict'... Need for Fundamental Reform

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 funds. In response, the FSS labor union issued a statement titled "The One Who Farted Is Getting Angry," directly rebutting, 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.

Especially during the comprehensive audit held that day, the two heads of financial authorities expressed opposing views on whether to reform the financial supervisory system, including the independence of the FSS.

Yoon Seok-heon, Governor of the Financial Supervisory Service, is attending the comprehensive audit of the Financial Services Commission and the Financial Supervisory Service at the Political Affairs Committee meeting held at the National Assembly on the 23rd, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

Yoon Seok-heon: "Subordinate to FSC from the Start... Budget Independence Needed"

Governor Yoon said, "The FSS is responsible for executing under the financial policy authority held by the FSC, so budget issues and organizational personnel inevitably become subordinate," adding, "(Since the FSC and FSS) carry conflicting objectives of fostering the financial industry and supervision, the problem's seed was planted from the start."

He also lamented, "The FSS does not even have supervisory regulations for enforcement," saying, "It is very difficult to immediately reflect any market situation into supervisory enforcement as desired," citing the budget as the most critical issue for the FSS's independence.

Eun Sung-soo: "Budget Issues Are Not Related to FSS Independence"

On the other hand, Chairman Eun said about budget issues, "The Bank of Korea also goes through procedures such as approval by the Ministry of Strategy and Finance, so it is the same," adding, "I believe that the FSS's budget should also have some approval or supervisory procedures."

He continued, "(The approval of the FSS's budget) would be done by someone like the Ministry of Strategy and Finance or the National Assembly, even if not by the FSC, so I think it is unrelated to the FSS's independence."

Chairman Eun also responded to criticism that conflicts between the FSS and FSC might limit supervisory roles by saying, "We have been faithful to our respective roles and have had many conversations with the FSS Governor to avoid infringing on the FSS's independence."

As opinions diverge between the authorities on the direction of reforming the financial supervisory system, including the independence of the FSS, the industry points out the need for fundamental reform work to resolve conflicts between the two institutions. This is because the conflict could not only be a turf war but 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 sparks might fly from the conflict between the two institutions, which have to constantly watch each other."

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