Fragmented Main Ministries... Mutual Finance 'Regulatory Blind Spot'

Financial Authorities Consider Strengthening Regulation and Supervision of Secondary Financial Institutions Amid LH Scandal
Calls for Unified Supervision of Mutual Finance
Experts Say Applying Different Regulations to Same Financial Services Is Preferential Treatment

[Asia Economy Reporters Kwangho Lee and Seungseop Song] As financial authorities prepare to strengthen regulations and supervision on secondary financial sector loans in the wake of the Korea Land and Housing Corporation (LH) scandal, voices are rising to unify the management and supervision of mutual finance institutions, which remain regulatory blind spots. The main supervisory departments are fragmented across various agencies, and because they are controlled by separate laws, proper management of regional cooperatives and treasuries is not being effectively carried out.

According to the government and related industries on the 15th, the main supervisory authorities for mutual finance institutions such as regional agricultural cooperatives that provided large-scale loans to LH, credit cooperatives, livestock cooperatives, fisheries cooperatives, forestry cooperatives, and Saemaeul Geumgo are all different.

Credit cooperatives are managed by the Financial Services Commission, but Saemaeul Geumgo is under the Ministry of the Interior and Safety. Agricultural cooperatives and livestock cooperatives fall under the Ministry of Agriculture, Food and Rural Affairs, while fisheries cooperatives are under the Ministry of Oceans and Fisheries. Forestry cooperatives are managed by the Korea Forest Service.

Because there are separate laws forming the foundation for mutual finance institutions, which are based on mutual bonds among members such as cooperative members, the main supervisory departments differ. Currently, the Credit Cooperatives Act, Saemaeul Geumgo Act, Agricultural Cooperative Act, Fisheries Cooperative Act, and Forestry Cooperative Act each provide the legal basis for conducting mutual finance business.

Supervisory authority is also divided. Credit cooperatives are the only institutions where the Financial Services Commission and the Financial Supervisory Service handle both soundness supervision and comprehensive supervision. The Ministry of Agriculture, Food and Rural Affairs supervises agricultural and fisheries cooperatives comprehensively, while the Korea Forest Service supervises forestry cooperatives. Saemaeul Geumgo grants supervisory authority to the Minister of the Interior and Safety, stipulating that supervision related to credit business and mutual aid business should be conducted in consultation with the Financial Services Commission.

Experts: "If there are differences in regulation and supervision, it is problematic; unified regulations are necessary"

A mutual finance official said, "Basically, various cooperative laws primarily aim to improve the rights and interests of specific occupational groups, so related ministries inevitably take charge, and supervision is structured accordingly. It would be difficult for some ministries to integrate and exert influence."

Experts point out the need for regulations that can be generally applied, excluding special purposes such as policy finance. Professor Jun Kyung Ha of Hanyang University’s Department of Economics said, "If differences arise in financial authorities’ regulation and supervision due to different main ministries or legal foundations, that is problematic. Since mutual finance institutions also perform general financial institution roles, related areas should be legally unified through regulatory adjustments."

Professor Taegi Kim of Dankook University’s Department of Economics argued, "There has been a regulatory blind spot due to their status as special-purpose banks. Employees involved in the LH scandal might have been aware of gaps in mutual finance." He added, "If the same financial services are provided but different regulations apply, voices claiming preferential treatment will inevitably grow."

Meanwhile, financial authorities plan to include measures to strengthen regulations on non-residential collateral loans such as land and commercial buildings in the ‘Household Debt Management Plan’ scheduled for announcement this month. The authorities are considering expanding the Loan-to-Value ratio (LTV) applied only to land collateral loans in mutual finance institutions to all banking sectors.

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