[Reporter’s Notebook] After Shifting Blame to Financial Firms... The Financial Supervisory Service’s Prestige Hits Rock Bottom

Audit Board Points Out Problems in Supervision of Private Equity Fund Sales, Establishment, and Management

[Asia Economy Reporter Park Sun-mi] "Traffic police cannot be held fully responsible just because someone ran a red light."

On February 17th, during the National Assembly's Political Affairs Committee briefing, Yoon Seok-heon, former Financial Supervisory Service (FSS) chief, responded this way to a lawmaker's question criticizing the financial authorities' negligence in managing the Lime and Optimus private equity fund scandals. Yoon also stated that the greatest fault lies with the sales companies that sold the products to consumers. This remark sparked controversy as the head of the FSS appeared to shift responsibility for the incidents onto financial firms without reflecting on the supervisory failures.

However, the results directly contradict Yoon’s persistent stance of denying responsibility. On the 5th, the Board of Audit and Inspection (BAI) announced the audit results on the financial authorities’ management of private equity funds, confirming that the Lime and Optimus fund scandals were due to the FSS’s overall supervisory negligence. The core issue was that despite being aware of illegal and improper management practices, the FSS neglected oversight, which exacerbated massive investor losses.

Yoon’s excuse that the sales companies should bear all responsibility and that the “traffic police” (FSS) cannot be held accountable for everything was thus thoroughly discredited.

Regarding the BAI audit results, the FSS stated, "Please understand that these incidents occurred while our staff were diligently performing their duties," and added, "The FSS made efforts to protect investors within the given circumstances."

The FSS, which had previously pinned full responsibility for the private equity fund scandal on the sales companies and imposed severe disciplinary actions on CEOs, now finds itself embarrassed over the handling of accountability issues without Yoon and former Deputy Governor Won Seung-yeon, who was in charge of capital markets. It has also become difficult for the FSS to justify holding financial firm CEOs responsible for selling defective financial products.

Trust in the FSS, which is currently mediating disputes between sales companies and victims as a follow-up measure to the private equity fund scandal, is expected to decline further. Victims of the private equity funds have expressed dissatisfaction with the FSS’s dispute mediation approach and are taking a hardline stance by refusing to accept compensation offers, demanding full 100% reimbursement.

To make matters worse, the FSS chief position has been vacant for two months. Since Yoon’s resignation on May 7th, Senior Deputy Governor Kim Geun-ik has been acting in the role. Setting aside the already tarnished reputation, it is regrettable that the FSS cannot even seize the opportunity to restore its fallen prestige amid the longest-ever vacancy of the chief position since its establishment.

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