Ahead of the Presidential Election, Is the Ruling Party-Driven Financial Supervisory System Reform Gaining Momentum?

Will the Divided Supervisory System Undergo Surgery After 13 Years?
Oh Ki-hyung, Democratic Party Lawmaker, Proposes Financial Supervisory System Reform Bill
Financial Services Commission Reorganized into Financial Supervisory Committee... Functions Transferred to Ministry of Economy and Finance

[Asia Economy Reporter Jin-ho Kim] Ahead of next year's presidential election, controversy over the restructuring of the financial supervisory system, which had subsided beneath the surface, is showing signs of resurfacing. Public opinion, mainly within the ruling party, is forming around the need to hold accountable for large-scale private equity fund scandals. Attention is focused on whether the supervisory system, divided between the Financial Services Commission and the Financial Supervisory Service since 2008, will undergo reform after 13 years.

According to the National Assembly Legislative Information System and financial circles on the 16th, a total of four bills to restructure the financial supervisory system have been proposed since the 21st National Assembly began. On the previous day, Oh Ki-hyung, a member of the Democratic Party of Korea, submitted the "Act on the Establishment of the Financial Services Commission, etc. (Complete Revision)" to the National Assembly. Oh's bill centers on separating the financial policy function from the financial supervisory function.

The proposal is to reorganize the current Financial Services Commission into a Financial Supervisory Committee that independently deliberates and decides on financial supervisory tasks, and to transfer the financial policy functions currently performed by the FSC to the Ministry of Economy and Finance. Oh said, "The current financial supervisory system concentrates both financial policy and supervisory authority within the FSC, resulting in a loss of checks and balances between the two functions," adding, "It is necessary for financial policy and supervision to operate in a balanced manner through legislative adjustments."

With Oh's bill submission, discussions on restructuring the financial supervisory system are expected to resume in political circles. As the presidential election phase intensifies, the supervisory restructuring plan is anticipated to emerge as a key issue in the financial sector. Oh has effectively reignited public debate that had been dormant.

Lee Yong-woo, a Democratic Party member regarded as a financial expert within the National Assembly, is also reportedly preparing to propose a bill related to the "restructuring of the financial supervisory system" soon. Lee's restructuring plan similarly focuses on absorbing and integrating the FSC into the Ministry of Economy and Finance. The aim is to unify the currently bifurcated domestic and international financial policies. The financial supervisory sector would be divided into the "Financial Supervisory Committee" and the "Financial Consumer Protection Committee."

This aligns with the financial pledges made during the Moon Jae-in administration's inauguration. President Moon pledged to separate the three functions of "financial policy, supervision, and consumer protection" to ensure mutual checks and balances. However, no organizational restructuring occurred after the government took office. Due to pressing issues such as household debt, the restructuring of the financial supervisory system naturally receded beneath the surface.

In the opposition party, Yoon Chang-hyun of the People Power Party is pushing for a plan to restructure the financial supervisory system. Yoon's plan focuses on reducing the supervisory functions of the Financial Supervisory Service and strengthening parliamentary control. In particular, Yoon believes that to allow the FSS to concentrate on supervisory duties, all disciplinary authority above severe sanctions over banks and other financial firms should be returned to the FSC.

However, it appears realistically difficult for such demands for restructuring the financial supervisory system from political circles to be realized within the current administration. The government organizational reform should have been driven early in the administration, but the current situation is likely to prioritize stability over change.

In fact, President Moon insisted on appointing a private-sector head of the FSS as part of the financial supervisory system reform, but recently nominated Jeong Eun-bo, a career bureaucrat, as the new head. Financial Services Commission Chairman Ko Seung-beom is also focusing on maintaining the status quo. In a written response during last month's National Assembly confirmation hearing, Ko stated, "It is necessary to strive for more effective operation while maintaining the current financial supervisory system."

A financial sector official said, "Given the current situation at the end of the administration, there are many uncertainties about whether the financial supervisory system can be restructured," adding, "However, if strong public opinion forms mainly around the National Assembly, discussions on this could intensify with the regime change next year."

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