[Initial Perspective] Market-Friendly Financial Supervision

[Asia Economy Reporter Ji Yeon-jin] Since his appointment, Jeong Eun-bo, Governor of the Financial Supervisory Service (FSS), has earned the nickname "pro-market." This comes as he has been meeting consecutively with CEOs of financial companies, emphasizing "preventive supervision." The intention is to strengthen proactive supervision that prevents incidents beforehand rather than reactive supervision focused on sanctions. From the perspective of financial companies, it is much less burdensome to identify and improve risk factors in advance than to face severe sanctions that could be fatal to corporate value.

Earlier this month, Governor Jeong hinted at abolishing comprehensive inspections during a meeting with financial holding company chairpersons. At a meeting with heads of commercial banks, he announced plans to shift to a "guidance" approach, where banks identify and improve risk vulnerabilities themselves based on the results of soundness analyses. In a meeting with securities company CEOs, he also expressed intentions to reconsider the FSS’s decision to impose nearly 50 billion KRW in fines related to market makers’ market disorderly conduct.

This approach starkly contrasts with that of his predecessor, Yoon Seok-heon, who reignited the KIKO (Knock-In Knock-Out) incident?already settled by the Supreme Court?and recommended compensation, leading to confrontations with financial companies. Because of this, Governor Jeong’s "pro-market" remarks are sometimes interpreted as part of an effort to erase the "Yoon Seok-heon regime," which imposed strong sanctions on financial companies. In 2019, the FSS severely disciplined Sohn Tae-seung, Chairman of Woori Bank, over the overseas interest rate-linked derivative-linked fund (DLF) principal loss incident, but Sohn lost the first trial of his administrative lawsuit. Given the anticipated severe disciplinary actions against financial company CEOs over the Lime and other private equity fund scandals, as well as calls for improvement of the "sweeping" inspections solely aimed at sanctions, a shift in approach may have been necessary. Recently, Governor Jeong stated at a meeting, "The discretionary judgments and decisions of supervisory authorities cannot take precedence over laws and principles," adding, "We will carry out financial supervision administration according to laws and principles."

The problem is that repeated pro-market remarks may loosen the FSS’s core supervisory functions. In fact, the FSS postponed the comprehensive inspection of Woori Financial Group scheduled for this month, but after public criticism, announced plans to conduct it within the year. In the case of KakaoPay, a foreign investor (Alipay), the second-largest shareholder, failed to report its stake to the FSS, but after our investigation began, an FSS official informed KakaoPay of its reporting obligations. This is a result of Governor Jeong’s inaugural statement emphasizing "the essence of financial supervision is support, not regulation," and stressing "communication with the industry."

The purpose of establishing the FSS is to contribute to the development of the national economy by establishing a sound credit order and fair financial transaction practices through inspection and supervision of financial institutions, and by protecting depositors, investors, and other financial consumers. This is why the Financial Consumer Solidarity Conference, composed of five civic groups including the People's Solidarity for Participatory Democracy, criticized, saying, "It is deplorable that the head of the FSS, who should supervise the market and sanction disruptive behavior, continues to show pro-market behavior." Governor Jeong, a financial expert who worked nearly 40 years at the Ministry of Strategy and Finance and the Financial Services Commission, surely understands the FSS’s founding purpose better than anyone. This is why the last FSS governor under the Moon Jae-in administration is called "pro-market" but read as "lame duck."

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