BOK Faces Financial Supervisory Service Backlash Over Suspension of Annual 10 Billion Won Contribution

"Situation Where Self-Funding Is Possible"
Decision to Suspend Payments Starting This Year
FSS "Financial Companies' Burden Will Increase"

[Asia Economy Reporters Song Hwajeong, Seo Sojeong] Concerns are rising that the burden on private financial companies will increase as the Bank of Korea has decided to stop its annual contributions to the Financial Supervisory Service (FSS).

According to financial authorities on the 4th, the Bank of Korea resolved at the Monetary Policy Committee meeting in December last year to cease its contribution of 10 billion KRW to the FSS starting this year. Since 1999, the Bank of Korea has annually provided a certain budget as contributions under the "Act on the Establishment of Financial Supervisory Agencies." In the FSS's inaugural year of 1999, it contributed 41.3 billion KRW, and since 2006, this amount has been maintained at 10 billion KRW.

The Bank of Korea had already decided in December 2020, when finalizing the 2021 budget, to stop contributions from 2022 onward. It notified the FSS of this decision and explained the background, which was confirmed again at the Monetary Policy Committee meeting in December last year. The Bank of Korea decided to stop contributions because it judged that the FSS budget primarily covers costs related to supervisory functions over financial institutions, and based on the beneficiary-pays principle, the financial institutions under supervision should primarily bear these costs. Furthermore, the Bank of Korea views that the original motivation for contributing to the FSS was to support stable operations during its early establishment phase, and now that financial institutions’ profits have increased and their contributions alone can sufficiently cover operational expenses, this support purpose has been fully achieved. The proportion of the Bank of Korea’s contributions in the FSS’s total budget has decreased from 31.2% in 1999 to 8.3% in 2005, and in the past five years, it has been around 2.7?2.8%. The Bank of Korea explained, "Recent FSS financial statements show a surplus (total income minus total expenditure), and the FSS returns this surplus to supervisory fee-paying institutions excluding the Bank of Korea," adding, "Since the Bank of Korea’s contributions are based on its note-issuing authority, they should be operated minimally and only in cases of urgent or significant necessity."

The FSS is opposing the cessation of contributions, arguing that the Bank of Korea and financial authorities need to share expenses related to joint inspections and information sharing, and that the burden on financial companies will increase. The FSS estimates that if the Bank of Korea stops contributions, about 490 financial companies will have to bear an additional 10 billion KRW, increasing each company’s supervisory fee by an average of 20.24 million KRW. For large financial companies such as KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and Samsung Life Insurance, the additional burden is estimated to be in the range of 500 million KRW.

Some interpret this cessation of contributions as stemming from conflicts between the Bank of Korea and the Financial Services Commission over amendments to the Electronic Financial Transactions Act (EFTA). The Bank of Korea had previously notified a contribution halt in 2010 amid conflicts with the FSS over revisions to the Bank of Korea Act.

An FSS official stated, "We understand that the Financial Services Commission and the Bank of Korea are currently in discussions regarding this issue."

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