Responsibility Debate Over Private Equity Fund Scandal: Will the Financial Services Commission Ultimately Be Split?

312 Geumgaemo Scholars and Experts: "Financial Supervision Swayed by Government Policy, Time to Resolve Structural Issues"
Industrial Policy Delegated to Government Economic Departments, Supervisory Functions Entrusted to Private Organizations
Political Circles Propose Series of Reform Bills, Most Advocating for Financial Services Commission Dissolution

Experts advocating for financial supervision reform held a press conference on the 16th at the Press Center in Jung-gu, Seoul, where they issued a statement calling for financial supervision reform to promote financial development and protect financial consumers, and demanded the next government to steadfastly pursue financial supervision reform. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporters Song Hwajeong and Song Seungseop] As the presidential election approaches, calls for reforming the financial supervisory system are growing louder. Since the Financial Services Commission (FSC) was launched in 2008, both financial industry policy and financial supervisory policy have been managed by a single department, resulting in inadequate checks and balances. The need for reform has continuously emerged, especially following incidents like the private equity fund scandals. In the political arena, bills focusing on separating the functions of the FSC have been proposed, and financial scholars and experts are also urging the separation of policy and supervisory functions.

The functions of the financial supervisory system are divided into ▲ financial industry policy (laws, systems, crisis response leadership) formerly under the Financial Policy Bureau of the Ministry of Strategy and Finance ▲ financial supervisory policy (supervisory regulations, disciplinary actions, licensing, and other supervisory decision-making) formerly under the Financial Supervisory Commission ▲ and financial supervision execution (ongoing supervision, investigations, inspections, statistical compilation, etc.) by the Financial Supervisory Service (FSS).

312 Financial Experts Call for Financial Supervisory Policy Functions to be Handled by an Independent FSS

The ‘Experts Group Urging Financial Supervision Reform (Geumgaemo)’, composed of 15 financial scholars, held a press conference on the 16th at the Press Center in Jung-gu, Seoul, and issued a statement titled ‘Call for Financial Supervision Reform for Financial Development and Consumer Protection.’ The statement was signed by 312 financial scholars and experts.

Geumgaemo emphasized that financial supervision should be conducted by an independent public-private organization separate from the executive branch. They stated, "Many financial accidents, from the savings bank crisis to the recent Lime and Optimus private equity fund scandals, stemmed from flawed financial industry policies overpowering financial supervision," and added, "It is time to eliminate the structural problems where financial supervision is swayed by government economic policies, abandoning the fundamental principles of supervision."

Regarding the current financial authorities’ structure, they criticized, "The FSC currently holds both financial industry policy and supervisory authority, effectively subordinating financial supervision as a tool of government policy," and argued, "While financial industry policy authority should remain with the government’s economic policy departments, financial supervisory functions should be integrally delegated to a public-private organization."

They further noted, "Unfortunately, some past financial supervisors were captured by financial companies’ lobbying or neglected fair and responsible decision-making for personal gain," and urged, "We must enhance the ethics and integrity of financial supervisors and establish institutional measures such as transparency in supervisory administration and external oversight."

As a way to harmonize financial supervisory principles with the discretion of supervisory bodies, they proposed a ‘Financial Supervision Software Reform.’ They pointed out, "While maintaining the broad framework of financial supervisory principles, it is necessary to establish new supervisory practices where supervisory bodies exercise appropriate discretion to concretely implement these principles."

Political Discussions Mostly Reflect Pre-2008 Views

In the political sphere, bills related to financial system reform have been proposed. Although there are differences in details, most advocate for the dissolution of the FSC. The core idea is to transfer financial industry policy to the Ministry of Economy and Finance and assign supervisory functions to the Financial Supervisory Commission and the Financial Supervisory Service.

In the Democratic Party, lawmakers Lee Yong-woo and Oh Ki-hyung have introduced related bills, while in the People Power Party, lawmakers Sung Il-jong and Yoon Chang-hyun have done the same.

The bills by Oh Ki-hyung and Sung Il-jong are similar to the plan signed by 312 financial experts on the same day. They propose transferring the financial policy functions currently performed by the FSC to the Ministry of Economy and Finance, and placing the Financial Supervisory Commission within the public-private Financial Supervisory Service to ensure no gap between financial supervisory policy decision-making and execution functions.

Lawmaker Lee Yong-woo’s bill also separates financial industry policy and financial supervisory policy functions between the Ministry of Economy and Finance and the Financial Supervisory Commission. The FSC would decide supervisory policies, and the FSS would execute supervision, with the FSC chairman concurrently serving as the FSS chief. Additionally, separate bodies?the Financial Consumer Protection Committee and the Financial Consumer Protection Agency?would be established to separate supervisory execution functions from consumer protection functions.

Lawmaker Yoon Chang-hyun’s bill focuses on reforming the FSS. It proposes returning all disciplinary authority for severe sanctions against financial companies to the FSC and restricting the FSS chief from concurrently serving as an FSC commissioner. It also introduces comprehensive parliamentary oversight over the FSS and strengthens control over personnel and budget.

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