[Song Seung-seop's Financial Light] Launch of Yoon Transition Team... Evolution of Financial Supervisory Authorities

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial issue each week and explains it in very simple terms. Even those who know nothing about finance can immediately understand these ‘light’ stories that ignite a bright ‘light’ on finance.

[Asia Economy Reporter Song Seung-seop] Yoon Seok-yeol, the president-elect from the People Power Party, has formed the presidential transition committee and begun preparing the initial blueprint for the government. Policy priorities will be decided through departmental briefings, and government organization reforms may take place. The financial authorities are no exception. The financial authorities have changed their form in various ways depending on the financial market environment.

In Korea, an integrated supervisory system covering the entire financial sector was established in 1997. Before that, financial supervision was separately handled by the Bank Supervisory Authority, Securities Supervisory Authority, Insurance Supervisory Authority, and Credit Management Fund. However, after experiencing the International Monetary Fund (IMF) foreign exchange crisis and facing criticism of the separated supervisory system, public opinion formed around the need for ‘a single financial supervisory organization.’

The Financial Reform Committee (Geumgae-wi), composed of government, financial sector, and academic members at the time, also made the same demand. Geumgae-wi requested the establishment of a Financial Supervisory Commission (Geumgam-wi) directly under the Prime Minister. Under the Geumgam-wi, it proposed integrating the four existing supervisory agencies into a single Financial Supervisory Service (Geumgam-won). Accordingly, in December of the same year, the ‘Act on the Establishment of Financial Supervisory Organizations’ was enacted.

The initial Geumgam-wi was a ‘commission’ but was far from an independent government agency like today’s Financial Services Commission (FSC). It literally existed under the Prime Minister’s Office. The Financial Supervisory Service (FSS) was a ‘special agency’ that carried out inspections and supervisory duties of financial institutions under the direction of the Geumgam-wi. The head of the FSS concurrently served as the chairman of the Geumgam-wi.

The financial authority system changed again in March 2008. At that time, there were claims that the overlapping duties of the Financial Policy Bureau in the Ministry of Finance and Economy, the Financial Supervisory Commission, and the Financial Supervisory Service were inefficient. The Lee Myung-bak administration also announced a plan to completely reorganize the financial administrative system. The FSC was created by merging the Financial Supervisory Commission and the Financial Policy Bureau of the Ministry of Finance and Economy, and the system of having the Financial Supervisory Service under it was completed.

[Image source=Yonhap News]

The newly established FSC took on policy functions for all domestic financial companies and financial public institutions. It also supervises the FSS. Unlike the Geumgam-wi, which was a committee under the Prime Minister, the FSC became a central administrative agency under the Government Organization Act. The FSS took on roles such as establishing accounting standards and managing and supervising the financial soundness of financial companies.

Then, when the Moon Jae-in administration began in 2017, there were expectations that the financial supervisory system would change. There was criticism that it was inappropriate for the FSC, which aims to promote the financial industry, to command the FSS, which is a supervisory organization. President Moon also promised during his presidential campaign to ‘separate financial policy and financial supervision.’ When the National Planning Advisory Committee announced the ‘Moon Jae-in Government’s Five-Year Plan,’ it included a statement saying, “To modernize the financial industry structure, we will reorganize the FSC by function and consider separating policy and supervisory functions in connection with government organization reform.” However, as discussions subsided quietly, the FSC-FSS system has continued to this day.

During this presidential election phase, voices calling for changes to the financial supervisory system have emerged. The ‘Experts Group Urging Financial Supervision Reform (Geumgaemo),’ composed of 15 financial scholars, held a press conference last month with signatures from 312 financial scholars and experts. Geumgaemo pointed out, “Many financial accidents, from the savings bank crisis to the recent Lime and Optimus private equity fund scandals, stemmed from flawed financial industry policies overwhelming financial supervision,” and “It is time to eliminate the structural problems where financial supervision is swayed by government economic policies and even abandons the basic principles of financial supervision.”

Regarding the current financial authority system, they said, “Currently, the FSC holds both financial industry policy and financial supervisory authority, effectively subordinating financial supervision as a subordinate tool of government policy,” and “Financial industry policy authority should be held by the government’s economic policy departments, while financial supervisory functions should be integrally delegated to a public-private organization.”

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