Severe Financial Instability... Financial Services Commission and Financial Supervisory Service Out of Sync

Four Years Ago, a Direct Clash Between Financial Authorities Over 'Samba Texts'
Financial Services Commission: "Breach of Confidentiality" vs Financial Supervisory Service: "Not Illegal"
Differences in Tone Between Heads Amid Short Selling and Virtual Asset Issues
Discord Between 'Bureaucrat' Chairman and 'Prosecutor' Origin Director

Kim Ju-hyun, Chairman of the Financial Services Commission (left), and Lee Bok-hyun, Governor of the Financial Supervisory Service

[Asia Economy Reporter Song Seung-seop] On May 3, 2018, the Financial Supervisory Service (FSS) notified Samsung Biologics and its auditor of the preliminary audit notice, informing the press corps. Last month, the Board of Audit and Inspection asked the Financial Services Commission (FSC) after 4 years and 5 months whether the FSS had violated confidentiality obligations at that time. The FSC responded, "It seems so." On the 24th of this month, during the National Assembly's Political Affairs Committee session, Democratic Party lawmaker Park Yong-jin questioned whether that judgment was appropriate.

In response at the National Assembly audit, Lee Bok-hyun, Governor of the FSS, stated, "I believe it was not illegal and the administrative measures will not be overturned," adding, "It is appropriate for government ministries to have legal authority, but the FSS can also express opinions." He further expressed confidence, saying, "Issues based on litigation must go to court, and I don't think we will lose." On the other hand, Kim Ju-hyun, Chairman of the FSC, said, "Although it was a delegated decision, it was issued according to regulations, so I consider it the official position of the FSC."

Differences in Tone Between Heads Over Short Selling and Virtual Assets

Within the financial sector, the public clash during the audit was seen as a symbolic anecdote reflecting the relationship between Chairman Kim Ju-hyun and Governor Lee Bok-hyun. Although the FSC and FSS outwardly emphasize cooperation and present themselves as a "one team," recent major issues have revealed discord. Concerns have been raised that underlying conflicts may continue due to differences in the roles and key policies of the two institutions, as well as the differing backgrounds and dispositions of their leaders.

The FSS is a special corporation established with financial company contributions and is not an administrative agency, yet it is organized under the FSC, a government ministry. Since the FSC holds authority over articles of incorporation changes and budget approvals, it is difficult for the FSS to take completely opposing actions. An FSS official interpreted, "In this case, if the FSS Governor agreed with the FSC Chairman’s words, internal morale could be completely broken, so the response is understandable."

The two heads have also shown differing views on other issues. At the FSC’s National Assembly audit on the 6th, when asked whether short selling could be temporarily banned, Chairman Kim said, "It is difficult to make specific comments," adding, "Whatever is expressed and whenever, it greatly affects the market." Five days later, Governor Lee, appearing at the audit, emphasized, "Although there is controversy over banning short selling, the market situation is rapidly changing and market participants’ anxiety is at its peak," and stated, "Any market stabilization measures can be taken."

Regarding virtual assets, there is also analysis that the FSC is more passive than the FSS. Chairman Kim, responding to concerns about serious problems in the virtual asset market, said, "It takes a long time internally to prepare laws," and added, "There are 14 bills submitted to the National Assembly, so I hope discussions proceed quickly." However, Governor Lee is known to hold the position that since virtual assets are already recognized as investment targets by many, the government and financial authorities should promptly implement regulations and investor protection measures.

Mismatch Between the 'Bureaucrat' Chairman and the 'Prosecutor' Governor

There is analysis that the current discord partly stems from the backgrounds of the two leaders. Chairman Kim passed the 25th Administrative Examination and was first assigned to the Ministry of Finance, a typical bureaucratic background. Senior bureaucrats often take cautious decisions considering inter-ministerial interests when promoting policies. Chairman Kim is also said to listen to opinions from various stakeholders as much as possible rather than taking the lead.

Governor Lee passed the 42nd Judicial Examination and began his career at the Seoul Southern District Prosecutor’s Office. He is known to have given clear and precise instructions to subordinates during his time as a prosecutor. A prosecution official said, "(Governor Lee) was the type who actively investigated and acted when charges were found." Governor Lee’s proactive and firm investigative style earned him and Justice Minister Han Dong-hoon the nickname "Reapers of the Business World."

When Governor Lee was first appointed, there were expectations in the financial sector that the FSS might increasingly act independently. Unlike Chairman Kim’s cautious stance, Governor Lee seemed likely to take bold steps to resolve issues. A financial sector official said, "In fact, there have been key policies recently that the FSS proceeded with independently before the FSC was even aware," adding, "It can be perceived that close cooperation as a superior institution is not being achieved."

It is also pointed out that conflicts are inevitable given the nature of the two institutions’ work. Since the Lee Myung-bak administration, the heads of the FSC and FSS have been appointed separately, leading to power struggles. A senior financial authority explained, "The FSS closely monitors financial companies and feels the urgency of problems, but the FSC is a step behind and also has to promote the industry, so their perspectives can differ."

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