"Resolving Saemaeul Geumgo Supervision Blind Spots... Mutual Finance Supervisory Agency Needs Review"

Recently, concerns about insolvency and internal controls surrounding the mutual finance sector have been raised, prompting calls for a reform of the supervisory system. Experts have also argued that, in the long term, it is necessary to establish a separate 'Mutual Finance Supervisory Agency' to manage these institutions independently.

On the morning of the 2nd, Professor Han Jae-jun of Inha University's Department of Global Finance voiced the need to address the blind spots in financial supervision for institutions such as Saemaeul Geumgo at the 'Discussion on Regulation and Supervision Improvement of Mutual Finance Industry,' hosted by the Democratic Party's Livelihood Economy Crisis Countermeasures Committee at the National Assembly in Yeouido, Seoul.

Currently, the Financial Services Commission holds most of the supervisory authority over credit (financial) businesses in the mutual finance sector. In the case of credit unions, the Financial Services Commission is the relevant authority, while for Nonghyup, Suhyup, and the Forestry Cooperatives, comprehensive supervision is handled by their respective ministries, but they are subject to soundness supervision by the Financial Supervisory Service. However, Saemaeul Geumgo falls under the jurisdiction of the Ministry of the Interior and Safety, with credit and mutual aid businesses supervised in consultation with the Financial Services Commission. In other words, the Financial Supervisory Service supports joint audits for Saemaeul Geumgo but does not have direct supervisory authority.

Professor Han emphasized the need to separate financial supervisory authority from the main functions of the five central mutual finance associations. He pointed out, "There is a high possibility of conflicts of interest arising as the central associations perform supervisory functions while executing policies and managing assets."

He also argued that, in the long term, it is necessary to consider establishing a separate 'Mutual Finance Supervisory Agency' for the five mutual finance sectors. In the United States, a separate supervisory agency called the National Credit Union Administration (NCUA) oversees nationwide mutual finance cooperatives and provides deposit insurance through a separate fund. Professor Han proposed the long-term integration of supervisory authority over Nonghyup, Saemaeul Geumgo, credit unions, Suhyup, and Forestry Cooperatives by establishing a Mutual Finance Supervisory Agency under the Prime Minister's Office, considering the transfer of financial supervision and deposit insurance fund responsibilities.

However, he advised that financial supervision of the mutual finance sector should be differentiated from that of the banking sector. Professor Han said, "It is necessary to reflect on the unique characteristics of mutual finance, such as cooperatives and regional economic revitalization," adding, "If regulatory arbitrage with the banking sector is eliminated, those in need of loans might be forced to turn to loan sharks or illegal lenders if they cannot obtain loans from banks."

At the discussion, there were also calls to improve internal controls in the mutual finance sector, where various employee misconducts such as embezzlement and illegal loans persist. Lee Young-han, Dean of the Graduate School of Taxation at the University of Seoul, stated that the mutual finance sector should refer to the Basel Framework of the Bank for International Settlements (BIS), which incorporates concepts such as 'control environment,' 'risk assessment,' 'control activities,' 'information and communication,' and 'monitoring.' He also pointed out that the standards for regular external audits differ, with credit unions and Suhyup requiring audits for assets over 30 billion KRW, while Saemaeul Geumgo and Nonghyup have a relaxed threshold of 50 billion KRW, and emphasized the need to minimize such regulatory discrepancies.

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