[1mm Financial Talk] Why Is the FSS Disappointed Over the Canceled IMF Annual Consultation Meeting?

IMF to Hold Annual Consultations with Korean Government Starting September 11
Meetings Scheduled with Ministry of Economy and Finance, Financial Services Commission, and FSS
FSS Planned to Convey Unfairness of Organizational Restructuring
IMF Meeting with FSS Suddenly Switched to Virtual Conference

Yonhap News Agency

Internal dissatisfaction within the Financial Supervisory Service (FSS) has been mounting since the government and the ruling party announced their organizational restructuring plan. This is because, in addition to difficulties in communicating with the FSS governor, the opportunity to convey their opinions to the International Monetary Fund (IMF) has also disappeared.

The FSS had planned to communicate the unfairness of the organizational restructuring, including its designation as a public institution, during a scheduled meeting with the IMF annual consultation team on September 12. However, the plan was scrapped when the meeting was suddenly switched to a virtual conference.

According to financial authorities on September 11, the IMF will visit South Korea from September 11 to September 24 to conduct its 2025 annual consultation. The IMF delegation is scheduled to visit the Ministry of Economy and Finance, the Financial Services Commission, the Ministry of Trade, Industry and Energy, as well as the Bank of Korea and the FSS, to discuss the state and outlook of the Korean economy and the overall economic policies of the new administration.

The annual consultation is a meeting held each year between the IMF and its member countries to review their economic situations, based on Article IV of the IMF Agreement. Typically, the annual consultation delegation visits institutions in person for closed-door meetings. On this day, the delegation visited the Financial Services Commission and then notified the FSS that their planned visit for the following day would be canceled and replaced with a virtual meeting. The reason for the IMF's switch to a virtual meeting was not disclosed.

This has created a somewhat tense atmosphere within the FSS. The FSS had planned to express its opposition to both the designation as a public institution and the separation of the Financial Consumer Protection Agency (FCPA) when the IMF delegation visited its Yeouido headquarters.

Currently, FSS employees are holding rallies on their way to work to protest the organizational restructuring, and have placed condolence banners in the FSS lobby by seniority. If the delegation had visited the FSS, they intended to show these scenes and explain both the internal sentiment and the grounds for opposing the designation as a public institution. However, with the switch to a virtual meeting, the justification and opportunity to convey the on-site atmosphere have disappeared.

There is a reason why the FSS wanted to directly communicate its opposition to the restructuring to the IMF delegation. During the 1999 foreign exchange crisis, the IMF recommended that the FSS be established as an "independent private entity." The rationale was that an independent private structure would be preferable in order to prevent the negative effects of government-controlled finance.

Subsequently, in 2007 under the Roh Moo-hyun administration, the FSS was designated as an "other public institution." However, it was removed from the list of public institutions in 2009. After the bankruptcy of Lehman Brothers in the United States in 2008 triggered a global financial crisis, concerns arose that the FSS's independence could be compromised.

From its inception through its growth, the FSS has always placed great importance on "independence." Although it is a private entity, it is under the jurisdiction of the Financial Services Commission, making it virtually impossible to be completely independent in supervision and inspection work. Against this backdrop, the recent announcement by the government and the ruling party of an organizational restructuring plan that would designate the FSS as a public institution has led to strong opposition from the FSS.

If the FSS is designated as a public institution, it will be subject to personnel and budget controls by the Public Institution Management Committee under the Ministry of Economy and Finance. Even now, the FSS undergoes management evaluations and budget reviews by the Financial Services Commission’s Management Evaluation Committee. Going forward, it will also require approval from the Ministry of Economy and Finance. In addition, under the law, management evaluations could provide grounds for dismissing the FSS governor.

A financial supervisory authority official pointed out, "If the purpose of the restructuring is to separate financial policy from supervision, it would be right to strengthen the FSS's independence. Even now, the FSS is under the Financial Services Commission, making it difficult to make fully independent decisions. If it is designated as a public institution, government influence over all supervisory and inspection work will inevitably increase."

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