[Q&A] "Dissatisfied with Geumgamwon, Difficult to View as a Public Private Organization"

Officials from an expert group urging financial supervision reform held a press conference on the 16th at the Press Center in Jung-gu, Seoul, where they announced 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@

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[Asia Economy Reporter Song Seung-seop] "Currently, the Financial Services Commission holds both financial industry policy and financial supervision authority, which has effectively subordinated financial supervision as a subordinate tool of government policy. The authority over financial industry policy should be held by the government's economic policy department, while the financial supervision function should be integrally delegated to a public-private organization."

"Unfortunately, in the past, some financial supervision personnel were captured by financial companies' lobbying or neglected fair and responsible decision-making for personal gain. We need to enhance the ethics and integrity of financial supervision personnel and establish institutional measures such as transparency in supervisory administration and external oversight."

"The transparency and accountability of the public-private organization must be strengthened. There are many people dissatisfied with the Financial Supervisory Service (FSS) now. Fundamentally, it was overwhelmed by policy functions and could not exert power, and the FSS made no effort. It was a situation without responsibility and authority, and there were even unfortunate incidents. What we aspire to is creating a new organization."

Voices calling for reform of the financial supervision system are growing louder ahead of the presidential election. On the 16th, the 'Experts Group Urging Financial Supervision Reform (Geumgaemo),' composed of 15 scholars in the financial sector, held a press conference at the Press Center in Jung-gu, Seoul, and announced a statement titled 'Urging Financial Supervision Reform for Financial Development and Consumer Protection.' The statement was signed by 312 scholars and experts in finance. This is about eight years since the 'Press Conference Urging Proper Financial Supervision System Reform' in July 2013, which was signed by 143 financial scholars. Below is a Q&A with Geumgaemo.

During the private equity fund incident, there was strong opacity. Surveillance targeting those who invested over 500 million won was relaxed to 100 million won to activate monitoring. Without a monitoring system, even though it was in a public offering form, it was not supervised. If it had been supervision-centered rather than policy-centered, the problems would have surfaced. That process was ignored. When asked if there is a connection to the supervision system, there is a very strong connection.

For example, if consumer protection is strengthened, currently the law specifies what must be done for consumer protection. Detailed matters are judged by supervisory regulations. In such cases, individual judgments are made on what violates suitability principles or explanations. This causes problems where FSS staff cannot flexibly impose sanctions during supervision. The idea is to resolve this issue.

As I said, the transparency and accountability of the public-private organization must be strengthened. Many people are dissatisfied with the current FSS, and we are too. Fundamentally, it was overwhelmed by policy functions and could not exert power, and the FSS made no effort. It was a situation without responsibility and authority, and there were even unfortunate incidents. What we aspire to is creating a new organization. It will be different from the current FSS in form.

The head of the Bank of Korea is appointed by the president, but I don't think the Bank of Korea's decisions are influenced by the government. Although the FSS is called a public-private organization, it does not have the authority to establish regulations. Because of the belief that bureaucrats should make regulations, the FSS only sets supervisory regulation rules. Therefore, it is difficult to call it a genuine public-private financial supervision organization.

When the new government is launched, it will announce details about government organization restructuring. Regarding the financial supervision system reform, we argue that industry policy should go to the government, and some financial supervision bodies should go to private organizations. There could be various ideas about the future of the FSC, but it would be inappropriate for us to comment. We think it will proceed in conjunction with how the government organization is structured.

Currently, the financial supervisory authorities say 'we are united.' There is no discord. But we need to reconsider whether that is natural for the entire system. The question is not about discord but whether there is an appropriate form of checks and balances now (which is doubtful).

This seems like a sensitive question. It is not included in the content we can answer based on the opinions of 312 people. It is also difficult for us, representing Geumgaemo, to comment on the current working methods of the FSC chairman and the FSS chief.

The savings bank restructuring is an example. Proper financial supervisory measures should have been taken for savings banks, but they labeled it the '88 Club' and gave special regulatory relaxations if the non-performing loan ratio was below 8% and capital adequacy was above 8%. Then, savings banks invested in project financing (PF), became insolvent, and over 25 trillion won of public funds were injected, completely disrupting the deposit insurance system. The target fund system was also disrupted. The financial authorities caused this.

People might have thought, "Again with the supervision system? Will there be any response?" but there was a view that it must be done if society needs it. I wondered if I had to call everyone one by one after starting the signature collection, but there was considerable response. It was not from a specific region or one side of the political spectrum, conservative or progressive. It came evenly from young people and senior figures who have long discussed this issue. Most importantly, the number quickly exceeded 143 within a few days. The final number exceeding 300 means there is a large social consensus. Also, many people think that Korea's financial supervision is currently flawed. We used the provocative term 'jjijilhan' (meaning 'pathetic') in the press release, which was chosen through voting. It was said to best represent the reality of financial supervision. That shows how urgent and consensual this issue is."

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