When the Financial Supervisory Service’s disciplinary committee session ended flat with no conclusion on the scope and degree of sanctions on key financial company executives last Friday, the financial watchdog cited caution as the reason behind its slower-than-expected progress.

But it is widely accepted that the FSS, which earlier had eagerly pounced on the firms, has lost its resolve. Due to its change in attitude, the watchdog is now facing a fierce backlash not only from the industry but also from its umbrella organization, the Financial Services Commission.

The FSS is now holding another disciplinary committee meeting on Thursday, but it is uncertain whether it will at last finalize the heavy sanctions for some 200 financial officials who are accused of misconduct.

At the top of the list is KB Financial Group chairman Lim Young-rok and KB Kookmin Bank president Lee Kun-ho, both of whom face a “reprimand,” the third-heaviest among the five levels of FSS warnings.

The imminent sanctions on the two top officials were considered a threat for KB Financial, which floundered in an unceasing series of scandals in the first half of the year, ranging from a customer information leak and loan fraud to recent leadership conflicts.

KB Kookmin Bank was recently the focus of an FSS probe over an internal dispute over the replacement of its computer system, under which lay a power struggle between bank chief Lee and group head Lim.

KB and other major financial groups were startled when the FSS took the unprecedented measure of announcing likely sanctions for over 200 key financial officials.

But the sense of alarm started to die down as the FSS’ confirmative actions dragged on for weeks.

Observers presume that the indecisiveness of the financial watchdog is largely attributable to its discord with the FSC, which has repeatedly objected to the FSS’ high-handed punitive measures.

On June 18, the FSC announced a revised version of the financial supervisory regulations, effectively claiming all direct control over ongoing financial probes and reinforcing its power over the FSS.

By doing so, the FSC claimed that this was about a division of roles ― the FSC acting as the policy engine and the FSS as the implementer ― but the FSS accused the FSC of monopolizing power.

Also, when the FSS was taking aim at the financial industry, the FSC raised objections, claiming that the “given sanctions need further discussion.”

Perhaps buoyed by the FSC’s defensive stance, most of the top officials who attended last week’s disciplinary committee session were optimistic over the upcoming results.

“I think a positive scenario is more plausible than a negative one,” KB Financial chief Lim Young-rok told reporters shortly before he entered the meeting room.

But the FSS is nevertheless determined to turn the tables and win the initiative over the FSC.

“The delay (of the committee decision) does not mean that the level of sanctions will be alleviated,” said an official of the FSS.

“We will continue to examine the given charges based on facts and principles, only with more precautions and time.”

By Bae Hyun-jung (tellme@heraldcorp.com)