Following is the third in a series of articles on President-elect Park Geun-hye’s key policies. ― Ed.


The nation’s top financial regulator and its decision-making panel are likely to undergo systematic reorganization under the incoming administration which emphasizes financial governance.

President-elect Park Geun-hye has not directly commented on financial policies, but is known to be planning to split the Financial Supervisory Service into two separate units while adding more functions to the Financial Services Commission.

It has been Park’s campaign pledge to integrate the FSC with a part of the FSS and the international finance department of the Finance Ministry to launch an upgraded control tower for domestic and international financial policies. The new organ will have financial supervisory rights as well.

Park as a presidential candidate has also stressed that the FSS’ functions to supervise financial soundness and protect consumers should be separated.

This will leave the FSS with rights only to oversee the soundness of financial firms and the eligibility of major shareholders.

Key members of Park’s presidential transition committee are to be announced later this week, but observers in the financial sector, the government and the ruling Saenuri Party believe the new finance control tower will be established.

As was seen in a series of suspensions of mutual savings banks, the nation’s top financial regulator failed to prevent or properly regulate second-tier lenders’ illegal or non-performing loans.

As an independent institution, the FSS wields nearly absolute power, but is difficult to be held liable for its investigative and supervisory missteps.

To make matters worse, the three separate divisions under the regulator’s supervisory system that oversaw banks, insurance companies and brokerages in the past were integrated into one, leaving no room for internal competition in good faith.

Conflicts between the FSC and the FSS over various financial policy issues also add weight to the reorganization aimed at improving financial governance.

The FSC and FSS have expressed starkly different views on the possible establishment of a new financial control tower and division of the FSS.

“In order to promptly respond to changes in the global economy, we need to reform the current system that handles domestic and international policies separately. We need a system that coordinates both. Discussions for reorganizing financial authorities are necessary,” FSC chief Kim Seok-dong said recently, calling for the establishment of the new financial control tower.

The FSS stands on the opposite side.

“Shaking the organization at a time like this could end up in a crisis management failure. Breaking up the organization could lead to a lack of specialized experts and inefficiency stemming from redundant supervision and inspections,” FSS Gov. Kwon Hyouk-se said.

Some observers say, however, that since the reorganization of the financial supervisory system is low on the list of the incoming government’s structural reform plans, the FSC and FSS may retain their current forms.

Even so, the Park administration is likely to separate consumer protection functions from the FSS.

Since the reform into the so-called “twin peaks” system ― supervision of financial soundness and financial consumer protection ― would mean disbanding the FSS, the regulator is not in favor of the move.

The FSS plans to actively talk the presidential transition committee out of splitting it.

Taking into account that its failure to correct irregularities at savings banks and better protect their consumers was a decisive factor in drafting the “twin peaks” plan, the FSS is poised to focus on communicating that such blunders will not occur again.

“Deregulation since 2004 was the beginning of the savings banks disaster,” said an FSS official. “It is not just a matter of negligent supervision.”

FSS deputy governor Cho Young-je of planning and management support shared Kwon’s concern.

“The ‘twin peaks’ supervisory system is a failed model overseas. Having two institutions share supervisory rights on financial markets would cause inefficiency such overlapping operations and increased costs,” Cho said.

Low chances of significant global economic recovery due to quantitative easing in the U.S. and slumping real economy in China are also expected to weigh on the reorganization of the financial supervisory system.

“Planning systemic reorganization is likely to take more than a year,” Kwon said.

“Since the role of the FSS is more important than ever amid negative economic conditions, I don’t think it is a matter that can be easily determined.”

By Kim So-hyun (sophie@heraldcorp.com)