President Moon Jae-in is expected to implement a sweeping overhaul of the financial authorities to reassign their roles and enhance oversight.

As a presidential candidate, Moon had pledged to divide the authorities‘ roles between policymaking and regulating, and protecting financial consumers. Moon’s team had pointed to the Financial Services Commission that has been serving as a policymaker and regulator, saying the FSC had been monopolizing the roles.

Moon’s economic think tank, Korea Institute for the Future, proposed in March an overhaul plan to remove the FSC to pass on its policymaking roles to the Finance Ministry, and to combine its regulatory role with the Financial Supervisory Service. The think tank also suggested establishing separate committees, such as one to screen and vote on policies related to financial supervision to secure its independence and another one devoted to protecting consumers.

Earlier remarks and moves by Moon’s senior economic advisors also signal a looming overhaul. 

One was a revision bill presented by Rep. Choi Woon-yeol, lawmaker of the Democratic Party of Korea and one of the senior economic advisors to Moon, in March to remove the FSC.

“Many economic problems we face, such as the decision-making process regarding (bailing out of) Daewoo Shipbuilding and Marine Engineering and snowballing household debts, came from the malfunctioning regulator,” Choi said in a seminar in September.

Passing on the role of the FSC to the Finance Ministry, however, would also require a revision of the Government Organization Act.

The role reassignment of the financial bodies upon inauguration of a new government is not new in South Korea.

In the face of the financial crisis that swept the nation in 1998, the Kim Dae-jung administration in its first year moved to strengthen financial oversight by establishing the Financial Supervisory Commission, a precursor to the FSC, to protect financial customers in 1998 and incorporated four oversight bodies into the FSS the following year. In 2008, after renaming the Financial Supervisory Commission to the FSC, the Lee Myung-bak administration endowed it with the roles of both policymaking and regulating. Since then, the FSS virtually played the role of an executive branch of the FSC.

Some voiced concern that the overhaul plan may only prompt more confusion, citing how improvements in financial authorities should be made based on efficiency rather than organizational restructuring.

Meanwhile, Moon is unlikely to lower the regulatory bar on non-banking businesses‘ investment into commercial banks, which was deemed critical for the success of new internet-only banks in South Korea.

Kim Sang-jo, professor of economics at Hansung University who joined Moon‘s team of economic strategists, has opposed deregulating laws on banks.

“Revising the Banking Act for internet-only banks is impossible, as it would take a toll on the entire banking industry,” Kim was quoted as saying by local news outlet Kinews.

By Son Ji-hyoung (consnow@heraldcorp.com)