By Park Hyong-ki
The regulatory oversight systems of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) could be integrated as part of President Moon Jae-in's policy pledges for market reform.
During his election campaign, Moon proposed the separation of financial regulatory policymaking and market supervision.
Although he and his camp did not give a clear policy direction, he wanted the regulators to concentrate on overseeing the market and conglomerates.
Moon did not mention their authority in financial regulatory policymaking, but observers expect the government may move to discuss handing it to the finance ministry.
The president was initially negative about reorganizing the regulators because the two agencies always face such an issue whenever a new government is established.
Moon seemed to have changed his stance as he proposed to strengthen consumer rights and create a level playing field in the market.
He suggested establishing an independent agency focused on protecting consumers from corporate malpractice, while separating the regulators' policymaking and supervision obligations.
His proposal was very similar to that of centrist Ahn Cheol-soo of the People's Party.
Currently, the two regulators devise policies and supervise the market at the same time, but they oversee segments of the market such as banks, brokerages and insurance separately.
The new administration is likely to integrate this separated oversight system to better monitor the financial market and prevent another Tongyang crisis.
Given that financial companies are closely affiliated and linked with manufacturing companies via conglomerates' complex cross-shareholdings, the Moon camp has proposed oversight integration.
This would enable regulators to oversee the whole market and dealings between chaebol financial and non-financial companies.
Even though the International Monetary Fund warned Korea of its separated regulatory oversight system in 2014, politicians never discussed the matter.
The FSC also pointed out that it would need to introduce more effective ways to implement regulations governing chaebol financial companies to detect and counter fraud and malpractice such as that in the Tongyang Group in 2013. Cash-strapped Tongyang's manufacturing units could not repay back their debt, but its financial units tried to raise funds via bonds linked to their distressed assets. This affected about 40,000 investors, costing them 1.3 trillion won.
Along with the regulators' failure to detect Tongyang's malpractice, its belated measures against Daewoo Shipbuilding & Marine Engineering (DSME) and household debt have brought calls for effective regulatory oversight.
DSME was found to have accounting irregularities, and faces a liquidity shortage. Meanwhile, household debt has soared to more than 1,300 trillion won.
FSC Chairman Yim Jong-yong submitted his resignation last week as Moon was sworn in as president.
The regulatory oversight systems of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) could be integrated as part of President Moon Jae-in's policy pledges for market reform.
During his election campaign, Moon proposed the separation of financial regulatory policymaking and market supervision.
Although he and his camp did not give a clear policy direction, he wanted the regulators to concentrate on overseeing the market and conglomerates.
Moon did not mention their authority in financial regulatory policymaking, but observers expect the government may move to discuss handing it to the finance ministry.
The president was initially negative about reorganizing the regulators because the two agencies always face such an issue whenever a new government is established.
Moon seemed to have changed his stance as he proposed to strengthen consumer rights and create a level playing field in the market.
He suggested establishing an independent agency focused on protecting consumers from corporate malpractice, while separating the regulators' policymaking and supervision obligations.
His proposal was very similar to that of centrist Ahn Cheol-soo of the People's Party.
Currently, the two regulators devise policies and supervise the market at the same time, but they oversee segments of the market such as banks, brokerages and insurance separately.
The new administration is likely to integrate this separated oversight system to better monitor the financial market and prevent another Tongyang crisis.
Given that financial companies are closely affiliated and linked with manufacturing companies via conglomerates' complex cross-shareholdings, the Moon camp has proposed oversight integration.
This would enable regulators to oversee the whole market and dealings between chaebol financial and non-financial companies.
Even though the International Monetary Fund warned Korea of its separated regulatory oversight system in 2014, politicians never discussed the matter.
The FSC also pointed out that it would need to introduce more effective ways to implement regulations governing chaebol financial companies to detect and counter fraud and malpractice such as that in the Tongyang Group in 2013. Cash-strapped Tongyang's manufacturing units could not repay back their debt, but its financial units tried to raise funds via bonds linked to their distressed assets. This affected about 40,000 investors, costing them 1.3 trillion won.
Along with the regulators' failure to detect Tongyang's malpractice, its belated measures against Daewoo Shipbuilding & Marine Engineering (DSME) and household debt have brought calls for effective regulatory oversight.
DSME was found to have accounting irregularities, and faces a liquidity shortage. Meanwhile, household debt has soared to more than 1,300 trillion won.
FSC Chairman Yim Jong-yong submitted his resignation last week as Moon was sworn in as president.
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