Financial regulator protests central bank's decision not to give contribution

Bank of Korea (BOK) Governor Lee Ju-yeol, left, and Financial Supervisory Service (FSS) Governor Jeong Eun-bo / Courtesy of BOK and FSS

By Anna J. Park

As the Bank of Korea (BOK) decides to cut off its annual payments of some 10 billion won ($8.3 million) to the Financial Supervisory Service (FSS) this year, the financial authority faces difficulty securing its resources.

The BOK confirmed its budget plan for this year last December, which did not include its usual annual payment to the FSS. Since the FSS was launched in the late 1990s, the BOK had so far been partially financing the activities of the agency, according to a related domestic law that stipulates the BOK's obligation to support the FSS' activities to help it take firm root. The amount was set at 10 billion won per year in 2006.

The central bank's rationale behind the suspension of the annual payments was that the FSS no longer needs the financing for its operation. Unlike the early days of the FSS, the central bank said the financial authority now can operate fully and stably without the BOK's support. While the central bank's payment accounted for over 30 percent of the FSS' annual budget in 1999, it has accounted for only about 2.7 percent of the financial authority's spending during the past five years.

However, the FSS argues that the BOK's payment should be continued. It submitted its statement regarding the issue recently to the office of the main opposition party lawmaker Kim Hee-gon, in which it claimed that “the sudden suspension of the BOK's payments would increase the burden on financial companies for the FSS' operation.” The statement continued that “it is necessary to share the costs on joint activities between the central bank and the FSS.”

The FSS also estimated that around 490 financial companies will face increased payments of some 20 million won, on average, to compensate for the 10 billion won coming previously from the BOK. Five major financial giants' burdens are particularly expected to increase, if the BOK's suspension of the payments is confirmed.

The Financial Services Commission (FSC), which is a superior institution of the FSS, is discussing the matter with the BOK.