Delay in overhauling financial authorities stalls key policy initiatives

The Financial Services Commission office at Government Complex Seoul / Yonhap

President Lee Jae Myung has finalized most of his initial Cabinet appointments since taking office on June 4, but delays in the organizational restructuring of financial authorities and the appointment of new leadership are creating uncertainty within the financial sector, government and industry officials said Sunday.

Market participants have expressed concerns that the prolonged leadership vacuum may hinder timely responses to critical policy issues, including the regulation of stablecoins and the management of household debt.

Last Friday, Lee finalized his Cabinet lineup for all 19 ministries by nominating ministers for culture and land. But leadership appointments and structural reforms within the financial authorities still remain stalled.

Kim Byoung-hwan, chairman of the Financial Services Commission (FSC), the country's top financial regulator, offered to resign shortly after the presidential election but remains in office, as his successor has yet to be named.

Key vice ministerial positions, including the FSC vice chairman and the governor of the Financial Supervisory Service (FSS), have also remained vacant for over a month.

The delays are widely attributed to prolonged deliberations over a broader overhaul of the financial regulatory system.

The Lee administration is pushing forward with plans to reallocate the FSC's policymaking authority to the Ministry of Economy and Finance, while merging supervisory duties with the FSS to create a new commission.

The initiative is intended to strengthen checks and balances by clearly separating financial industry promotion from oversight responsibilities.

"The current FSC is responsible for both developing and regulating the financial industry, yet it has underperformed in these areas," said Kim Jin-il, an economics professor at Korea University. "Probes into unfair trading are occasionally scattered among various agencies or overlap, imposing excessive burdens on financial institutions."

Discussions are also underway to separate the financial consumer protection functions, currently housed within the FSS. The proposal calls for establishing an independent agency focused exclusively on consumer protection to enhance its effectiveness and prioritization.

However, delays in reaching a conclusion on the restructuring have dampened the momentum behind related policies.

While the financial regulator has been working to authorize the country's fourth internet-only bank to promote competition in the banking industry, the preliminary approval results, originally scheduled for last month, have been postponed indefinitely.

In addition, the virtual asset committee under the FSC, which is tasked with advising on key cryptocurrency policies like stablecoin regulation and spot cryptocurrency exchange-traded funds, has been largely inactive since early May, due to the vacancy of its chair, the FSC vice chairman.

"The absence of leadership and uncertainty surrounding organizational restructuring have caused several months of confusion," an FSC official said. "Although routine operations continue without disruption, it remains difficult to pursue new policy initiatives and build market confidence."

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference at the central bank in Seoul, Thursday. Joint Press Corps

Amid the new administration's push for financial authorities reform, the Bank of Korea (BOK) is seeking to take over key powers currently held by the FSC and the FSS.

The central bank recently submitted a proposal to the presidential state affairs committee, outlining its vision for overhauling the financial stability policy framework and calling for two major shifts in authority.

First, the BOK is requesting that macroprudential regulatory powers such as those related to credit, capital and liquidity — currently held by the FSC — be transferred to the central bank’s Monetary Policy Board. It argues that consolidating monetary and macroprudential policy tools within a single institution would enable more coherent and effective policymaking.

Second, the BOK is seeking the authority to conduct independent inspections of financial institutions. Under current regulations, the central bank can only request joint inspections with the FSS and does not have the power to carry them out unilaterally.

In its proposal to the presidential committee, the BOK said, "We are tasked with both price stability and financial stability, but we currently lack policy tools beyond interest rates to proactively address financial instability."

The BOK also emphasized that major central banks around the world play a leading role in both macroprudential and microprudential policymaking.

At a press conference last Thursday, BOK Gov. Rhee Chang-yong said, "The Ministry of Economy and Finance, the FSC, the FSS and the BOK must work together to establish a framework that enables the strong and coordinated execution of macroprudential policy."