17-year-old financial regulatory framework faces major restructuring
President Lee Jae-myung delivers his inaugural address during the presidential inauguration ceremony at the National Assembly in Seoul, Wednesday. Joint Press Corps
How the structure of financial authorities might change under the new administration is drawing keen attention, as President Lee Jae-myung pledged to reorganize the relevant institutions during his campaign, according to politicians and industry officials on Wednesday.
While speaking with reporters May 28 during his campaign, Lee said, "I think the Ministry of Economy and Finance (MOEF) needs to be restructured. Its budgetary function should be separated, and the Financial Services Commission (FSC) also needs to be reorganized, as its regulatory and policy roles are intertwined."
These comments suggest that the financial regulatory framework, consisting of the FSC and the Financial Supervisory Service (FSS), introduced by former President Lee Myung-bak in 2008, could now be dismantled after 17 years.
Criticizing the MOEF for "acting like the king of government ministries," Lee has proposed reducing the ministry's authority by separating its budgetary functions.
In line with this, Lee's Democratic Party of Korea (DPK) is considering reverting the MOEF to the structure in place during the 2003–2008 Roh Moo-hyun administration, by splitting it into two separate bodies.
In April, Rep. Oh Gi-hyoung of the DPK proposed a revision to the Government Organization Act that would establish a new Ministry of Planning and Budget under the Prime Minister's Office, transfer the MOEF's budgetary authority to this new body and rename the MOEF as the Ministry of Finance and Economy.
If the MOEF is divided into two entities, the functions of the FSC, the country’s top financial regulator, may be split up, potentially leading to its dissolution.
One proposed scenario is that the Ministry of Finance and Economy would assume the FSC's overall financial policy responsibilities and oversight of state-owned financial enterprises, while a newly established Financial Supervisory Commission would handle regulations related to financial soundness, as well as the licensing, establishment, merger and conversion of financial institutions.
This approach is intended to address conflicts of interest between financial supervision and industry policy, as well as to separate the oversight of financial soundness from the supervision of business practices and consumer protection.
In this case, there is a high possibility that the FSS, the country’s financial watchdog, could also be dismantled.
Officials are seen inside the Financial Services Commission at Government Complex Seoul, Dec. 2, 2019. Korea Times file
Meanwhile, the National Assembly Budget Office projects that splitting the MOEF into two organizations would require an additional 47.6 billion won ($34.6 million) in funding over five years.
Personnel costs are expected to make up the majority, at around 38 billion won — approximately 80 percent of total expenses.
Basic operating costs are estimated at 9.2 billion won, with asset purchases such as computers and office supplies totaling about 433 million won.
The high personnel expenses reflect the anticipated need to hire more staff, including a minister, a vice minister and support personnel, due to the creation of the Ministry of Planning and Budget. The estimate assumes an increase of 87 new employees in total.