Delayed overhaul of financial authorities deepens rift, stalls policies

An office of the Financial Services Commission at Government Complex Seoul / Yonhap

The turf war between the Financial Services Commission (FSC), the country’s top financial regulator, and the Financial Supervisory Service (FSS), the financial watchdog, has intensified amid prolonged discussions over restructuring the country’s financial authorities since the inauguration of the Lee Jae Myung administration on June 4.

The delay has also postponed the appointment of new leaders for both agencies, disrupting key financial initiatives such as the approval of the country’s fourth internet-only bank.

The State Affairs Planning Committee, responsible for outlining a five-year policy road map for the Lee administration, is scheduled to announce major national projects, including the financial regulatory restructuring plan, around Wednesday before wrapping up its activities on Thursday.

The committee already presented a restructuring proposal to the presidential office, suggesting the separation of the FSC’s financial policy role from its supervisory duties.

According to the proposal, the FSC’s financial policy function would be integrated into the Ministry of Economy and Finance, while supervisory responsibilities would be assigned to the FSS, effectively dismantling the FSC.

Additionally, the proposal includes establishing a new financial consumer protection agency by detaching the related division from the FSS.

However, discussions have stalled.

While the restructuring plan was crafted by lawmakers and academics involved in the committee, it is believed that some officials within the presidential office oppose the dismantling of the FSC.

The Financial Supervisory Service's headquarters in Seoul / Korea Times file

The rivalry between the FSC and the FSS has also continued to intensify.

Last Thursday, the FSS’ labor union said, “Financial policy functions should be unified under the finance ministry, and supervisory and enforcement functions should be integrated within the FSS to ensure its independence and accountability,” advocating for the restructuring proposal.

The FSC, meanwhile, has avoided direct statements but appears to be internally uneasy about the situation.

“Since the FSS is a nongovernmental entity, it cannot legally exercise supervisory powers. This has been a key reason why past efforts to restructure financial authorities have failed,” an FSC insider said.

The FSS was established in January 1999 as a noncapitalized special corporation, consolidating previously separate supervisory functions across the banking, securities and insurance sectors. Operating as an agency under the FSC, it currently carries out only the examination and supervision tasks delegated by the FSC, which holds responsibility for the operation and oversight of the FSS.

Sharply divided opinions on consolidating supervisory authority within the FSS are also making it difficult for the presidential office to reach a conclusion.

Some believe that while a private body can carry out investigations delegated by the government, administrative actions that limit citizens’ rights must be performed by public officials.

Conversely, others strongly argue that supervisory authority should maintain independence from government control, citing concerns that if a government agency holds both policy-making and supervisory powers, supervisory and enforcement functions could be swayed by government policies aimed at industry promotion, leading to negative consequences.

The financial sector is urging a prompt resolution as key initiatives, including the approval of the nation's fourth internet-only bank, continue to face delays.

The FSC is currently headed by Chairman Kim Byoung-hwan, appointed during the previous Yoon Suk Yeol administration. He offered to resign shortly after the presidential election but remains in office, as the appointment of a new chairman has been stalled due to the unresolved direction of the restructuring.

The position of FSS governor has also remained vacant for two months since former Gov. Lee Bok-hyun's term ended in June.