FSC expected to close after 17 years

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

The Financial Services Commission (FSC), the country’s top financial regulator, is expected to be effectively dismantled, as the government and ruling party are likely to finalize a reorganization plan that would transfer its financial policy functions to the Ministry of Economy and Finance and merge its remaining operations with the Financial Supervisory Service (FSS), according to government sources Thursday.

They said the ruling Democratic Party of Korea and the presidential office plan to finalize the restructuring plan at a high-level policy consultation meeting on Sunday, aiming to pass it at the National Assembly’s plenary session on Sept. 25.

The impending restructuring is expected to largely follow the financial oversight reform framework previously drafted by the presidential State Affairs Planning Committee, which set out the Lee Jae Myung government’s five-year blueprint.

Under the proposed plan, the finance ministry’s budget authority would be separated and established as a new Ministry of Planning and Budget under the Prime Minister’s Office, while the finance ministry itself would assume responsibility for the domestic financial policy functions currently handled by the FSC.

The FSC’s supervisory role would be consolidated with the FSS to form a revived Financial Supervisory Commission, which was dissolved in 2008, focusing on market oversight and consumer protection.

The proposal also calls for the creation of a new financial consumer protection agency by spinning off the relevant division from the FSS.

Effectively, the plan would dismantle the FSC.

Should the restructuring proceed, Lee Eog-weon, the nominee for FSC chairman who underwent a parliamentary confirmation hearing on Tuesday, is widely expected to be reassigned as chairman of the reestablished Financial Supervisory Commission, while Lee Chan-jin, who assumed the post of FSS governor on Aug. 14, is mentioned as a potential head of the new financial consumer protection agency.

Lee Eog-weon, nominee for Financial Services Commission chairman, speaks during his confirmation hearing at the National Assembly in Seoul, Tuesday. Yonhap

Still, disputes are expected to continue. In particular, government officials have yet to reach a unified position regarding the separation of the financial consumer protection function from the FSS, amid concerns that spinning off the bureau could actually weaken consumer protection, contrary to its original intent.

“The plan aims to strengthen consumer protection functions, but in practice it could end up fragmenting authority and reducing administrative efficiency,” a FSS official said on condition of anonymity.

Prolonged friction between rival parties is also anticipated in the National Assembly, as completing the financial supervisory reform will require amendments not only to the Government Organization Act but also to multiple related laws, including the Act on the Establishment of the FSC and the Banking Act. This legislative process could take well over a year.

In addition, internal disruption within the FSC appears inevitable. If the restructuring is implemented, a number of FSC officials currently working at the government complex in central Seoul would likely have to transfer to the finance ministry, located at the government complex in Sejong City.

The FSC has traditionally been favored by top scorers in the civil service exam due to its Seoul location, but concern is growing among staff that they may soon face mandatory relocation.

Other concerns center on potential conflicts during the merger process between the FSC and the FSS, given that relations between the two organizations were strained when they previously coexisted in the same building. At the time, the FSS labor union hung banners demanding that the FSC vacate the premises.