Government cancels overhaul of financial authorities amid efficiency concerns, internal backlash

Rep. Han Jeoung-ae, right, policy chief of the ruling Democratic Party of Korea, speaks during a policy coordination meeting at the National Assembly in Seoul, Thursday. Yonhap

The Lee Jae Myung administration scrapped plans to restructure the country’s financial policymaking and supervisory framework, opting instead to maintain the current dual system of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), officials said Thursday.

The decision was made in coordination between the ruling Democratic Party of Korea (DPK) and the presidential office amid strong backlash from internal officials and the main opposition People Power Party (PPP) over concerns about reduced efficiency.

The ruling party had initially planned to pass a bill to overhaul government ministries at Thursday’s plenary session at the National Assembly, including disbanding the prosecution service and restructuring the finance and environment ministries. In response, the PPP announced a filibuster, criticizing the government reorganization plan as being pushed forward without sufficient consultation.

Anticipating fierce partisan opposition during the bill’s passage, the ruling party decided to exclude the most contentious element of the plan: the restructuring of financial policymaking and supervisory bodies.

Under the proposed reform, the FSC — the country’s top financial regulator — would have ceded its domestic financial policy responsibilities to the finance ministry and been reorganized as the Financial Supervisory Commission, with a mandate limited to supervision and consumer protection. The plan also included creating a new financial consumer protection agency by separating the relevant division from the FSS.

“We decided to exclude the separation of the FSC’s policy and supervisory functions and the creation of a financial consumer protection agency, which had been slated for fast-track consideration,” DPK policy chief Rep. Han Jeoung-ae told reporters after an emergency high-level party and government meeting at the Assembly.

“While quickly completing the government reorganization is essential for stability, we determined it should not become a source of unnecessary partisan conflict or national division. There was also consensus that leaving financial authorities in an unstable state for over six months would not aid efforts to overcome the economic crisis.”

Members of the Financial Supervisory Service's labor union chant slogans during a protest against the government's plan to restructure the financial policymaking and supervisory framework, near the National Assembly in Seoul, Sept. 18. Yonhap

Consequently, the existing dual structure of the FSC and FSS will remain in place, and plans to establish a financial consumer protection agency have been postponed.

“For financial consumer protection, we will take urgent measures that do not require legal or institutional backing in coordination with the FSC and FSS, while matters that need legislative support will be addressed through subsequent actions,” Han added.

Regarding claims that the decision effectively represented a withdrawal of Lee’s campaign pledge, Han said it was too early to determine whether the reform of financial authorities had been fully abandoned or would be revisited later.

“We will need to carefully consider the next steps going forward,” she said.

Kim Byung-wook, senior presidential secretary for political affairs, added that the decision was made to address concerns over allowing the government reorganization to remain unstable for several months amid filibusters and fast-track proceedings, at a time when expectations for the financial capital market have been high since the start of the Lee administration.