Doubts grow over financial supervisory reform

Skepticism is growing over the performance of the Prime Minister’s Office-led task force to overhaul the nation’s financial supervisory structure.

Though the task force was set up in the wake of financial regulators’ failure in oversight of savings banks, the 13-member team has not reached a consensus and has delayed unveiling its measures.

The team, launched early May, said it would draw out measures before July. But it has postponed the unveiling until August.

Further, a member expressed his intention to drop out of the task force last week, casting doubt over the efficacy and independence of the special team.

“I don’t want to play second fiddle to the government,” said the member, a professor of Gyeongsang National University.

As the 13-member team comprises six public officials, some analysts have issued the possibility that the coming measures may not be a solution to revamp the regulatory system, but merely be a temporary expedient.

A key issue in the market was whether the task force would map out ways to restrict the current exclusive investigative rights of the Financial Supervisory Service to prevent the regulatory staff from engaging in irregularities.

The special team has reportedly not discussed the issue whether to adopt a dual supervisory system which would give the Bank of Korea the rights to probe financial companies.

The recent corruption scandals involving distressed savings banks and several former FSS officials raised the necessity of revising laws on the BOK.

But the National Assembly chose not to give the central bank independent probe rights amid strong opposition from the Financial Supervisory Commission, the decision-making body of the FSS.

The Korea Deposit Insurance Corp., which has the right to examine financial companies designated as “insolvent,” hopes this right will be extended to companies “at risk of insolvency.”

Another issue was how to revise the current system where the FSS, composed of non-governmental officials, is being in effect controlled by the FSC, a government agency.

Many experts say that it is urgent for the nation to do away with “bureaucracy” in financial supervision. By separating the FSS from the FSC, they say, the regulatory body should secure independency.

A bank official likened the FSC-FSS relations to the criminal investigative system under which police has mostly been subject to the prosecution.

“The FSC is cannot be independent from the administration or the political power,” he said. “The FSC could frequently scale down probe results reported from the FSS.”

But the task force is only reportedly mapping out shortsighted measures to crack down irregular practices of FSS officials.

“Renovating the FSS itself is important. But more importantly, the task force will contemplate whether there have been problems in the supervisory procedures and method,” a government official said.

By Kim Yon-se (kys@heraldcorp.com)