Financial Supervisory System
The response by the financial industry and National Assembly regarding the proposal to reorganize the financial supervisory system announced by the Financial Supervisory Service (FSS) on July 23 has not been admirable. They criticize that the act of maintaining the Financial Services Commission (FSC) while dividing the FSS and Consumer Financial Protection Bureau (CFPB) shows no clear purposes and will have no actual benefit.
In particular, as seen from previous cases, the new CFPB and the weakened FSS may overuse regulations in order to show off their respective existence to each other.
Most of all, both the ruling and opposition parties criticize that the FSC has not been restructured. They claim the FSC, which was originally in charge of rearing the financial industry, increased its power by taking over the authority for both financial supervising and consumer protection.
As a result, the opposition party is pushing for the role of establishing financial policies to be taken away from the FSC and given to the Ministry of Strategy and Finance, effectively allowing the FSC to have only financial supervising authority.
Concerns over Overlapping and Blind Spots
Currently, financial companies have masters such as the FSC, FSS and the Fair Trade Commission (FTC). Furthermore, they must sometimes pay attention to the Ministry of Strategy and Finance and even the Board of Audit and Inspection. Under such circumstances, the possibility is getting bigger that the CFPB may end up becoming another monstrous master.
According to the reorganization plan, consumer protection will be transferred entirely to the CFPB, while the auditing of financial companies will be assigned case-by-case by either the FSS or CFPB.
The problem is that it is difficult to differentiate the functions of the FSS and CFPB. For instance, the CFPB is in charge of regulating lenders’ businesses, yet the FSS is responsible for revising related policies. The auditing process for the regulations and regulation revisions can be done by either organization or both.
Up to now, the FSS has made its regulation revisions internally by sending civil complaints collected by the CFPB to the bureau of inspection services in the FSS. However, the two organizations must endure such confusion for the time being. One FSC official said, “The two organizations can manage to decide for themselves how to divide the roles, but they will face chaos at first.”
Financial companies also seem to be at a loss. A vice president of a commercial bank stated, “An inspection agency should have the supervising power to secure a consistent regulation, I don’t understand why these functions have been divided.”
The FSC suggested that the problem be solved through cooperation between the two organizations. According to the FSC, unilateral audits will be minimized. As for imposing sanctions on financial companies, the decision will be made through the Sanctions Deliberation Committee in which both organizations participate, while standards are also to be established jointly. An official at the National Assembly State Affairs Committee stated, “Even in urgent times, such as the financial crisis in 2009, the Ministry of Strategy and Finance, FSC, FSS and other related organizations did not want to share information with each other,” adding, “It is questionable whether the FSS and CFPB can really cooperate to the extent that they share key information.”
Even Ruling Party Tilting Its Head on Reorganization Plan
The FSC expects the National Assembly will pass the draft act to reorganize financial supervising system as early as this year after its deliberation in September. As a result, the CFPB could then be launched during the first half of next year.
However, opposition parties, including the Democratic Party, are strongly against the draft and the ruling party is not likely to go ahead with it against such opposition.
Both ruling and opposition parties have pointed out that the plan is missing a restructuring plan for the FSC. An official of the ruling Saenuri Party said, “The main reason for the savings bank incident is that FSC did not divide its policy function to promote the financial industry from the supervising function oriented to supervising and auditing,” adding, “The draft contains wrong content and contains no fundamental solution for this problem.” However, the ruling party is not in a position to simply oppose a draft supported by the President.