The Financial Supervisory Service (FSS) has decided to push for employee representation on the board of directors of private financial companies. The decision was a surprise in light of the negative stance on the system expressed by Financial Services Commission (FSC) Chairman Choi Jong-ku. Last year, Choi dismissed the idea, saying, “Public consensus is required.” If the FSS pushes for the controversial system in earnest, a conflict with the FSC will be inevitable.
FSS Chairman Yoon Suk-heon announced a set of financial supervision reform plans on July 9, which included employee representation on the board of private financial companies and a thorough investigation into banks’ unfair lending rate imposition cases.
The financial supervision reform plans are designed to strengthen supervision and regulations on financial firms, a move that runs counter to the policy tenet of the former Lee Myung-bak and Park Geun-hye administrations that had sought to relax supervision and regulations.
Yoon also declared war against financial companies with unethical business practices, saying, “We think we should go into war with financial companies to protect consumers.”
With regard to the controversy over the government’s plan to tighten capital regulations on insurance companies, he said that the FSS would push for the plan in harmony with the proposed consolidated supervision of non-bank financial groups. His remark was interpreted as pressing Samsung Life Insurance Co. to sell its stake in Samsung Electronics Co.
The FSS reform plans included measures that should be pushed ahead by the FSC, which sets financial supervision policies for the FSS. The FSS said it would double the limit of welfare business investment of the National Credit Union Federation of Korea by revising the Credit Unions Act and hold a public hearing on the employee representation system. These are policies that should be driven by the FSC, not the FSS that are supposed to implement the FSC-set policies.
Last year, some reform-minded presidential aides at Cheong Wa Dae brought up the issue of forcing private financial firms to introduce employee representation on their board of directors last year. But even Choi, who should heed the moves of the Presidential Office, opposed the idea, saying, “Public consensus is a prerequisite for the introduction of worker representation on the board of directors.”
However, Yoon said, “I fully empathize with Choi and early adoption is not necessarily good. Let’s see what we can do after holding a public hearing or discussing various issues by opening communication channels.” He tried to show flexibility on the issue but he is keen to build a public consensus on the adoption of an employee representation system.
The regulator’s move to revive regular comprehensive inspection of financial companies has also caused controversy. The system had so many problems that it was abolished during the last administration. However, Yoon said the FSS would revive the system in the name of consumer protection.
Financial companies think that the FSS intends to impose stricter regulations on them through the revival of comprehensive inspection. Under the existing system, the FSS looks into the operations of financial companies not to impose sanctions but to offer improvement recommendations. When the FSS focuses on governance structure and consumer protection during its comprehensive inspection, the range of examination will be expanded. This is why market experts say that it would trigger conflicts between the FSS and financial companies, similar to those that occurred last year between the FSS and some banks over their governance structure.
When it comes to financial consumer protection, Yoon suggested the right direction. Consumers are complaining about incomplete sales of financial products by banks, insurance companies and securities firms. In particular, there are growing concerns over incomplete sales of insurance companies as competition among insurers in the saturated market is overheating.
The reform plans proposed by Yoon have reflected the Presidential Office’s call for financial reform. Some express concerns that the competition between the FSC and FSS for leadership in regulating the financial market could cause more confusion ahead of financial supervision system reform.
An official from the financial industry said, “The two sides are expected to vie for leadership in general in the future. We heard that the FSS is now under a ‘tiger’ governor who seeks to revive the regulations which were abolished over the past few years.” He said that various regulations are newly created because the government considers finance as social infrastructure instead of an industry that can create added value.