Ahead of the presidential election, the Democratic Party of Korea is once again considering the option of splitting the Financial Supervisory Service (FSS). The separation of the FSS's functions is a recurring topic during election seasons, but this time, it seems to gain traction on the grounds of the 'excessive authority controversy' surrounding FSS Governor Lee Bok-hyeon. Some argue that organizational bifurcation is necessary to enhance consumer protection functions. However, many believe it will still be challenging to overcome the practical barrier posed by opposition from the financial bureaucratic organization.
According to political sources on the 15th, the Democratic Party's Policy Committee is discussing a reform plan for economic ministries as part of election pledges. The reform plan reportedly includes a proposal to separate the functions of the FSS. It is said that there is a discussion about dividing the FSS's functions into an institution responsible for financial stability management and one for consumer protection.
This idea of splitting the FSS into two institutions is referred to as the 'dual peak system'. It was first proposed in earnest during the resolution of the savings bank crisis in 2012 and has been reignited as an issue for over a decade. Former President Moon Jae-in also pledged to separate the FSS into a financial stability supervision agency and a financial consumer protection agency during his candidacy, but he failed to realize it during his presidency. Recently, in September of last year, Democratic Party lawmaker Kim Hyun-jung argued that the FSS's dual peak separation reform should be implemented and submitted a bill to amend the Financial Services Commission Act.
Some experts argue that the dual peak system is necessary to strengthen consumer protection functions. The financial stability management agency should primarily focus on promoting the financial industry, while the consumer protection agency should focus on strong regulation, as this division allows each agency to perform its duties more efficiently. Professor Park Seon-a of Hanyang University School of Law noted, "Looking at the private equity fund crisis and the Hong Kong H index-linked securities (ELS) crisis, the FSS repeatedly fails to prevent large-scale consumer damage in advance" and stated that "a separate agency dedicated to consumer protection and taking on public responsibilities is necessary."
On the other hand, there are clear reasons supporting opposition to the separation of the FSS. Concerns include the consumption of social costs and regulatory gaps. When the issue of splitting the FSS was first raised in 2012, the FSS estimated that transitioning to a dual peak system would incur $1 billion in expenses over five years. The Netherlands and Australia, which adopted the dual peak model early on, have been pointed to, but there are evaluations that the separation of roles among supervisory authorities contributed to the escalation of large-scale financial accidents in those countries.
Some also believe that the excessive authority controversy caused by Governor Lee Bok-hyeon throughout his term has fueled the push for the FSS's separation. The governor has faced criticism for recurring remarks about market interest rates since 2023, deemed inappropriate for a financial supervisory authority head. Recently, he stated he would "bet his position" in support of a commercial law amendment, drawing public backlash. A financial sector official evaluated, "We've often seen the governor acting like the chairman of the Financial Services Commission, and such behavior may have lent credence to the justification for a power check."
However, regardless of the specifics of the FSS separation proposal and predictions about its impact, there remain significant hurdles to actual separation. The reason for the failure of past attempts by the political realm to separate the FSS was the strong opposition from the financial bureaucratic force. Many believe that unless there are special means this time, any concrete proposal will likely falter before facing opposition from the financial bureaucratic group.
A former financial authority head recalled, "If the FSS is split, key positions could fall into the hands of the private sector, which is why financial bureaucrats have long opposed the separation of the FSS." He added, "This is a matter where the positions of the private sector and the bureaucrats are sharply opposed," and remarked, "It is not a problem that can easily be unraveled by mere political will and justification."