The government and the ruling party are facing controversy over the 'retreat of independence' in financial supervision as they decide to designate the Financial Supervisory Service and the newly established Financial Consumer Protection Agency (FCA) as public institutions. Being designated as public institutions will subject them to control over personnel and budgets from the Ministry of Economy and Finance, which could impact financial supervision. The financial sector argues that the justification for the reorganization is to secure the independence of financial supervision, but there are concerns that this independence may actually be undermined by the designation as public institutions.
According to the financial sector on the 8th, the government and the Democratic Party of Korea finalized a plan to separate and establish the financial policy function of the Financial Services Commission, giving it to the Ministry of Economy and Finance, and the financial supervision function to the Financial Supervisory Commission (FSC) the previous day. The FSS, which currently performs supervisory responsibilities entrusted to it by the commission, stated it would split into the FSS and the FCA, designating both organizations as public institutions.
Currently, the FSS is a 'non-capital special corporation.' It essentially operates as a private organization or performs government functions, and is referred to as a 'semi-public and semi-private' organization under management and supervision. The controversy surrounding the designation of the FSS as a public institution has continued for several years. The FSS has received more than 96% of its funding from the government, which legally makes it subject to public institution designation. According to Article 4 of the Act on the Operation of Public Institutions, organizations that earn more than half of their total income from entrusted government tasks can be designated as public institutions.
Despite this, the FSS has been able to maintain its status as a private organization due to concerns over loss of independence upon transition to a public institution. The FSS was established as an independent body under the recommendation of the International Monetary Fund (IMF) to prevent the harms of government-directed finance during the 1997 financial crisis. The FSS was designated as a 'miscellaneous public institution' once under the government of Roh Moo-hyun in 2007 but was removed from public institution status two years later in 2009 due to discussions over the loss of independence.
If the FSS is reassigned as a public institution, government control will become stronger, and its operational autonomy may decrease. Being designated as a public institution means it will be subject to the management and supervision of the Public Institution Operations Committee (PIOC), making decision-making on overall management through PIOC review and resolution unavoidable. The PIOC will be transferred under the Ministry of Economy and Finance. The FSS labor union issued a statement that day, stating, 'If the FSS is designated as a public institution, it could become vulnerable to political influence and external pressure.'
Concerns have been raised that this does not align with the purpose of the organizational reorganization. The background to the discussions on the organizational restructuring stems from the awareness that the current system—which places the Financial Services Commission above the FSS—leads to weakened supervisory functions and results in consumer harm. A financial sector official remarked, 'The purpose of the reorganization is to separate the financial supervisory functions from the Financial Services Commission to secure independence, but if both the FSS and the FCA are designated as public institutions, the influence of the Ministry of Economy and Finance will inevitably become stronger, leading to a retreat in independence.' He further stated, 'It has become a reorganization where the purpose is unclear.'