The government and the ruling party's push to reorganize the financial authorities will be fully withdrawn. Accordingly, the existing Financial Services Commission–Financial Supervisory Service structure will remain in place. The reversal is seen as a response to fierce backlash from inside the Financial Services Commission and the Financial Supervisory Service, as well as mounting criticism that splitting financial policy and supervisory functions across four agencies could reduce operational efficiency. Critics say the administration pushed through an unjustified reorganization simply because it was one of President Lee Jae-myung's campaign pledges, only adding to social confusion.
The Democratic Party of Korea, the government, and the presidential office held an emergency meeting at the National Assembly on the 25th and agreed to reconsider the financial authorities' reorganization plan from scratch. They also temporarily withdrew the designation of the Financial Supervisory Service as a public institution. Policy Committee Chair Han Jeong-ae said in a briefing after the meeting, "The ruling camp decided not to include in this government reorganization the separation of the Financial Services Commission's policy and supervisory functions and the establishment of a Financial Consumer Agency, which we had sought to handle on the fast track." She added, "Discussions on the reassignment of the FSS as a public institution have also returned to the starting point," and said, "Further discussions will proceed through consultations within the party."
They cited "financial market instability" as the reason for withdrawing the reorganization plan. Policy Committee Chair Han said, "We reached a consensus within the ruling camp that leaving government financial organizations in an unstable state for six to seven months would do nothing to help overcome the economic crisis." If a bill is placed on the fast track, it is tied up in the standing committee for at least 180 days, meaning the reorganization could be pushed back until April next year.
Earlier, on the 7th, the government announced a reorganization plan for the financial authorities that would transfer the Financial Services Commission's financial policy function to the Ministry of Economy and Finance (the successor to the Ministry of Finance and Economy) and create a Financial Supervisory Commission with only supervisory functions remaining. It also said it would split the FSS into the FSS and the Financial Consumer Protection Agency and designate both as public institutions.
The reorganization of the financial authorities was a campaign pledge by President Lee when he was a presidential candidate. In May, before his election, Lee personally said in a policy pledge booklet, "The Financial Services Commission is carrying out both policy and supervisory duties, so these need to be separated and streamlined." After his election, the Presidential Committee on Policy Planning drafted the blueprint for reorganizing the financial authorities, and a final plan was announced following consultations within the ruling camp.
After the reorganization was finalized, backlash erupted inside the Financial Services Commission and the FSS. At the FSC, the organization would effectively be dismantled, and those not remaining at the Financial Supervisory Commission would have to move to the Ministry of Finance and Economy in Sejong. The FSS argued that separating out the consumer agency would inevitably cause operational confusion and that designating it as a public institution could undermine its independence, and it staged rallies and protests. Internal unrest at the FSS, which is effectively a private organization, was particularly intense.
Questions also mounted over the reorganization's effectiveness. Problems cited included overlapping work due to an increased number of supervisory bodies and heavier burdens on financial firms. There were also claims that if domestic financial policy functions were absorbed by the Ministry of Finance and Economy, it could be harder to respond swiftly in a crisis. For this reason, some in the presidential office questioned whether it was appropriate to dismantle the FSC when financial issues like household liabilities are piling up. A political source said, "The discussion on reorganizing the financial authorities started as an effort to curb the power of the Ministry of Economy and Finance, but the side effects were greater than expected and the effectiveness seemed limited," adding, "Signs of a changing mood were detected three to four days ago."
Inside the FSC and the FSS, the reaction was one of relief. A financial authorities official said, "We were very discouraged because we expected it would be hard to roll back a reorganization so soon after the new government launched, but we are pleased with the unexpected decision to scrap it," adding, "We plan to focus on addressing key pending issues that were pushed back by the reorganization debate."