Maligned financial watchdog to conduct sweeping reshuffle

“Oftentimes we wonder whether officials of the Financial Supervisory Service are inspecting us with sufficient knowledge of their supervisory work. Qualifications of the watchdog’s officials also vary,” the vice president of a commercial bank said.

“The news that five former and incumbent officials of the Financial Supervisory Service were arrested on the charge of bribe-taking is not surprising. Haven’t we seen the same incident numerous times?” said an executive at another commercial bank.

The comments are a sample of what those in the financial sector are saying about the government`s financial watchdog.

In response, the regulator announced Thursday a plan to reform its organization, personnel administration, ethics and business practices. The financial sector, however, agreed that the proposed action should have come much earlier.

The industry had long warned that corruption among the watchdog’s officials reached alarming levels, with many abusing their authority to elicit bribes from financial institutions subject to supervision.

To tackle widespread corruption in the organization, the watchdog’s new governor Kwon Hyouk-se, who took office a month ago, is known to have decided on a sweeping personnel reshuffle to recover market trust of his agency`s authority.

○ `Old state of things` and `old evils`

A high-ranking official even used provocative terms such as “old state of things” and “old evils” to express Kwon’s commitment to a sweeping shake-up. “The governor of the Financial Supervisory Service believes that now is the last chance to make a fresh start,” the official said.

The first target of the reform is group egotism. The watchdog was created in January 1999 via the merger of four financial supervisory organizations that oversaw banking, securities, insurance and private lending. The proportion of employees from each sector at the time was 4:3:2:1, and they divided inspection and supervisory work for banks, securities companies, insurers and non-banking financial institutions.

The problem is that officials from the four sectors have yet to be united 13 years after the watchdog`s foundation.

In the 2000 reshuffle, the watchdog`s first chief Lee Heon-jai sought to transfer 30 percent of staff in one sector to another promote harmony, but this failed due to opposition from each sector.

A source at the financial regulator`s union said, “Ten years have passed since the consolidation of the four supervisory organizations, but barriers among them were too high,” adding, “Working solely in their own sectors has led to a culture of taking care of those in the same industry.”

To tackle this problem, the watchdog wants to transfer the authority on personnel administration exercised by deputy governors of each sector to the governor in the belief that organizational cohesion is impossible if vice governors continue to handle personnel affairs.

The watchdog also judged that barriers among the four sectors must be removed to rapidly deal with pending issues facing non-banking sectors, such as real estate project financing loans extended by savings banks and excessive competition among credit card companies.

○ Most elite inspectors to work in front lines

The next target of the reform is ridding the culture of avoiding responsibility via personnel reallocation. This is why the watchdog is trying to replace incompetent inspectors who have bullied financial companies in the process of inspection.

Instead skilled and clean officials will be deployed to the front lines to restore the watchdog’s inspection function, which has been weakened since the inauguration of the incumbent administration.

In addition, inspection-related corruption and irregularities will be sternly punished.

On this, Financial Supervisory Service Governor Kwon said, “Talented officials are reluctant to take on inspection work as inspections of financial companies can lead to a situation in which they have to take responsibility,” adding, “Among the functions of the Financial Supervisory Service, inspection is the most important. Yet unreasonable situations have continued for several years.”

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