Financial watchdog chiefs defend their agencies` existence

With the presidential election drawing near, competition is heating up between the Financial Services Commission and the Financial Supervisory Service to gain the upper hand in an expected reshuffle of financial regulators.

Such institutions have become targets of reshuffle plans announced in succession by leading presidential candidates.

Independent runner Ahn Cheol-soo on Sunday pledged to dismantle the Financial Services Commission, transfer its financial policy functions to the Strategy and Finance Ministry, and split the Financial Supervisory Service into two bodies.

Ruling Saenuri Party candidate Park Geun-hye and main opposition rival Moon Jae-in have yet to officially announce their plans, but are also mulling a reshuffle of financial regulatory agencies.

The ruling party is moving to expand the commission`s functions by proposing an upgrading to ministry status by adding the international finance function to its domestic financial functions.

In contrast, the main opposition Democratic United Party is reportedly eyeing a plan to dismantle the commission and transfer its functions to the Strategy and Finance Ministry. This measure is similar to the system used by the previous Roh Moo-hyun administration.

As candidates have differing reshuffle plans, the chiefs of the two financial watchdog, Kim Seok-dong of the commission and Kwon Hyeok-se of the service, are engaged in fierce battle of logic as well.

In his congratulatory speech made in the symposium “Direction of Reshuffle of the Financial Regulatory System from the Perspective of 10 Years Later” hosted by the Korean Economic Association on Wednesday, Kim clarified his objection to his organization`s dismantlement. "The existing financial administration system has effectively coped with the global financial crisis, and experts say the risk response program has also performed well,” he said.

“All different forms of combinations were forged according to the four functions of economic policy, budget, taxation and finance, including the Economic Planning Board, the Finance Ministry, the Finance and Economy Ministry that integrates the four functions, the Planning and Budget Ministry, and the Strategy and Finance Ministry, but the current regime is found to be the best.”

Kim added, “Considering that integration of the global economy and the internationalization of finance is rapidly progressing, it is difficult for the Korean system to responsibly cope with the trend when domestic finance and international finance policies are operated separately.” The chairman thus implied that instead of dismantling the commission, the government should give the commission the function of international finance to expand its roles.

On the other hand, Kim mentioned the Financial Supervisory Service as the target of organizational reshuffle of financial regulators. He demanded the separation of the functions of oversight over soundness and of market oversight in financial supervision. “Financial policies thus far have been inefficient in protecting financial consumers, which has resulted in companies incurring damage from KIKO contracts for exchange hedging and massive bankruptcies of savings banks,” he said, adding, “From now on, infrastructure should be improved to ensure the protection of financial consumers and the function to protect financial consumers should be enhanced.”

In contrast, Financial Supervisory Service Chairman Kwon made comments that were the polar opposite of Kim`s, saying, “I agree that the Financial Services Commission be dismantled but our organization should not be split into two.”

“After the financial policy function was transferred to the Financial Services Commission (under the incumbent administration), the Strategy and Finance Ministry could not use the appropriate taxation-related policies,” adding, “If financial policy is separated from tax policy, this is like an egg without a yoke.”

Kwon also opposed the proposal to split his organization, saying, “Oversight of (financial institutions’) soundness and consumer protection is like the face and back of a coin. So I think it would be more appropriate that comprehensively supervising financial institutions rather than separating the agency into two.”

“If the organization of the Financial Supervisory Service is split into two, its staff will be divided into two and cause difficulties in operations. There is also concern over possible overlapping oversight by two competing regulatory agencies, among other significant inefficiencies.”

The financial industry is negative toward the actions of the two chiefs. One source in the financial sector said, “Confusion has occurred because the two men collided over every financial policy, including measures to rescue the house poor (heavily indebted homeowners) and the establishment of the Financial Consumer Board,” adding, “It is regrettable that they make arguments to advance the interests of their own agencies ahead of making important policy decisions over a proposed reshuffle of financial regulatory agencies.”

constant25@donga.com