FSS not a quick fixAccording to the JoongAng Ilbo, officers who retired from the Financial Supervisory Service occupy the post of auditor at 10 out of 11 private banks and 30 out of 44 security firms. For this reason - and because of the fact that the FSS has been compared to the mafia - the agency unveiled its own reform measures last year.
Its plan offers up a recommendation that auditors at financial firms should be appointed through open recruitment. In addition, the watchdog said it will take steps to strengthen internal surveillance and inspection in order to prevent retired officers of the Financial Supervisory Service who get jobs with financial firms from exerting influence upon incumbent officers. However, we don’t think this is enough to offset the mafia-related allegations facing the watchdog. The Financial Supervisory Service is the only organization in Korea that supervises the soundness of financial firms. The unprecedented global financial crisis is generally considered to have resulted from the failure of financial regulations and supervision.
Most people think that supervision has been the key to escaping the economic crisis. The same can be said for Korea specifically. The burden of responsibility fell on the banks to help prop the country up. Last year, when the crisis hit, savings were much bigger than loans, and banks borrowed excessive amounts of foreign currency and issued bank bonds to this end.
However, the Financial Supervisory Service failed to play its watchdog role. It is clear that the watchdog’s officers avoid conducting audits of financial firms that employ former FSS higher-ups as auditors. Additionally, we can hardly expect officers to properly supervise firms that might offer them jobs once they leave the FSS. This is the reason financial firms prefer employing retired officers of the watchdog. The agency insists that its former workers find jobs in the private sector because of their expertise, not because of the influence they provide. However, we know that these workers can serve as messengers or lobbyists for the firm.
It is impractical to think that the FSS can solve these issues on its own. The government needs to take charge and present reform measures as well, taking into consideration the seriousness of the issue. The provisions of the Public Service Ethics Act should be further strengthened as well. The most important step, however, is to reduce the desire of financial firms to hire retired FSS officers. To do so, the watchdog’s discretionary power should be radically reduced. We must make these moves to prevent another financial meltdown from occurring in the future.