The FSS is asleep at the wheel

The Financial Supervisory Service exists to insure the health of financial groups and maintain order in capital markets. But its past dealings with the Taekwang Group have many scratching their heads and questioning if the FSS is doing its job correctly.

Several years ago, the FSS rejected a bid by an insurer to buy shares in Ssangyong Fire and Marine, but gave its approval for Taekwang to do the same just two weeks later. Taekwang’s acquisition of a majority stake in the insurer was licensed in just 10 days in January 2006. Then the FSS last year scrutinized Heungkuk Life Insurance’s purchase of a membership in a golf club, operated by a sister company of Taekwang, at an above-market price. It concluded it was a normal business deal. Even someone without a financial background would wonder if an insurer can use customers’ money with such liberty. Faced with criticism, the financial watchdog now says it plans to re-examine the case.

The Shinhan Group debacle would not have evolved into such a mess if the FSS done its duty. The FSS last year discovered irregularities in Shinhan’s accounts but decided not to pursue the case, saying the original documents were with the prosecution. It knew the group had false-name bank accounts but turned a blind eye for a year. Possessing false accounts of more than 300 million won ($266,443) can be punished with a suspension of business. The FSS only announced strong penalties on the executives after the group’s power struggle made headlines. In contrast, when the government complained about KB Financial Group’s president, the FSS went so far as to question the executive’s driver last week.

According to documents submitted to the National Assembly, 84 out of 88 retired FSS senior officials found jobs at financial companies. Their job search took less than a week on average, suggesting the officials were promised the posts while they were still serving at the FSS. The financial watchdog replies that their officials’ financial expertise was important in their getting the jobs. If there were such an “expert,” the FSS should have prevented mishaps like Shinhan and Taekwang Group since the two groups’ auditors were both from the FSS.

Korea might have avoided the meltdown from the Asian financial crisis in 1997 and from the more recent global crisis if it had done its job right. To improve the financial system, regulations must be relaxed and supervision strengthened. But the FSS raises questions whether the country’s financial industry will ever advance.