The FSS needs a total overhaul

The Financial Supervisory Service is releasing a spate of reform proposals to make up for a recent corruption scandal connected to the suspended Busan Savings Bank Group. The FSS plans to prohibit employees of the financial watchdog from seeking auditor or other high-level jobs at financial institutions and expand mandatory reporting of personal wealth.

It is encouraging to see the high and mighty organization humble itself and pursue reform. Recruitment and job placement in financial firms by FSS officials should long ago have stopped. Officials can’t commit themselves to their job of oversight and appraisal if they envisioned a future in that industry after retirement.

Is this real reform or smoke and mirrors? The essence of the reform should be honing a supervisory role to prevent unscrupulous connections between bureaucrats and the industry. The FSS has been tainted with corruption scandals and charges of irregularities from its birth in 1999. It promises to change all the time, only to revert to its old ways.

President Lee Myung-bak stopped by the FSS headquarters to criticize the organization’s corruption. He is said to have brushed aside the FSS reform proposals, saying it cannot be trusted for effective self-restructuring.

If the FSS had been faithful to its primary function of supervision, the local savings bank debacle could have been averted. It is incomprehensible how the watchdog, after routine inspections twice a year and more than four visits to the bank last year alone, could not detect any trace of illegal lending and fraudulent accounting. It also neglected to take into account the fact that the bank’s executives and large shareholders were engaged in a trial on charges of embezzlement and other illegalities. We can only assume improper connections between the bank and the FSS existed.

The Prime Ministerial Office, spearheading the reform of the FSS, must focus on two areas: a chipping away at the FSS’ omnipotent status; and there must be a higher-level supervisory body to keep an eye on the FSS. It also must seek ways to end the cozy relationship between the organization and the industry, as corruption tends to accompany power.

The reform should most of all must not end up as a stopgap solution. It must reinvent the entire role of the FSS and the supervisory system. The aim is not only to prevent corruption, but also financial damage and crises that arise from poor oversight.