Disappointing FSS reformsThree months have passed since President Lee Myung-bak paid a surprise visit to the Financial Supervisory Service (FSS) and reprimanded the financial watchdog for its negligent oversight of the corrupt Busan Savings Bank.
At the president’s order, a task force was hurriedly established under the Prime Minister’s Office to come up with reform measures. The task force was jointly headed by Kim Joon-kyung, a professor at the Korea Development Institute, and Rim Chae-min, chief of staff to Prime Minister Kim Hwang-sik, and comprised of six civilian experts and five government officials. On Tuesday, the task force unveiled a set of proposals to reform the FSS.
The biggest fault of the FSS was its failure to discover the savings bank’s illegal lending practices and fraudulent bookkeeping. A full-scale reorganization of the FSS is imperative. The task force suggested authorizing the Korea Deposit Insurance Corp. (KDIC) to inspect financial institutions and reduce the power of the FSS. The KDIC would jointly inspect large savings banks with the FSS and can decide to investigate separately if deemed necessary.
The idea sounds reasonable but in reality would help little. FSS and KDIC officials are birds of a feather. The KDIC also lacks the manpower and resources to do a better job than the FSS. The Bank of Korea would be more suitable for the role. We can hardly expect any changes in the FSS with the latest proposal.
Establishing a consumer protection unit is also a bad idea because it would only enlarge the agency under the pretense of reform. It would be better to hand over FSS authority to constrain financial institutions to the Financial Services Commission. We, however, welcome the proposal to make public the decisions to penalize financial institutions for malpractice, which would enhance transparency.
The task force also decided to restrict FSS employees’ re-employment in financial institutions after they retire. FSS staff have been suspected of poor inspection because of the revolving-door system with financial institutions. Officials from other government agencies should also be constrained.
The task force also suggested dismissing FSS employees associated with corruption and shorten employees’ time in corruption-prone positions to two years from the current three. But all these proposals had been within the FSS’ own reform plans. The task force should have addressed what is most essential - reorganization of the supervisory system.