Financial watchdog might get more bite under ex-prosecutor

Finance

Published: 10 Jun. 2022, 18:25

Financial watchdog might get more bite under ex-prosecutor

Financial Supervisory Service chairman Lee Bok-hyun enters the FSS office in Yeouido, western Seoul, on June 8. [YONHAP]

Former prosecutors have gotten big appointments by the administration of President Yoon Suk-yeol, a career prosecutor, and the finance industry is no exception.

Lee Bok-hyun, a former chief prosecutor, was named head of the Financial Supervisory Service (FSS) on June 7. Lee, 49, was the first prosecutor to land the job since the FSS was established in 1999. Kang Soo-jin was considered a strong candidate for the Fair Trade Commission chief role, but she didn't get it, according to local media reports.

Lee’s appointment was opposed by labor unions and political figures, including Gyeonggi governor Kim Dong-yeon of the Democratic Party, who described the appointment as “inappropriate.” He said a person with expertise in financial reform should have been chosen.

“Appointing someone with background knowledge in law will not have a negative impact [on doing the job] because finance inevitably involves government regulations,” said Shin Seok-ha, an economics professor at Sookmyung Women’s University. “But the appointment would have generated less controversy if the government announced its planned direction in finance – whether it be focused on strict regulations or a market-friendly approach – in advance of the appointment.”

Lee's appointment may suggest the FSS will get tougher on violators of the law.

“Returning to past financial scandals like the Lime and Optimus fund scandals may be possible,” said Lee Jeong-hwan, an assistant professor at the College of Economics and Finance at Hanyang University. “The appointment of a former prosecutor implies the FSS will more strictly monitor unfair trades and transactions.”

Lee was nominated for his experience in investigating economic crimes, according to the Financial Services Commission (FSC), which recommended Lee to the president. Lee was involved in investigations into Samsung Biologics’ accounting fraud in 2018 and Hyundai Motor Group’s slush funds in 2006, according to local media reports.

Lee studied economics at Seoul National University. He passed the certified public accountant exam in 1998 and the bar exam in 2000.

In an inaugural speech, Lee pledged to prioritize “advancement of the financial market and aim for stability.”

He vowed to impose strict standards to avoid disruptions of the market and take a “delicate approach” to banks amid economic uncertainties caused by the rise in household debt and unstable prices.

Lee also stressed the need for financial innovation.

He vowed to review anything that hinders the growth of private-led innovation and to lift regulations that block growth.

Regardless of his promises, the banking industry is worried Lee may have a heavy hand on the regulation front.

“There are concerns Lee may roll out heavier regulations than his predecessor because he is a former prosecutor,” said a banking industry insider. “Some worry that he may bring back the regular comprehensive examination system that was scrapped in January.”

Banks used to be regularly inspected for irregularities by the FSS. After the system was scrapped, banks are now inspected irregularly.

“An upside of Lee’s appointment is political factors may be excluded from the FSS evaluations or regulations imposed on financial firms,” said another banking industry insider. “The level of regulations by the FSS has traditionally been affected by political factors and mass media."

Some question Lee's experience in the fintech industry.

“There is still a lot of room for the fintech industry to grow, like payment services,” said Lee from Hanyang University. “Having an understanding of the industry is essential to foster its growth. There are concerns about Lee’s level of understanding in fintech, although it remains to be seen.”

Lee did not mention supervision of virtual asset service providers, an issue that gained the spotlight following the crash of Terra coins in May.

“The FSS regulates based on laws,” said a spokesperson for the financial watchdog. “A law on virtual assets needs to pass for the FSS to supervise. Without it, all we can do is to monitor the market.”

Financial Services Commission nominee Kim Joo-hyun speaks to reporters at a press conference held in central Seoul on June 7. [YONHAP]

Kim Joo-hyun, who was named FSC chief on June 7, vowed to ease regulations, saying he is willing to even revise the “fundamental principles.”

“Korea should find an economic breakthrough through private-led investment and innovative growth,” Kim, 63, told reporters at a press conference on June 7. He vowed to “untangle all the unreasonable regulations after comparing strengths and weaknesses of overseas and domestic financial institutions. If necessary, [I] may revise fundamental principles, like the separation of financial and industrial capital,” a principle that bars industrial capital from operating or offering financial services, or vice versa.

The separation of financial and industrial capital indicates “the FSC’s will to develop the virtual assets industry, including non-fungible tokens (NFT), in line with the president’s pro-virtual asset pledges,” said Kim Tai-gi, a former economics professor at Dankook University and one of the authors of “Fair Society.”

NFTs are issued by non-financial firms, including game, retail and fashion companies. They are tradable and therefore are financial assets, according to Kim. He added the crash of Luna coins last month will force financial authorities to improve the system, not strengthen regulations on virtual assets.

The FSC nominee has to pass a confirmation hearing at the National Assembly. The hearing is expected to take place by early next month.

Unlike Lee, Kim Joo-hyun is not a former prosecutor. He is chairman of the Credit Finance Association, who majored in economics at Seoul National University. He passed the civil service exam in 1981.

Kim started in the Finance Ministry and worked at the FSC before serving as president of the state-owned Korea Deposit Insurance Corporation.

Kim has been chairman of the Credit Finance Association since 2019.

Kim is said to excel in risk management, useful skills as Korea faces the triple threat of high inflation, rising interest rates and a weakening won.

BY JIN MIN-JI [jin.minji@joongang.co.kr]