Korea’s Financial Regulator Overhaul Faces Fierce Backlash and Legislative Gridlock

Korean Government Finalizes Plan to Restructure Financial Regulators Into “Four-Agency System”
Regulators, Financial Firms, Employees, and Opposition Party All Push Back
Temporary Turmoil on the Way to a Better Supervisory Framework?

Controversy is mounting over the Korean government’s financial regulatory overhaul. Regulators, agency staff, and private-/sector financial institutions alike are voicing concerns about the side effects of the reorganization, fueling market uncertainty. Critics argue the plan could undermine the independence of supervisory bodies while making dispute resolution and sanction procedures more cumbersome.

Government’s Financial Regulator Overhaul

On the 7th, the Democratic Party, the government, and the presidential office held a high-level policy consultation and finalized the plan to restructure Korea’s financial authorities. The core of the reform is to reestablish the Ministry of Strategy and Finance as the Ministry of Finance and Economy, consolidating the Financial Services Commission’s domestic financial policy functions into it. Under the plan, the FSC’s domestic financial policy role—including the Financial Intelligence Unit—will be transferred to the new ministry, while the FSC will be renamed the Financial Supervisory Commission and focus solely on oversight. The FSC will in turn oversee the Financial Supervisory Service (FSS) and a newly separated Financial Consumer Protection Agency, both of which will be designated as public institutions. In effect, this creates a four-agency governance framework.

Officials within the financial authorities warn that the restructuring could undermine the independence of supervision. Yoon Suk-heon, former governor of the FSS, said, “Independence is guaranteed when supervision is entrusted to a private body, but under this plan, bureaucrats are in charge. If a government agency tasked with industrial promotion also controls supervision, independence cannot be secured.”

Yoon also criticized the decision to designate the FSS and the new Financial Consumer Protection Agency as public institutions. “Designating them as public bodies means the government intends to steer finance at will—that is state-controlled finance,” he argued. “The system should be designed to preserve autonomy and creativity in the financial sector while ensuring strong sanctions when problems occur, but instead it has become a muddle.”

Pushback From Financial Firms and Regulators’ Staff

Private financial companies have also voiced strong criticism, warning that the restructuring would make dispute resolution procedures far more cumbersome. Under the current system, if a case of mis-selling arises—such as a bank failing to explain a financial product properly—an investigation is led by the Financial Supervisory Service (FSS), and once the sanction level is determined, the company deals with the Financial Services Commission (FSC). Under the new structure, however, dispute mediation and consumer relief would fall under the new Financial Consumer Protection Agency, inspections and internal control checks under the FSS, and sanction deliberations and decisions under the rebranded Financial Supervisory Commission. On top of this, if policy or legal changes are pursued, the Ministry of Finance and Economy in Sejong would also be involved.

Sanction procedures are also expected to become more complicated. With both the FSS and the new agency overseeing companies, final sanction decisions from the Financial Supervisory Commission could face delays, prolonging management risks for financial firms. The fact that the FSS and the Financial Consumer Protection Agency will be designated as public institutions from next year is another concern. As public entities, they would fall under the Public Institution Steering Committee of the finance ministry, which would review their staffing, organizational changes, and budgets—effectively giving the ministry greater influence over supervisory agencies.

Employees at the regulatory bodies themselves have joined the resistance. On the morning of the 9th, about 700 FSS employees dressed in black gathered in the lobby of the FSS headquarters in Yeouido, Seoul. The protest, organized by the FSS labor union, drew roughly one-third of all employees. Staff argued that separating the FSS and the new agency would inevitably create overlap and confusion, and that designating them as public institutions would seriously undermine the independence of financial supervision.

Legislative Hurdles Ahead—Will the Fast-Track Option Be Used?

The government’s restructuring plan is also expected to face difficulties in the legislative process. Follow-up bills such as the Financial Supervisory Commission Establishment Act and revisions to the Banking Act must go through the National Assembly’s Political Affairs Committee, chaired by Yoon Han-hong of the opposition People Power Party, which remains critical of the overhaul. On September 8, Yoon wrote on Facebook, “The Lee Jae-myung administration and the Democratic Party’s disregard for the opposition has gone too far. Just one day before the confirmation hearing for the FSC chair nominee, they were debating dismantling the FSC. No sooner had the hearing—premised on keeping the FSC and consulting the opposition—ended than they formalized its abolition.” He added, “The reorganization requires amending key laws under the Political Affairs Committee’s jurisdiction, yet this is a hasty backroom plan that excludes the voices of regulators and industry.”

If the Democratic Party fails to win opposition support, it could invoke the fast-track procedure. This requires the consent of three-fifths of all lawmakers. Once designated, a bill proceeds automatically to the plenary session after up to 180 days in committee review, 90 days of scrutiny in the Legislation and Judiciary Committee, and 60 days pending on the floor. This would allow the government to pass the Financial Supervisory Commission bill by April next year without opposition approval. However, since the reorganization of the finance ministry is scheduled for around January 2, resorting to fast-track procedures would almost inevitably trigger market turbulence.

Some analysts, however, argue that the turmoil is only temporary—a symptom of a system in transition. One market expert noted, “There will be pain in the short term, but once supervisory functions are separated, the FSC and FSS will be able to strengthen oversight and more effectively prevent financial scandals. The Ministry of Finance and Economy could also gain the ‘key’ to resolving chronic internal conflicts by deploying specialized economic staff.”