The labor union of South Korea's Financial Supervisory Service has blamed investor losses tied to the introduction of single-stock leveraged exchange-traded funds on a supervisory system it says is subordinate to policy. The union argues the FSS lacks the authority to check decisions made by policy authorities while still bearing responsibility for supervision after the fact.
The union said so in a statement released on the 21st titled "The Culprit Is a Financial Supervisory System Subordinate to Policy." "Even when financial policies pushed by the administration carry side effects and problems, there are structural limits that make it hard to voice independent views, out of concern over institutional disadvantages such as budget allocations," the union said.
The union took issue with the current structure in which the Financial Services Commission directs and supervises the FSS while approving its staffing quota and budget. Because the FSS has no authority to enact or amend supervisory regulations or to place items on the FSC's agenda, it cannot fix rules itself even when it detects risks early, the union said. The FSS governor can request that an item be tabled at the FSC, but the power to do so rests with the commission. The union stressed that the backdrop to the launch of the product lies in "the current financial supervisory system, which has been changed for the worse so that it cannot help but be subordinate to policy."
Under these conditions, the union said, when consumer losses occur the FSS is held responsible for supervisory failures after the fact, and the administration's control grows stronger through discussions over designating the FSS as a public institution or through conditions attached to deferring such a designation — a vicious cycle that keeps repeating. It cited the 2011 savings bank insolvency crisis, the 2013 Tong Yang Group commercial paper debacle and the 2020 private fund scandal as cases that exposed the limits of the supervisory system.
To secure the independence of the supervisory body, the union demanded that the FSC's authority to direct and supervise the FSS and to approve its budget be transferred to the National Assembly, and that a parliamentary confirmation hearing be introduced for the appointment of the FSS governor. It also argued that the FSS should be given the power to enact and amend supervisory regulations and to table items at the FSC, so that it can institutionally present views that differ from those of policy authorities. The union further urged a revision of the Act on the Management of Public Institutions to exclude the FSS from designation as a public institution.