The labor union at South Korea's Financial Supervisory Service said the main culprit behind the introduction of single-stock leveraged exchange-traded funds is the current financial supervisory structure, which it described as having been altered in ways that leave the FSS subordinate to policymaking. The union voiced its opposition to the FSS being designated as a public institution, arguing that the structure making it difficult for the agency to express independent views must be reformed.
In a statement released on Oct. 21, the union said the current system has structural limits because the executive branch guides and supervises the FSS while approving its staffing levels and budget. As a result, the union said, the FSS finds it hard to speak out even when financial policies pushed by the executive branch carry side effects or flaws, for fear of institutional disadvantages such as budget cuts.
The union also pointed to the fact that the FSS has no authority to enact or revise supervisory regulations on its own, or to put items on the agenda of the Financial Services Commission. That makes it difficult to respond quickly even when side effects emerge during policy implementation, the union said.
"When side effects and problems eventually surface and harm to financial consumers becomes visible, the FSS is held responsible for supervisory failures after the fact," the union said, criticizing what it called a vicious cycle in which executive branch control is steadily tightened through measures such as discussions on state-run institution designation or the imposition of conditional restrictions.
The union cited three cases as evidence of flaws in the current supervisory system: the savings bank insolvency crisis of 2011, the 2013 collapse of Dongyang Group's commercial paper, and the 2020 private fund (hedge fund-style private fund) scandal.
On the savings bank crisis, the union said risks of insolvency had been raised from 2008, but damage widened after the FSC encouraged voluntary restructuring instead of taking prompt corrective action. In the Dongyang Group case, the union said the FSS had recommended revising supervisory regulations to address risks from sales of affiliate commercial paper, but large-scale investor losses occurred while the revision was delayed. On the private fund scandal, the union said the FSC eased rules in 2015, including entry requirements for private fund managers, without putting adequate supervisory tools in place, which led to massive redemption suspensions.
The union also called for institutional changes to strengthen the independence and accountability of financial supervision. Specifically, it proposed transferring the authority to guide and supervise the FSS to the National Assembly, introducing parliamentary confirmation hearings for the FSS governor, granting the FSS the power to enact and revise supervisory regulations and to put items on the FSC agenda, and excluding the FSS from designation as a state-run institution.