Question of central bank’s supervisory authority emerges
Recent security incidents in the financial sector have reignited debate on whether the Bank of Korea should have authority to conduct independent inquiries into financial companies.
Currently, the central bank is only entitled to probe financial companies jointly with the Financial Supervisory Service.
While FSS-BOK joint investigations are focused on risk management of financial companies, the BOK is demanding the right to conduct independent probes citing the need to closely monitor payment and settlement systems in the market.
Several economists point to the recent case where the central bank’s cyber networks systems were affected by an unprecedented system breakdown at the National Agricultural Cooperative Federation, also called Nonghyup.
Nonghyup has been under investigation by the prosecution and the FSS following problems with its online transaction systems for about a week.
Economic experts argued that the country should establish a dual inquiry system by revising the law on the BOK to prevent hacking and other critical accidents.
“If the payment and settlement systems face a risk, the overall market could be damaged in terms of financial soundness,” a Myongji University professor said.
Though there is also skepticism over having separate probes by the regulator and central bank, not wasting taxpayers’ money was more important than the possibly growing burden on financial companies, he said.
Financial industry unions are among those opposing granting inquiry authority to the BOK, saying the resulting dual supervisory system would double the burden on financial companies.
A professor of the graduate school of international policies at the Korea Development Institute is another critic of increasing BOK’s authority. He said the central bank could currently probe settlement and payment systems of financial companies.
“The nation should focus on effective operation of the current regulatory system rather than on increasing the number of regulatory bodies,” he said.
A proposed revision to the law on the BOK aiming to allow the central bank to conduct independent inquiries has been pending at the National Assembly for about 16 months in the face of opposition from the FSS.
On Wednesday, though the Legislation and Judiciary Committee of the National Assembly held a meeting, lawmakers of the committee omitted the bill from several discussion items.
The BOK gave up regulatory power over financial companies in the late 1990s when the FSS was established, combining each sector’s regulatory bodies responsible for banking, securities and insurance.
The dispute came to the fore after BOK Governor Kim Choong-soo publicly raised the issue during a meeting with reporters in late March.
He said today’s market conditions require central banks to take a bigger responsibility beyond the traditional role of stabilizing prices.
He pointed out that central bankers around the world are playing broader roles in macroeconomic management while Korea lags behind the trend.
Regulatory officials at the FSS reject the argument. In Europe, the central banks of major countries such as the U.K., Belgium, Sweden, Demark and Switzerland are barred from conducting inquiries into financial companies on their own, they said.
Meanwhile, the Ministry of Strategy and Finance has taken a wait-and-see attitude, downplaying the urgency of the issue.
By Kim Yon-se (email@example.com