Corruption of regulators: Mechanism necessary to cut collusive food chain

An OECD survey should rank Korea at the bottom in regulatory competence and corruption. A few incumbent and former staff members of the Financial Supervisory Service have been arrested for bribe-taking. The agency has been criticized for worsening the troubled savings banks through lax supervision.
The agency reshuffled about 85 percent of all heads of units last week. It vowed to devise a system to prevent corruption among its staff members. However, this internal shock therapy alone is not enough.
The National Assembly should pass a bill banning FSS staff members from employment at financial companies.
It has been the rule, not an exception, for retired regulators to get jobs as auditors of financial firms and become lobbyists. Incumbent regulators have difficulty in conducting effective supervision because of intensive lobbying from their former superiors. About 45 auditors of major financial companies are former FSS personnel.
Existing regulators are not strict enough in penalizing rule-breakers, possibly out of the expectation that rule-bending financial companies might hire them upon retirement.
In 2009 Seoul introduced a rule to recruit auditors through open competition. Under the Civil Servant Ethics Law, government employees are unable to take jobs for two years upon retirement at companies they supervised.
Financial companies are unable to receive endorsement from the regulatory agency when auditors are not from the agency itself. Many regulators sometimes launder careers to evade the code and find employment at financial firms as well-paid auditors.
The performance of auditors is evaluated by how well they lobby regulators, not by how well they monitor companies internally.
The FSS should strengthen transparency in its monitoring so that lobbyists will not hide the cancerous operations of financial firms. Prosecutors should monitor auditors to check possible corrupt and collusive ties with regulators.
Another area of FSS reform is its wage system. The FSS wage structure is outside the radar of the state auditing agency, the Board of Audit and Inspection, as it is funded by contributions from private financial companies.
They are paid better than government employees and the average salaried persons. No monitoring of their unbridled wage hikes exist. The auditing of the FSS budget is lax.
Prosecutors should conduct a criminal investigation into the recent massive withdrawal of deposits before the suspension of seven insolvent savings banks. This would not have been possible without the connivance of FSS regulators.
The five jailed FSS personnel were brokers, not regulators, for financial companies. They abused their positions to help acquaintances receive unauthorized loans, and listed companies bend rules to raise funds through the issuance of stocks. They allegedly received bribes in return for winking at irregularities.
Without cutting the collusive food chain between regulators and the financial market, Korea will see more arrests of regulators and the safety of the financial system will continue to be in jeopardy. The victims are investors, depositors and taxpayers. The FSS has become an object of international mockery.
(END)