Financial watchdog reforms have come to naught

SEOUL, Aug. 3 (Yonhap) -- One of the primary causes of widespread corruption at Korea's savings banks was shoddy inspection by the financial watchdog. Watchdog officials lost the people's trust when they were found to have taken bribes to help cover up irregularities and give tips about upcoming inspections.
The corruption ran so deep that President Lee Myung-bak in May doubted whether the watchdog could even successfully reform itself. A task force was launched at Lee's instruction to overhaul the financial inspection system. After three months, the team came up with a package, but in the eyes of experts, the reforms fall way short of expectations.
The task force, operating under the Prime Minister's Office, sought to take away from the almighty authority of the Financial Supervisory Service (FSS) by obligating joint inspection with the Korea Deposit Insurance Corp. (KDIC), which was given wider authority to conduct an inspection on its own. But this, experts say, may not be enough to keep the FSS in check, given that the KDIC does not have the same means available for monitoring.
The task force placed limits on retiring FSS officials from working for financial companies and demanded that more FSS members report their personal assets, a means of checking any sudden increase in their wealth. But these measures were already proposed before by the FSS. When FSS officials are under the prosecution's investigation for corruption, regurgitating their version of reform is no reform at all.
Even more objectionable is the decision to hold off on core reform issues: creation of a board to protect consumers of financial products and separation of the authority to inspect and sanction financial institutions. The issues were glossed over as "mid- and long-term agenda items." The separation of inspection and sanction rights was a centerpiece issue that would have effectively humbled the power of the FSS.
The disappointing results may be due to the nature of the task force, a body technically composed of civilian and government members but unable to escape government influence. One civilian member quit, expressing deep suspicions of government control.
The Prime Minister's Office said it will announce the final reform package in the middle of the month after more discussions within the government. The financial watchdog has to change itself inside out. But so far, there aren't signs of true remorse. The government should not be bound by any deadline in coming up with practical reforms that will prevent recurrence of such shoddy inspections.
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