[Column] A Pair of Wings, Not Just One

After the storm of organizational restructuring, the financial authorities have been focused on overhauling their system under the banner of 'Protection of Financial Consumers.' The two heads of the financial authorities emphasize this every day, expressing their determination to more rigorously scrutinize the sales and advertising practices of financial institutions.
It is somewhat puzzling that the financial authorities act as if they have neglected the Protection of Financial Consumers until now and that this neglect prompted the restructuring. Nonetheless, there is no reason to oppose their intention to protect financial consumers. However, it is necessary to clarify the terminology first. Protection of Financial Consumers does not simply refer to regulating business practices—such as recommending financial products that match investors’ risk profiles, providing proper explanations, or preventing unfair solicitation.
Prudential supervision is the other wing of protecting financial consumers. Regularly checking whether financial institutions are in sound financial condition—through indicators like the Bank for International Settlements (BIS) ratio for banks, the K-Insurance Capital Standard (K-ICS) ratio for insurers, and the Net Capital Ratio (NCR) for securities firms—is also a way to safeguard consumers. Yet, both within the financial authorities and in the market, prudential supervision is often treated as a secondary concern, while the former is equated with consumer protection. This perception is evident in calls to 'raise the intensity of business conduct regulations while easing prudential supervision.' Each sector may have prudential indicators it wants to relax, and as the authorities intensify their focus on consumer protection, there are voices suggesting that one area be conceded while the other is loosened during this opportunity.
If these demands become reality, we may continue to witness shocking embezzlement scandals at major banks. In fact, some attribute these incidents to the diminished 'watchdog' effect that resulted from the Financial Supervisory Service (FSS) relaxing its real-time oversight of financial institution employees’ lending records. The results of the FSS’s organizational restructuring are expected this month. Even internally, there are concerns that emphasizing the Protection of Financial Consumers could lead to lax prudential supervision. While the two areas cannot be strictly separated, it is hoped that neither will be neglected or become unbalanced.
Only when both authorities work in tandem can the value of protecting financial consumers be upheld. This is not a matter of sacrificing one for the other. Rather than debating the relative importance of business conduct regulation versus prudential supervision, it is more effective to highlight the risks of piecemeal deregulation, as learned from the Optimus and Lime Fund Scandal. There is no limit to supervision. Strengthening one wing while weakening the other only increases the risk of collapse. Wings function properly only when they work as a pair.
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