The Financial Supervisory Service (FSS) was established on January 2, 1999, as Korea’s fully integrated supervisory authority under the Act on the Establishment of Financial Supervisory Organizations (the “Establishment Act”) that the National Assembly approved on December 29, 1997. The Establishment Act created the FSS as a specially legislated quasi-government supervisory authority and charged it with financial supervision across the entire financial sector.
Prior to the creation of the FSS, financial supervision was carried out by four separate sector-based authorities with the finance ministry exercising significant overarching powers. For banking sector supervision, the Office of Banking Supervision under the Bank of Korea conducted examination of commercial banks and foreign bank branches, while the finance ministry assumed the primary responsibility for the oversight of government-affiliated policy banks and nonbank credit institutions. Similarly, securities sector supervision was shared by the Securities Supervisory Board and the finance ministry, and insurance sector supervision by the Insurance Supervisory Board and the finance ministry. Supervision of other nonbank financial companies was generally divided between the finance ministry and the Bank of Korea's Office of Banking Supervision.
Although institutional and systemic shortcomings that came to light during the 1997 Asian financial crisis reinforced the need for reform of the regulatory and supervisory structures and frameworks, there was a broad recognition even before the crisis of changes needed to deal with the evolving financial market landscape. These ranged from the accelerating convergence of financial services to the blurring of the traditional boundaries between banking and nonbanking activities. The confluence of financial market liberalization, deregulation, and globalization that were gathering momentum across countries at the time also pointed to the need for bold systemic reform to drastically improve the effectiveness of Korea’s financial regulation and supervision.
Recognizing the exigency of reform, the government set up a presidential committee in January 1997 to explore ways to bring about more efficient and more robust financial regulation and supervision. The committee followed up with recommendations that culminated in the creation of the Financial Supervisory Commissionㅡpredecessor to the Financial Services Commissionㅡas the integrated regulatory authority on April 1, 1998, and the creation of the FSS as the integrated supervisory authority on January 2, 1999. As part of major government reorganization, the Financial Supervisory Commission consolidated the Financial Policy Bureau under the Ministry of Strategy and Finance (formerly Ministry of Finance and Economy) and became the Financial Services Commission (FSC) on February 29, 2008. In addition, the name of the Establishment Act, formerly the Act on the Establishment of Financial Supervisory Organizations, was changed to the Act on the Establishment of the Financial Services Commission.
As a result of the two-tier system created by the law, the FSC assumes the primary responsibility for rulemaking and licensing while the FSS principally conducts prudential supervision, capital market supervision, consumer protection, and other oversight and enforcement activities as delegated or charged by the FSC. As the government regulatory authority, the FSC is staffed by civil servants, but the FSS as a specially legislated supervisory authority is staffed by private sector employees who are not part of the government civil service system.