1.

Background of the Decision to Withdraw the Reform Plan

The legislative procedures to implement the Reform Plan led by the Lee Jae-Myung administration was at a stalemate at the National Assembly, as the National Policy Committee of the National Assembly, which is chaired by a member of the opposition People Power Party (the "PPP"), did not support the submission of the relevant amendment bills to the National Assembly, i.e., amendments to the Government Organization Act as well as special laws, such as the "Act on the Establishment of the Financial Services Commission" (the so-called "Financial Supervisory Commission Establishment Bill").
 
From the ruling party's standpoint, even if they were to pursue the designation of the amendment bills as a "fast-track" agenda item under Article 85-2 of the Assembly Act by securing approval from at least three-fifths of all National Assembly members and deliberation at the plenary session of the National Assembly after a set period, the bills could still remain stalled at the National Policy Committee for up to 180 days. It has been an ongoing concern that prolonged uncertainty over financial policies and the financial supervision system could increase unpredictability throughout the financial sector.
 
Reflecting the situation, at the press briefing following the emergency high-level policy coordination meeting, Ms. Han Jeong-ae, the Policy Committee Chair and member of DPK, announced that all stakeholders "shared the view that exposing government agencies related to the financial sector to uncertainty for a period of over six months would not be helpful in overcoming Korea's economic challenges," and confirmed the Party-Government-Presidential Office’s agreement not to pursue the Reform Plan, which had initially been considered for fast-track designation.
 

2.

Future Outlook

The Reform Plan had raised several concerns among financial industry stakeholders and academics, including: (i) whether a clear separation of responsibilities could be drawn between financial policy functions, planned to be transferred to the Ministry of Strategy and Finance, and the supervisory policy functions to be managed by the Financial Supervisory Commission, (ii) how the respective functions and roles of the proposed Financial Consumer Protection Agency and the FSS would be specifically differentiated, and (iii) whether the division of responsibility for financial policy and supervision among as many as four distinct agencies would lead to overlapping or duplicative regulation of financial institutions, increased compliance costs, and greater financial burden from additional contribution requirements to fund the Financial Consumer Protection Agency. These specific points are expected to require substantial further debate if the National Assembly reconsiders reforming the financial supervision system in the future.
 
Additionally, Ms. Han stated that for now, the party would first pursue ways to enhance transparency and the public service nature of the government's financial consumer protection mandate within the current organizational framework, without pursuing legislative amendments, while leaving further legislative amendments for future consideration, as appropriate. She highlighted several likely immediate priority policy discussion points, including: (i) the introduction of a dispute settlement system with binding effect on financial companies if the financial consumer accepts the mediation plan suggested by the supervisory authorities, (ii) the imposition of punitive fines on financial companies in the event of cybersecurity incidents, such as hacking or data leaks, and (iii) the adoption of strict liability (no-fault liability) for financial companies in respect of consumers that have suffered losses from voice phishing incidents.
 
Moreover, although the Financial Consumer Protection Agency will not be newly established, it is expected that, from the perspective of financial supervisory enforcement, the functions within the current FSS related to financial consumer protection supervision will be significantly strengthened. This will likely result in substantially enhanced inspections and oversight of financial companies with regard to the sale of financial products and other matters related to the protection of financial consumers.
 
As the FSC will continue to carry out its mandate as the primary government agency responsible for financial policy and oversight, and much of the policy uncertainty stemming from large-scale organizational restructuring has been eliminated, the FSC is expected to pursue the Lee Jae-Myung administration's flagship financial agendas more swiftly: (i) creating a 100 trillion won National Growth Fund and reforming financial regulations to channel investments into future strategic industries and support "productive finance" to achieve "real growth" in the economy, (ii) implementing capital market reforms to realize the "Korea Premium" and make KOSPI 5,000 a reality, (iii) building the groundwork for a digital asset ecosystem through the introduction of stablecoins and the passage of a consolidated digital asset market law, and (iv) expanding debt relief and restructuring programs for low-income and financially vulnerable households.