The Financial Supervisory Service is in need of drastic reform. The recent series of problems at financial companies and corruption cases involving FSS officials have shown the regulator is not only ineffectual in promoting stability and soundness of the financial market but is corrupt to the bone.

In his inaugural address on March 28, FSS Chairman Kwon Hyuk-se disclosed his vision of making the regulatory body the “ultimate bastion of financial stability” and the “ultimate guardian of a credible financial system.” To attain this vision, he needs to reform the FSS from the ground up.

On Wednesday, Kwon convened a meeting of all the FSS officials to remind them that the regulatory organ was facing its biggest crisis since its inception. He called on them to get their act together and behave more ethically to counteract growing criticism of their regulatory ineptitude and involvement in wrongdoing.

Then he disclosed his plan to take an ax to the personnel management system of the FSS as part of a bid to address the “unduly cozy” relationship between FSS officials and the financial institutions under their jurisdiction.

He said he would abolish the tradition of transferring officials within their specialized sectors ― banking, securities, insurance or nonbanking finance ― to reduce the possibility of FSS inspectors and their regulated companies forming incestuous relationships.

Kwon’s reform plan is a response to the view that the recent crisis of the mutual savings bank sector, which was triggered by its excessive exposure to real estate developers, was worsened by former FSS officials who moved to savings banks after retirement. These officials allegedly lobbied for the savings banks that became insolvent, only to deepen their problems.

We hope Kwon’s scheme weakens the excessively close connections between FSS officials and financial firms. But the measure alone will not be enough to catalyze a fundamental reform of the FSS. For this, he needs to recreate it by changing its organizational culture.

First of all, Kwon needs to make the FSS a clean organization. Currently, its culture is steeped in corruption. Many FSS officials have no qualms about taking money from companies in return for doing favors for them. This point was demonstrated by the prosecution’s arrests of five incumbent and former FSS officials this month alone on charges of receiving illegal money.

One of the five was a high-ranking official of the Savings Bank Department, identified only by his surname Chung, who was arrested on Monday for taking 40 million won from Bohae Mutual Savings & Finance in Gwangju, one of the seven insolvent savings banks that were suspended in February.

Chung was dispatched to the Gwangju District Prosecutors’ Office in March to help prosecutors investigate the operations of the troubled savings bank. The bank’s management reportedly gave the money to Chung asking him for leniency.

To remake the FSS, Kwon also needs to make FSS officials more professional and disciplined. Their lack of professionalism and discipline was well illustrated by the illegal withdrawal of deposits by the executives and employees of Busan Savings Bank just before its suspension on Feb. 17. This illegal activity was carried out in the presence of FSS officials at the troubled bank.

Kwon also should instill in FSS regulators a sense of mission that they are responsible for the development of the financial industry. Without improving the quality of regulatory oversight, we cannot expect the industry to move ahead and gain competitiveness in the global market. Therefore incentives should be offered for officials to hone their regulatory expertise.

To regain public confidence in financial regulation and raise the regulatory standard, Korea also needs to consider reforming the governance of financial regulation. Currently the FSS has a monopoly on regulatory power. This power needs to be shared by other agencies to prevent FSS officials from abusing it.