Strengthen ethics code for regulators

Some retirees of the Board of Audit and Inspection (BAI) now work as auditors at 18 financial institutions, including banks and insurance firms. Their background and experiences they built at the state agency are certainly important assets that could enhance the professionalism in their new roles. But they cannot avoid criticism for fostering corrupt ties between the BAI and the financial sector.

Last year’s mutual savings bank crisis has provided more opportunities for ex-BAI officials to begin their new life with commercial banks and other financial companies. Until then, retirees of the Financial Supervisory Service (FSS) had taken up the auditor’s position at private entities.

Sixteen savings banks were suspended in 2011. Most of them employed former FSS officials who formed collusive ties with the supervisory agency. The failure of the banks was attributed to their managers’ wrongdoings such as illegal loans, embezzlement and accounting fraud. They bribed regulators, bureaucrats and politicians into overlooking their irregularities.

Against this backdrop, FSS retirees have refrained from getting positions at financial firms. Then, BAI retirees have begun to fill the vacuum, raising public concern that they may emerge as a new source of corruption.

The collusive relationship has long been described as symbiosis as it is beneficial for both regulators and financial companies. It is easy to deal with the problem of superfluous manpower by letting officials retire before they reach retirement age. There is no need to worry about finding jobs for those retirees who can get jobs at lenders and other financial firms. In return, these companies can enjoy business favors and avoid stringent inspections or penalties.

As seen in the case of the failed community banks, the corrupt ties have virtually caught regulators off guard. If the FSS had kept a strong system of prudent regulations, it could have prevented the collapse of the banks. In a word, the so-called symbiosis was the No. 1 enemy of the sound development of the banking industry.

To the dismay of the public, regulators, auditors and bankers have all forgotten a painful lesson the nation learned from the 1997-98 Asian financial crisis. One of the embedded causes of the calamity was the incestuous relationship among bureaucrats, politicians, bankers and entrepreneurs.

What’s more worrisome is that more and more retirees of the Fair Trade Commission (FTC) are rushing to become outside directors of firms affiliated with family-controlled conglomerates. It is not desirable for them to work to protect interests of industries with little regard for fair competition.

It’s time to strengthen the ethics code for retired regulators in order to prevent them from developing collusive ties with bankers and entrepreneurs. It is also imperative to create an environment under which anyone can do business without having any connection to the FSS, the BAI and the FTC.