Why Korea’s financial watchdogs want to stay in Seoul

South Korea wants to move another wave of public institutions out of the capital region. But unions representing financial regulators and policy bodies warn that decentralization could slow crisis response, weaken oversight and drive skilled employees out.

The dispute is intensifying as the government prepares the second phase of its decadeslong effort to spread jobs and economic activity beyond Seoul. A road map initially expected in September may now come in October or November, as the government conducts further consultations.

No final relocation list has been released. Yet financial institutions widely seen as potential targets are already mobilizing against the plan.

Nearly half of Korea’s population lives in Greater Seoul, encompassing the capital, Incheon and Gyeonggi Province. The region also dominates corporate headquarters, finance, universities and professional employment.

Successive governments have tried to ease that concentration by moving public agencies and state-backed companies to regional cities. The first campaign relocated 153 institutions to 10 “innovation cities,” largely between 2007 and 2019, at a cost of more than 9 trillion won ($6.5 billion).

The Lee Jae Myung administration says another round is needed to create regional jobs and to slow population decline.

This time, the government is considering moving groups of related institutions to the same region rather than dispersing them individually. Lee has said the first campaign lost much of its potential “concentration effect” because institutions were spread too widely and failed to connect with local industries.

Under the new approach, clusters of finance, energy or technology institutions could anchor specialized regional economies.

Potential candidates discussed by politicians and industry officials include the Financial Services Commission, Financial Supervisory Service, Korea Development Bank, Export-Import Bank of Korea, Industrial Bank of Korea and Korea Deposit Insurance Corp.

The FSC sets financial policy, while the FSS supervises banks, insurers and securities firms. KDIC protects depositors and manages failing financial institutions. KDB, Eximbank and IBK provide state-backed financing to industries, exporters and smaller companies.

The FSC and FSS have frequently been mentioned as candidates for relocation to Sejong, Korea’s administrative capital, although no decision has been made. Regional governments are also competing to attract policy banks and other financial bodies.

Their different legal statuses could complicate the process. The FSC is a government agency, while the FSS is a specially established supervisory organization rather than a conventional public corporation.

The FSS and KDIC unions held a joint news conference Monday in Seoul to demand exclusion from the relocation plan.

Their argument is that financial supervision depends on proximity. Most banks, insurers, securities firms, law firms, accounting firms and industry associations are concentrated in Seoul. Separating regulators from that ecosystem, the unions say, would increase travel, slow coordination and raise operating costs.

The risks could become more serious during financial turmoil, when regulators, central bankers, government officials and financial executives must exchange information and act quickly.

“Financial regulators, financial companies and state-backed financial institutions need to remain clustered in the capital,” said Chun Sun-eae, a professor at Chung-Ang University’s Graduate School of International Studies.

Major overseas regulators also remain close to their countries’ political or financial centers. The US Securities and Exchange Commission is based in Washington, Britain’s Financial Conduct Authority in London and Japan’s Financial Services Agency in Tokyo.

Relocation supporters argue that digital communication and high-speed transportation have reduced the importance of physical proximity. They also say public institutions could draw related companies and professionals into regional hubs.

The question is whether those businesses and workers would follow.

Employee surveys point to a substantial retention risk.

Among 1,538 FSS union members surveyed, 69.7 percent said they would actively consider changing jobs if the agency moved. The share reached 82.5 percent among employees under 40.

At KDIC, only 12 percent of employees with less than five years of service said they would stay after relocation. Among working-level employees classified as grade-five civil servants on a scale from one to nine, the figure was just 9.5 percent.

Many younger employees live in dual-income households, making relocation difficult if their spouses work in Seoul. Housing, education and medical services are additional concerns.

Financial bodies also employ accountants, lawyers, actuaries and other specialists who can move to higher-paying private-sector jobs in the capital.

The FSS is already losing personnel. Data submitted to opposition People Power Party Rep. Park Sung-hoon showed that 481 employees left between 2022 and July this year. Nearly 72 percent were senior or midlevel employees in grades one through three.

“The FSS faces a double burden: the revolving door involving senior and midlevel personnel on the outside, and the loss of younger supervisory staff on the inside,” Park said.

Unions argue that such departures would drain institutional knowledge accumulated through bank failures, market disruptions and investigations.

The first relocation campaign created public-sector employment outside Seoul and helped develop Sejong and several innovation cities. It did not, however, reverse the capital region’s dominance.

Greater Seoul overtook the rest of the country in regional gross domestic product in 2015, employment in 2017 and population in 2019.

The National Pension Service illustrates the talent challenge. Its fund management division moved to Jeonju, North Jeolla Province, in 2017 despite warnings that the distance from Seoul’s asset-management industry would hurt recruitment.

Departures rose from nine in 2014 and 10 in 2015 to 30 in 2016, as the move approached. Another 160 employees left between 2020 and 2025.

The case does not prove that every relocation will produce the same outcome. It does show that location matters when public institutions compete with private firms for specialized talent.

Experts say the government must move an ecosystem, not simply an address.

“Relocating a public institution alone is unlikely to create a sustainable regional growth hub,” said Seok Byoung-hoon, an economics professor at Ewha Womans University.

He said tax incentives, financing and preferential procurement could encourage related companies to relocate alongside public institutions. Regional housing, schools, hospitals and transportation would also have to improve enough for employees and their families to settle permanently.

Clustering connected institutions could generate stronger demand for local legal, accounting, technology and consulting services than moving one organization alone.

Finance, however, may be the hardest test. Regulators and policy banks rely on dense networks of companies, advisers, investors and policymakers.

The central question is not simply where Korea should place its financial institutions. It is whether the government can build viable ecosystems around them without weakening the institutions responsible for protecting the financial system.