South Korea Moves to Give FSS Direct Investigative Powers Over Illegal Lending
South Korea is moving to expand the Financial Supervisory Service’s role in combating illegal private lending and unlawful debt collection, with lawmakers considering a special judicial police unit focused on financial crimes affecting consumers.
The proposal would give designated FSS officials authority to directly investigate certain crimes involving lending businesses and debt collection. If legislation is passed within 2026, those powers could become available as early as next year.
Democratic Party lawmaker Kwon Chil-seung introduced legislation last week to establish the new “special judicial police for people’s livelihoods.” Financial authorities and the Ministry of Justice are preparing for legislative review, including discussions about how the unit would operate and how responsibilities would be divided among existing investigative agencies.
Moving From Supervision to Direct Investigation
The FSS already has authority to inspect and sanction lenders and debt collection companies. Its ability to pursue criminal conduct directly, however, is limited when potentially illegal activity is uncovered during supervisory work.
The proposed structure is intended to narrow that gap. Designated investigators would be able to move more quickly from identifying signs of illegal lending or collection activity to conducting a formal investigation within their authorized scope.
That could be particularly important in cases involving illegal private lenders and abusive collection practices, where delays may allow financial harm or harassment to continue. The proposal is being positioned as a way to connect supervisory findings with criminal investigations more efficiently, particularly when vulnerable consumers are involved.
Criminal Justice Reform Is Reshaping the Structure
The proposal comes as South Korea prepares for broader changes to its criminal justice system.
On September 4, the Financial Services Commission issued an administrative notice proposing revisions to the rules governing capital markets special judicial police. The changes reflect reforms scheduled to take effect on October 2, 2026, including the abolition of prosecutorial investigative direction over special judicial police and the introduction of a new cooperation and guidance framework.
Under the proposed revisions, certain references to prosecutors and prosecutorial direction would be replaced with procedures involving the Serious Crimes Investigation Agency. The FSC said the changes are intended to prevent disruption to capital markets investigations as the new system takes effect.
The FSS already uses special judicial police authority in areas such as unfair trading investigations. A livelihood-focused unit would extend that investigative model into illegal private lending and debt collection, potentially expanding the scope of financial enforcement.
Korea Broadens Its Crackdown on Illegal Private Finance
The proposed authority is part of a wider effort by South Korean regulators to strengthen protections against illegal private finance.
In July, the FSC proposed lending-rule changes aimed at closing loopholes in small-loan transactions and speeding up the suspension of phone numbers linked to illegal lending, collection activity, and advertising. The changes would allow local police agencies to request phone-number suspensions directly rather than routing every request through national police leadership.
Authorities also expanded a one-stop support system for victims of illegal private lending at the end of August. Through the FSS website, consumers can request several forms of assistance through one report, including help stopping illegal collection activity, obtaining debtor representation, requesting phone-number suspension, and seeking an investigation referral.
Together, the measures point to closer coordination between financial supervision, victim support, and criminal enforcement.
What Happens Next
The immediate question is whether lawmakers approve the special police legislation this year. Authorities are expected to provide more detail during the review process, including staffing, investigative procedures, and boundaries between the FSS and other enforcement bodies.
If enacted, the change could shorten the path between detecting suspected misconduct and launching an investigation.
For the financial sector, the proposal signals that oversight of lending and debt collection may become more closely connected to criminal enforcement. For consumers, the practical impact could be a faster path from reporting harmful conduct to authorities having the tools to act on it.
