• 03 / 17 / 2015
  • Key Policy Direction for Financial Reform

  • Key Policy Direction for Financial Regulatory Reform
    March 17, 2015
    FSC Chairman Yim Jong-yong
    It was exactly one month ago that I was nominated FSC Chairman.
    Past one month has been hard and rough.
    Maybe that's why I am even more delighted to meet you today.
    The first reason I stand here today is to brief you about
    what I will focus on during my term.
    Second reason, since it is inconvenient both for you and I to arrange interviews separately,
    I thought it would be better to speak in front of you all at once
    about my thoughts and topics that you might be interested in.
    First of all, as I already said in my inauguration speech, my top priority is financial reform.
    I have put my thoughts together about how I should reform the financial sector.
    I discussed my ideas with the executives of the FSC and I will brief you about the results right now.
    I will be happy to answer any questions afterwards.
    Please refer to the handouts.
    I will skip the explanation on why we need financial reform.
    Main topics I plan to touch upon are policy direction, tasks, and detailed plans for financial reform.
    Government officials love numbers. That’s why we selected 3 missions, 6 goals, and 18 tasks.
    Detailed tasks will be complemented and improved after gathering wide range of opinions
    raised from the financial industry and through discussions within the FSC.
    Basically, we have 6 major visions.
    First, financial authorities have to change.
    In other words, financial supervisory practices must be reformed.
    Second, financial firms should take more responsibilities for their actions.
    Third, role of technology finance
    and fourth, capital markets must be strengthened to support growth of the real economy.
    Fifth, we will foster Fintech industry to strengthen competitiveness of the financial sector.
    Lastly, we must overhaul the financial regulatory framework.
    18 detailed tasks were selected for each of the six visions.
    Financial reform will be carried out according to the 18 tasks
    and the detail will be continuously updated and improved.
    Our each and every effort will be focused on the financial markets.
    However, it is not easy to set specific target since approaches
    and policy measures should differ according to the goal.
    Therefore, we will set the goal after benchmarking the cases of the advanced economies.
    Moreover, we will take full consideration of domestic financial firms’ capabilities as well.
    We will set our ultimate goal based on the results.
    Despite the foresaid efforts, not everyone in the financial industry can be satisfied.
    That’s why we will continuously survey and evaluate our efforts, and make additional improvements.
    These are the basic approaches we will take.
    Moving on, I will brief you about the 18 detailed tasks.
    First and foremost, in order to make financial firms to act more responsibly,
    financial regulators must change first.
    As I repeated over and over, financial regulators will act not as a ‘coach’ who directs every move
    but as a ‘referee’ who ensures that all rules and regulations of the game are correctly followed.
    To do so, we will improve supervisory practices and disciplinary actions
    by benchmarking the cases of the advanced economies.
    To be more precise, we will ban collecting and gathering of statements made by individual employees.
    It has been announced several times that inspections will be made not to impose sanctions
    but rather to give advice to improve business operation.
    Punitive actions will be targeted to financial institutions rather than individuals.
    Moreover, restricting sanctioned financial firms too much from expanding into new business will be abolished.
    For example, banning a financial firm which was issued 3 institutional warnings from expanding into new business
    might be an effective punitive measure, however, it also can hurt growth of the company.
    So, we will no longer ban financial institutions from launching new businesses as a punitive means.
    Market autonomy will be promoted.
    More autonomy will be granted to financial firms when appropriating fees, deciding interest rates, and giving out dividends.
    Special teams will be formed and operated to check the process of financial reform.
    I am thinking about four teams comprised of FSC and FSS employees.
    They will keep on visiting financial firms and checking on the process all year around.
    Red tapes, unnecessary practices, and hardships found out by those teams
    will be reflected on our efforts for financial reform.
    Based on my experiences, there are many cases that financial companies are not sure
    what they are trying to do is allowed or banned by regulations.
    And they don’t know for sure what kind of regulations exist.
    So, they merely think that there are too many regulations blocking them from doing business.
    Therefore, a solution is to adopt 'no action letter' system which is commonly used in advanced countries.
    We will provide clear answers to the questions financial firms have on whether their actions are for or against regulations.
    We will reduce the unnecessary compliance cost for them.
    That’s what the special teams will be doing by visiting financial firms.
    Next, we will give more autonomy to financial companies.
    I believe that there are two things that are important when establishing a new culture in the financial sector.
    First, financial supervisory regulator’s attitude.
    Supervisory regulator’s attitude poses great impact when establishing a financial firm’s culture.
    Second, Key Performance Indicators(KPI) of financial companies which is an indicator evaluating employee’s performances.
    I think these are the two key factors creating culture for financial firms.
    In order to give more autonomy and encourage more enterprising culture to financial companies,
    financial supervisory regulator’s attitude must change,
    and financial institutions themselves must put behind their old practices.
    In that way, we will create an environment where employees with creative ideas are valued.
    Consumer protection issue is what I want to mention next.
    There have been voices from the press and markets concerning about consumer protection.
    Consumer protection bill has been submitted to the National Assembly and is being discussed actively.
    We will put more efforts for the bill to be passed by the assembly in the nearest future.
    In the meanwhile, we will establish an organization for consumer protection within the FSS if it is necessary.
    Moving on, we will strengthen the financial industry’s role to better support the real economy.
    We will expand technology finance.
    Technology finance has been an excellent tool that made banks to break out from their conservative lending business.
    It is a brilliant policy set forth by the former Chairman Shin. I will be happy to take the baton.
    We will keep expanding technology finance.
    However, there have been disputes and skepticisms over the effectiveness of tech finance
    and actual benefits to technology start-ups.
    To such backdrop, we will carry out an extensive survey on the actual condition.
    We will find out how much tech firms are benefited by the last year’s 8trillion won worth financial support.
    We will check what problems there were in the loan procedure.
    Such efforts will bring about a meaningful qualitative improvement of tech finance.
    In particular, roles of policy banks will be strengthened
    so that more policy finance channels into high-risk start-ups and tech firms.
    Moreover, tech finance is a very effective means for investment.
    In other words, we will expand both bank lending and investment in tech firms.
    Fortunately, numerous funds are being created.
    We will look into ways how to facilitate those funds
    and effectively finance tech firms which are not qualified for bank loans.
    It is important to make such system permanent.
    There are voices doubting sustainability of tech finance.
    Tech finance scheme must be sustained. It must firmly take root as a permanent financial system.
    Expanding incentives of tech finance is necessary
    but what’s more important is to make banks capable of giving out tech loans.
    They must be capable enough to evaluate and assess technology by themselves.
    Therefore, we will focus on making banks capable enough to give out tech loans without the help from TCBs.
    Next, the FSC will strengthen the role of capital markets.
    I have spent longest period of my career in the securities field.
    3 years as director of securities division and fewer years than that in financial policy bureau.
    My main interests are in the capital markets.
    How to facilitate the role of our capital markets,
    and how to strengthen it will determine the future of our financial sector.
    So, making a financial system centered by capital markets will be our mid to long term goal
    and we will try to improve related systems.
    We will improve the KRX system to stimulate healthy competition among KOSPI, KOSDAQ, and KONEX for further development.
    I believe PEF can do a critical role.
    Therefore, we will greatly improve regulations on establishment, operation, and sale of PEFs
    to the level of the advanced economies.
    I also think it is necessary to reduce restrictions to venture capital investment
    which is one of the key pillars of tech finance.
    Incentives should be strengthened as well.
    Moreover, we will vitalize M&As in order to give second chance to venture and start-up companies.
    We need to facilitate tech finance centered by banks while seeking for other means to finance SMEs
    and venture companies through capital markets.
    If we look into a wider picture, total volume of Korea’s financial asset is about 3600 trillion won.
    1/3 of the total is pension and fund assets.
    In other words, 1/3 of Korea’s total asset is held by pension funds.
    How the financial industry effectively operates such assets is very critical for the development of pension funds
    and also for strengthening competitiveness of our financial companies.
    1/3 of our efforts should be made in such efforts.
    Therefore, we will enable financial firms to participate in the operation of pension funds.
    However, we cannot achieve it by our own.
    That’s why we will closely coordinate with the MOSF and other relevant organizations.
    Our ultimate goal of reforming the financial sector is not confined to just improving financial systems.
    Making the improved system to harmoniously coexist with the surrounding environments is more important.
    To such backdrop, we will seek ways to achieve shared growth between the pension funds and financial firms.
    Next thing I will mention is strengthening the financial industry’s competitiveness.
    I guess you have already heard of it countless times.
    We will make sure that the action plans are being implemented according to the pre-arranged action plan.
    One thing I want to tell you is that financial companies do not actually have enough knowledge about technology and Fintech.
    On the other side, Fintech companies do not know how to apply their technology with finance..
    And the government does not know what’s going on between the financial and IT industries,
    so it is not yet fully aware of what regulations to ease to foster Fintech industry.
    To solve the problem, the three parties should meet and talk. They should discuss and cooperate.
    This is really important for the development of Fintech industry.
    We will a create private-public body.
    The government will improve outdated regulations,
    Fintech companies will actively look for business opportunities,
    and financial firms will find ways to provide better financial services.
    Model for internet-only bank will be adopted by the end of June.
    Ways to utilize big data will be prepared as well.
    However, at the very bottom of all such efforts lies security.
    Without strong data security, Fintech industry cannot exist.
    Even if it does, it can’t develop further.
    Security is the most important element for Fintech industry.
    To this end, we will launch Financial Security Agency within April.
    It was delayed a bit for several reasons but we will aim to establish it as soon as possible.
    Next, regulations.
    Basic approach is to improve regulations in a way that promotes autonomy and competition.
    We will categorize every single financial regulation.
    Then, we will fine tune and reinforce regulations related to market order and consumer protection.
    But regulations related to business operation and excessive prudential regulations will be eased and revised.
    During 2015 Financial Forum, I emphasized the need to greatly ease prudential regulations.
    Then, people said, “Global trend is to strengthen it. We shouldn’t be the only one going the opposite direction.”
    Here’s what I think.
    There are many prudential regulations being enforced for the purpose of managing soundness of financial firms
    that are not actually related to prudential measures at all.
    Some of the prudential regulations are excessive.
    For instance, domestic prudential regulations set certain level of NPL ratio
    and require financial firms to meet the ratio until certain period of time.
    If I’m correct, the ratio is 1.5%.
    Indeed, it is impossible for banks to earn profits without getting rid of bad debts.
    Banks are very well aware of such fact and they are putting a lot of efforts to do so.
    However, setting a ratio and forcing them to meet the ratio causes problems.
    When I was in the private sector, I have witnessed banks recklessly selling insolvent debts
    or expanding credit to enlarge the denominator in order to meet the NPL ratio.
    I guess we should leave the prudential issues to the financial firms now.
    I will repair such regulations.
    There are many prudential measures globally.
    One of them is the Basel requirements.
    If financial firms comply with such international requirements,
    most of the prudential issues will be resolved even if we do not improve extra regulations.
    I believe international prudential regulations are enough.
    However, I do not think all prudential regulations should be eased.
    There must be some that needs to be enforced.
    Areas covered by international regulations do not need additional regulations.
    In other words, regulations will be applied differently according to each business.
    I have clear direction for prudential regulation, so no need to be concerned too much.
    The FSS is our competent partner and companion.
    Ensuring that the FSS and FSC harmonize and fulfill duties together is very important
    if we are to achieve financial reform.
    As I mentioned, what makes a financial company’s culture are the financial regulators' attitude
    and employee evaluation system.
    I believe the FSC and FSS should work together as one.
    I will do my role for that.
    Currently, financial firms have to be concerned of both the FSC and FSS. It mustn’t be the case.
    The FSC and FSS making two different voices is unacceptable.
    So, we will clarify roles and responsibilities of the FSC and FSS and make them concentrate on what they are good at.
    It will reduce financial firms’ burdens.
    I am determined to do so because of my experiences in the private sector.
    That is why I chose the FSS as the first venue for visit after I took office.
    I asked the FSS for cooperation and urged to support my vision of reforming the financial industry.
    We will ease entry barriers for financial businesses.
    Interrelationship among banking, insurance, and securities businesses is getting closer and closer as time passes.
    For that reason, I have been paying keen attention to integrating offices
    or physical distinguishment of different financial businesses into a single space.
    Moreover, I put a lot of efforts to actually establish the integrated financial services offices.
    The FSC will vitalize them.
    Why? Because financial customers want them.
    Whenever time allowed, I visited the integrated offices to see the reactions of customers and actual working processes.
    They said it’s convenient.
    They said they were satisfied with the new services.
    More of these offices will be created.
    I will lower barriers between financial businesses.
    The financial sector must change according to customer’s needs.
    Moreover, I will support development of new financial products.
    Financial consumers are having difficulties to find profitable investment products due to low-rate and aging society.
    What the government can do to help such people is providing more tax incentives to encourage investment and deposit.
    We will improve the financial tax system so that more diverse financial products pour out into the market.
    The FSC will closely coordinate with the MOSF for the tax issue.
    Financial reform involves changing and improving the environment that surrounds the financial industry.
    So, improving tax system will be further discussed with the relevant organizations.
    We will encourage active overseas expansion of business.
    We will strengthen financial cooperative relations with other countries.
    More diplomatic efforts will be made.
    The FSC will revise regulations related to financial firms’ expanding business overseas.
    The MOSF will amend regulations involving foreign exchange business.
    We will realize each target through close cooperation with other government bodies.
    I guess this is almost all I wanted to tell you about what I should do as FSC chairman.
    There might be some of you thinking that my policy visions are not different with those of former Chairman Shin.
    I think Mr. Shin did a wonderful job.
    Despite hardships due to several financial accidents,
    he did an extraordinary job of setting and implementing policy agendas.
    I will take over his policy agendas.
    And I will put some more flesh on them.
    Early this year, I had a personal meeting with Mr. Shin.
    We shared our thoughts on financial policy.
    In particular, we had active discussion on the issues related to capital markets.
    Mr. Shin would have made further development of the capital markets if he were still here.
    We were both very interested in how to facilitate venture capital and strengthen the role of our capital markets.
    I will inherit his ideas and develop them further.
    In other words, my duty is finding out what I can do to accomplish the existing tasks rather than seeking for new ones.
    And what I have been trying to tell you are the things I will be committed in doing from now on,
    and it is too early yet to talk about results.
    I will have more time with you to discuss policy results as often as possible.
    Let me explain strategies to push forward financial reform.
    First, set our goal and follow a model case.
    To this end, we will study exemplary cases abroad.
    Second, focus on what financial businesses and consumers really need by listening to suggestions and ideas
    from a broad range of market participants.
    In addition to financial policy task, relevant issues will be also discussed with other ministries.
    We will set up three groups for financial reform.
    First, a deliberative body for financial reform will be created.
    The existing Financial Innovation Committee will be expanded to become a Financial Reform Committee.
    The new committee will be composed of experts from the economic, commerce, IT
    and financial sectors to collect broader opinions.
    Second, an executive body will be set up to push ahead financial reform
    To make easier for relevant ministries work together.
    I will chair the executive body.
    I will take responsibilities.
    High ranking government officials from relevant ministries and FSS Senior Deputy Governor will get together
    to discuss and enforce policy tasks.
    Policy tasks that require relevant ministries to work together will be brought to
    the ministerial meeting of economic ministries to be discussed.
    To help the executive body’s works, a consultative group will be created.
    The consultative group will be composed of 20 to 30 experts from academia, think tank
    and financial institutions to study model cases in advanced countries and make policy proposals.
    Third, the FSC and FSS will set up a taskforce to push ahead financial reform.
    The FSC will establish a bureau in charge of financial reform,
    and the FSS will also set up a financial reform task force.
    The inspection team will act as a window for financial reform.
    They will find problems to fix and listen to the voices of financial market players.
    Next, let me explain the way we push forward financial reform. .
    As I said before, focus on what financial businesses and consumers demand, learn from advanced models,
    and strengthen evaluation afterwards to make sure policy achievements felt through market participants.
    Let me give you more details about our approach focused on real demand of financial businesses and consumers.
    I will make an on-site visit once a week.
    I will visit banks, tech firms, start-ups, companies and markets.
    I will meet financial market players and consumers to listen to their thoughts and suggestions.
    I will hold a weekly breakfast meeting every Friday.
    I will invite financial market participants and experts to listen to their opinions about financial policy issues.
    On-site visit and weekly meeting will be continued throughout my term.
    What I first asked executive officials as the FSC Chairman was
    "go outside and meet financial consumers and those working in financial businesses."
    FSC executive officials will make on-site visits once a week.
    We will discuss issues raised from such meetings at the executives’ weekly meeting every Monday morning.
    I will also resume a series of seminars on key financial issues that a former Chairman Shin initiated.
    We will discuss all topics to find tasks for financial reform.
    As I mentioned before, the other two tasks to study exemplary cases
    and make more tangible outcomes will be pushed ahead in a speedy manner.
    More concrete and tangible results will be made.
    It would be better if we could talk about more tangible achievements.
    We still have a long way to go.
    As I took office yesterday, I would like to outline a key policy direction during my term.
    We will move on based on a road map.
    We will brief you regularly on progress.
    By the end of April, we will come up with the road map for financial reform.
    We will provide timely information on each policy task’s progress.
    Thank you for your time.

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