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Nov 01, 2018
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Oct 29, 2018
- FSC Holds Meeting on Financial Market Conditions
- FSC Vice Chairman Kim Yongbeom convened a meeting with representatives of financial institutions this morning to examine financial market conditions and make sure that Korea’s economic and financial conditions are well prepared to deal with the recent market turmoil.SUMMARY OF VICE CHAIRMAN’S REMARKS:► KOREA’S ECONOMIC AND FINANCIAL CONDITIONSKorea’s economic fundamentals remain strong, despite recent downward revision of growth outlook and concerns on global economic conditions.From the macroeconomic perspective, Korea’s economic growth is expected to stay well above 2%. Its current account has recorded a straight 78-month surplus. It maintains sound fiscal balance with 2.3 % of GDP in fiscal surplus. Korea’s currency exchange and CDS premium are stable compared to those of major emerging markets.From the microeconomic perspective as well, Korea’s economic and financial indices have improved since the financial crisis of 2008. Banks’ short-term external debt ratio decreased, while BIS capital adequacy ratio increased. Banks have sufficient buffer against external shocks since they had turned net creditors in 2016.The self-assessment above is in line with evaluations by credit rating firms. Moody’s, SP and Fitch maintain good credit ratings with Korea, highly evaluating its external and fiscal soundness.► POLICY RESPONSESOverall, Korea has strong fundamentals to weather the recent turmoil in domestic and global financial markets. Given its characteristics of a small open economy, however, Korea may not be immune to the effects from external and internal uncertainties. In particular, readjustment of asset prices with monetary normalization in major economies may increase volatility in financial markets.Against this backdrop, the FSC will take measures to stabilize the stock market:First, the FSC will create a KRW500 billion fund with securities-related institutions to support the stock market. Out of the fund, KRW300 billion will come from ‘Ko
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Oct 18, 2018
- Debt Service Ratio(DSR) to be Introduced as Household Debt Management Standard
- BACKGROUNDKorea’s household debt growth has slowed down in recent years. It is unlikely that household debt would pose a systemic risk to the Korean economy in the near future; however, the government needs to stay alert from a longer-term perspective. The sheer size of household debt would continue to grow, and its growth pace still remains high. In the mid-to-long term, the government aims to keep household debt growth rate at a level close to nominal GDP growth rate. The FSC expects the introduction of debt service ratio (DSR) rules in conjunction with other lending standards will help reduce household indebtedness and curb rapid growth of household debt.DEBT SERVICE RATIO (DSR) RULESThe DSR was introduced on a trial basis first with banks last March and subsequently across the financial sector. Based on the test operation with banks for the past six months, DSR rules will be officially introduced as standards for banks to manage their household loans starting from October 31, 2018.Banks will be required to manage “high-risk” loans below a certain percentage of their total loans. To define high-risk loans, the FSC set two-tier DSR standards: loans with a DSR exceeding 70% will be considered as “risky”; and those with a DSR of 90% or above as “highly risky.” Currently, commercial banks are better positioned than local banks and specialized banks to cut back on the proportion of high DSR loans. Loans with a DSR exceeding 100% take up 14.3% of total loans in commercial banks, compared to 30.1% in local banks and 27.9% in specialized banks. The average of DSR is also different: 52% with commercial banks, 123% with local banks, and 128% with specialized banks. Considering the gaps in compliance burden, different levels of targets will apply:► Commercial banks will be required to manage the proportion of loans with a DSR exceeding 70% (hereinafter ‘risky loans’) below 15%; and those with a DSR exceeding 90% (hereinafter ‘highly risky loans’) bel
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Oct 17, 2018
- Enforcement Decree of the Special Act on the Establishment and Operation of Online-only Bank
- The FSC enacted the「Enforcement Decree of the Special Act on the Establishment and Operation of Online-only Bank」(hereinafter referred to as ‘enforcement decree’). The special bill, scheduled to take effect on January 17, 2019, raised a ceiling of shareholdings by non-financial companies in an online-only bank from 10% to 34%. As delegated by the special act, the enforcement decree is to specify non-financial companies qualified for an exception to the ownership cap of 10% in an online-only bank. The enforcement decree is open for public comments from October 17 to November 26.KEY PROVISIONS► Non-financial companies qualified for an exception to the ceiling of 10% on shareholdings in an online-only bankConglomerates subject to cross-shareholding restrictions under the「Monopoly Regulation and Fair Trade Act」are not allowed to own a stake in an online-only bank in excess of 10%. However, the enforcement decree allows an exception to the 10% cap for a conglomerate whose assets of ICT business accounting for 50% or more of assets of the group’s non-financial business.► Exception to restriction on credit granting to same borrowerThe special bill limits credit granting by an online-only bank to the “same borrowers” to 20% of its equity capital, stricter than the restriction of 25% under the Banking Act. The enforcement decree provides that exceptions are allowed when such exceptions are deemed important for the national economy or would not affect the bank’s soundness.► Exception to restriction on transaction with large shareholdersThe special bill basically prohibits online-only banks from extending credit to large shareholders and acquiring stocks issued by large shareholders. The enforcement decree allows exceptions when credit granting or acquisition of stocks, originally irrelevant with large shareholders, later became transaction with large shareholders through MAs, exercise of rights to collateral, or transfer of business.► Exception to
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Sep 14, 2018
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Sep 03, 2018
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Aug 07, 2018
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Jul 17, 2018
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Jul 12, 2018
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Jun 27, 2018
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Jun 27, 2018
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Jun 18, 2018
- Draft Bill Proposed for Introduction of Regulatory Framework for Financial Benchmarks
- BACKGROUNDThe FSC proposed a draft bill to introduce a regulatory framework to financial benchmarks. The new legislation was enacted in response to global regulatory moves in which major countries including the UK, EU, Australia and Japan adopted IOSCO’s Principles for Financial Benchmarks into their benchmark regulations. The extra-territorial effect of the EU Benchmark Regulation (BMR), which requires third party country administrators to be authorized by either one of the following three ways – endorsement, recognition or equivalence, prompted the need for Korea to introduce a corresponding regulatory regime in compliance with international standards. Domestically, there is a need as well for Korea to create a new regulatory regime for improving the accuracy and credibility of financial benchmarks and better protect financial consumers.Against this backdrop, the draft bill is intended to:• empower the FSC to designate financial benchmarks recognized as having a significant impact on financial markets as “significant benchmarks” to be subject to the new regulatory and supervisory framework;• stipulate conduct requirements for setting, publishing and using “significant benchmarks”; and• provide legal grounds for the FSC to impose corrective orders or penalties against any activities that could harm the accuracy and credibility of “significant benchmarks.”The proposal, open for public comments from June 18 until July 30, will be submitted to the National Assembly in September 2018.KEY PROVISIONS► Definition of a “financial benchmark”A financial benchmark is defined as a reference index used to determine the amount of payable to a counterparty of a financial contract or the value of a financial instrument; or an index used to calculate such amount or value.► Designation of a “significant benchmark”The new legislation is to empower the FSC to designate financial benchmarks recognized as having a significant impact on financial markets
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May 29, 2018
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May 23, 2018
- Plan to Facilitate the Use of Movable Assets as Collateral
- The FSC outlined its plan to make it easier for SMEs to borrow from banks, using their movable properties as collateral. On May 23, FSC Chairman Choi JongKu visited the Sihwa Industrial Complex, a cluster of SMEs in Gyunggi Province, to see a demonstration of how banks can utilize the Internet of Things (IoT) in tracking and monitoring movable assets offered as security – for example, factory machines. At a meeting with SME entrepreneurs on the site, Chairman Choi briefed on potential benefits of movables as collateral and FSC’s policy schemes to facilitate the use of movable assets as collateral.BENEFITS OF MOVABLE PROPERTIES AS COLLATERAL• Movable assets account for a large portion of SME’s assets so that they could serve as a useful funding source for start-ups and early-stage SMEs, which often lack immovable assets they can provide as collateral.• Movable assets grow along with the development of business, making it possible for start-ups and SMEs to use their movable property as collateral to get funds for growth capital.• A pool of movable assets, offered as a security, is less vulnerable to the volatility of business cycle and less likely to default in the event of an economic downturn.• Movable assets enable SMEs to borrow more loans at lower interest rates, compared to what they could have borrowed on credit.CURRENT PROBLEMS WITH MOVABLES AS COLLATERALDespite such benefits, movable assets have not been actively used as collateral. From a bank’s perspective, movable assets are considered to be a riskier security than immovable assets:• Movable property offered as security involves deprecation of value and difficulty of figuring out who is really entitled to the pledged asset.• They are also exposed to a risk of being damaged or lost, incurring extra expenses for monitoring and managing such collateral.• Markets in which movables offered as collateral can be traded are not sufficient enough to match supply and demand in such transaction,
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May 09, 2018
- Progress in Financial Reform and Policy Tasks Ahead
- FSC Chairman Choi JongKu held a press conference on May 9 to brief on progress the FSC has made in its financial reform initiatives and explain financial policy tasks ahead, on the occasion of the first anniversary of the Moon Jae-in administration.PROGRESS IN FINANCIAL REFORMIn line with the government’s policy agenda, the FSC pushed forward financial reform initiatives to achieve four major policy goals:• Enhancing trust of investors and consumers in the financial sector- The FSC outlined its plan to introduce a comprehensive supervisory framework for financial conglomerates, reflecting global supervisory principles intended to capture and manage a full spectrum of their group-wide risks.- The FSC proposed amendments to the Act on Corporate Governance of Financial Companies to address problems found in the actual practice of implementing corporate governance rules in financial companies.• Supporting the innovation-led growth of the Korean economy- A state-funded venture capital, Innovation Venture Fund, was launched in March, aiming to raise KRW 10 trillion of public and private capital over the next 3 years to finance innovative start-ups at each stage of their business cycle.- In April, the FSC completely banned the practice of requiring joint guarantee in public financial institutions, with which entrepreneurs had been burdened when making loans to start business.- Kosaq Venture Fund has attracted KRW 2.1 trillion since it was first launched in April to boost investment into Kosdaq-listed companies, as part of the FSC’s plan for vitalizing the Kosdaq market.• Expanding financial inclusion to better protect financial consumers- The FSC has written off KRW 33 trillion in long-overdue, small debt owed by financially marginalized borrowers to relieve their debt burden, helping them make a fresh start.- The FSC reduced the burden of financial cost for financial consumers by lowering statutory ceilings on interest rate, interest penalties on overdue loans a
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May 04, 2018
- Regulatory Reform on Entry Barriers to Financial Services Industry
- The FSC outlined its plan on regulatory reform on entry barriers to financial services business in a bid to promote competition and innovation in the financial sector. The proposal comes at a time when Korea’s financial industry is facing a paradigm shift that demands further innovation in response to the Fourth Industrial Revolution, prompting competition between incumbents and new entrants. It is the first-ever reform plan on entry barriers in 20 years since the current regulatory framework on market entry was established after the Asian financial crisis. Based on the review of the current regulations across the financial sector, the plan aims to overhaul entry requirements tailoring to the needs of each sector, encouraging innovative players to enter the market.Key Changes1. Expanding participation of private-sector expertsThe FSC will expand participation of private-sector experts in the decision-making process related to approval for new entrants. To this end, the FSC will create a 9-person committee of outside experts to evaluate competitive conditions in the financial sector on a regular basis, making it possible to make more objective and fair policy decisions.2. Lowering regulatory barriers to entryThe FSC will lower regulatory barriers to entry and reform entry-related regulations to allow ‘innovative challengers’ to enter the market.► Banking industryThe two internet-only banks, launched in 2017, are being considered to have brought positive changes to the banking sector as they has grown in size1 and promoted competition with incumbent banks. To deepen and broaden such changes, the FSC will consider allowing additional internet-only banks, if demand exists, based on reviews and evaluations of competitive conditions in the banking sector.► Insurance industryThe insurance industry is highly concentrated towards large insurers dealing with all types of life and property insurance. Such large insurers accounted for 99.5% of life insurance and 92% o
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Apr 04, 2018
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Mar 23, 2018
- Mandatory Disclosure of Corporate Governance to be Phased in from 2019
- The FSC and KRX plan to introduce mandatory disclosure of corporate governance into Kospi-listed companies with total asset value of more than KRW 2 trillion, starting from 2019, and phase it into all Kospi-listed companies over the next two years.BackgroundKorea introduced the “comply or explain” approach for corporate governance disclosure in March 2017, in which, on a voluntary basis, companies either comply with corporate governance principles, or explain publicly why if they do not comply.However, the voluntary disclosure has revealed some limitations including low participation of companies and poor quality of disclosed information, making it difficult to provide market participants with sufficient information about corporate governance such as a company’s decision-making structure and internal controls.Against this backdrop, the FSC came up with its plan to improve listed companies’ disclosure of corporate governance, based on discussions with relevant institutions including the KRX and the results of a survey conducted on listed companies.Key changes1. Mandatory disclosure of corporate governanceStarting from 2019, Kospi-listed companies with total asset value of more than KRW 2 trillion will be required to mandatorily disclose their corporate governance. The FSC considers expanding the mandatory disclosure to all Kospi-listed companies starting from 2021.※ The FSC is also considering introducing mandatory disclosure of corporate governance toKosdaq-listed companies. Details including the timing of introduction are left for further discussions.2. Guidelines on corporate governance disclosureTo improve the quality of disclosed information, guidelines will be provided to specify details of corporate governance principles that corporate governance reports must entail. That will enable investors to compare corporate governance information among listed companies and provide stakeholders with more useful information.※ The guidelines will be set out by
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Mar 15, 2018
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Feb 01, 2018
