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Apr 18, 2014
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Apr 09, 2014
- FSC Plans to Overhaul NCR Rules for Securities Companies
- BACKGROUNDThe net capital ratio (NCR) has been serving as a key index to assess financial soundness of securities firms since it was first introduced in April 1997. The NCR has been widely used as standards for financial authorities to take prompt corrective actions, grant membership of KRX, or evaluate primary dealers.However, it has been pointed out that the current NCR rules no longer reflect changes in securities market and business model. The current NCR rules, mainly focused on regulating brokerage business in domestic market, restrict security firms from engaging in investment banking business or expanding into overseas markets. With the current method of computing NCR, it is difficult to exactly evaluate securities firms’ financial soundness or loss absorbing capacity.Against this backdrop, the FS C plans to overhaul net capital ratio (NCR) rules for securities companies, as part of its effort s to revitalize the country’s capital markets.KEY CONTENTS1. Modification to the NCR formulaCurrently, the NCR is calculated as a percentage of net operating capital to gross risks. Net Capital Ratio (%) = (net operating capital/grossrisks) × 100 Under the current formula, however, securities firms are forced to hold unnecessarily excessive capital. Securities companies are needed to secure an additional amount of net operating capital, bigger than the increased amount of risks, to maintain the same level of NCR. The current NCR makes investors difficult to figure out amounts of net equity capital of securities firms, leading the m to the misperception that higher NCR means the better financial soundness.The FSC plans to modify the NCR formula as follows: (net operating capital – gross risks)/ sum of equity capital required to maintain each business unit’s licenseThresholds for corrective actions will be adjusted to corresponding to the modification to the NCR formula.Securities companies will be allowed to choose which formula they would use until the end of
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Apr 08, 2014
- Enforcement Decree of the Covered Bond Act Approved at Cabinet Meeting
- The Enforcement Decree of the Covered Bond Act was approved by the Cabinet today to come into force starting from April 15, 2014. The Enforcement Decree is to stipulate details mandated by the Covered Bond Act such as qualifications for cover assets, evaluation basis and issuance cap.KEY CONTENTS OF THE COV ERED BOND ACT AND ENFORCEMENT DECREE1. Eligible issuersFinancial institutions are required to meet both institutional and eligibility requirements to issue covered bonds.- (institutional requirement) banks, Korea Housing Finance Corporation, Korea Finance Corporation, and other equivalent institutions designated by Enforcement Decree- (eligibility requirement) a financial institution with equity capital of more than KRW 100 billion, a BIS ratio of more than 10%, and risk management system2. Cover PoolThe minimum ratio of collateralization is 105%. Underlying assets in a cover pool need to be evaluated by market prices if there are credible market prices as a reference price. In the absence of market prices, the assets can be evaluated by book value or acquisition prices.- (underlying assets) home mortgage loans, public bonds, ship and aircraft mortgages, high-quality assets with a stable cash flow- (liquid assets) cash, CDs, liquid assets converted into cash within three months- (other assets) recovery from underlying assets, gains earned through management, operation and sales of assets3. Issuance CapCovered bond issuance is limited to 4% of the issuer’s total assets.* Please refer tothe attached PDF for details.
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Apr 03, 2014
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Mar 28, 2014
- One-Year Achievements of the Happiness Fund
- KEY ACHIEVEMENTSAs of March 2014, the Happiness Fund has supported debt restructuring of 249,000 debtors, out of a total of 294,000 applicants since its launch on March 29, 2013. For the last one year, the Happiness Fund has reached out to 294,000 debtors, 3.8 times more than the initially targeted number of 65,000 a year.Out of the 249,000 debtors, the Happiness Fund purchased debts of 168,000 borrowers from financial institutions since its launch. Debts of the remaining 81,000 were taken over from public asset management companies (AMCs).The 168,000 debtors were written off 51.8% of their debts, KRW0.9 trillion out of a total of KRW1.8 trillion (principal only), which is equivalent to write-offs of KRW5.73 million per person.The Happiness Fund helped those in debt restructuring program find jobs so that they could repay their debts on their own.From April 1 last year to March 24 this year, a total of 48,000 borrowers switch their high-interest loans to lower-interest ones with 10% or higher, which lowered their burden of interest payments by KRW 8.93 million.FUTURE PLANThe Happiness Fund plans to purchase student loans with the passage of the Korea Student Aid Foundation (KOSAF) Act, now pending in the National Assembly.The FSC will also make effort to launch an integrated system as soon as possible to manage and coordinate microfinance programs.* Pleaserefer tothe attachedPDF for details.
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Mar 11, 2014
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Feb 27, 2014
- Measures to Improve Structural Soundness of Household Debt
- BACKGROUNDAs of the end of 2013, Korea’s household debt amounted to KRW 1,021 trillion. The government has been taking a series of measures so far to improve the quality of household loan and to rein in the pace of household debt growth. As a result, the government significantly lowered a possibility that household debt issue might be worsened into a systemic risk.Morgan Stanley(Oct. 2013) evaluated that Korea’s household debt risk is manageable, citing grounds such as financially stable structure of household assets and mortgage rules on loan-to-value(LTV) and debt-to-income(DTI) ratios. The IMF stress test result (Jan. 2014) also shows Korea’s household debt has a low possibility to pose a systemic risk in the event of economic shock.Despite such achievement, the household debt issue still exposes vulnerability in some parts. The share of floating-rate and interest-only mortgages remains high. Low-income households’ ability to repay debt deteriorated.The FSC and relevant ministries jointly announced today a package of measures to improve the structural soundness of household debt, as part of the government’s follow-up measures to push forward the three-year plan for the next phase of Korea’s economic growth.KEY CONTENTS1. The government will set the ratio of households’ debt to income as a key target indicator in managing household debt and lower the ratio by 5%p until the end of 2017.2. The government will set new targets for banks to increase the proportion of fixed-rate and amortizing loans out of total mortgages, up to 40% by the end of 2017.3. The government will prompt banks to offer a variety of loans tailored to consumers’ debt repayment ability such as loans with a cap on floating rates or loans amortized over a mid-term maturity, for example, 5 to 10 years.4. Borrowers with fixed-rate and amortizing loans will be granted a bigger tax exemption up to KRW 18 million, up from the current ceiling of KRW 15 million. For loans with a long-term
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Feb 20, 2014
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Feb 04, 2014
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Jan 29, 2014
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Jan 24, 2014
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Jan 22, 2014
- Measures to Prevent a Recurrence of Personal Data Breach
- The FSC and relevant ministries1announced a set of preventive measures to protect financial consumers from personal data breach. The measures are focused on alleviating people’s concerns and inconvenience caused by the recent data leaks; punishing those responsible for the incident; and preventing a recurrence of data theft.BACKGROUNDProsecutors announced (Jan.8 /Jan.19/Jan.21) that about 100 million credit card account details were leaked from Kookmin Card, Nonghyup Card and Lotte Card2 by a contractor with the personal credit rating company Korea Credit Bureau (KCB) over the course of a year beginning in December 2012. The contractor and the alleged buyers of the information were arrested; and the original files and USB of the stolen data were confiscated with no sign of further circulation.The FSS received the data from prosecutors (Jan.10) and found that about 85 million accounts were compromised in total, excluding the number of cards held by the deceased, companies or merchants, although overlaps in multiple cardholders were included.The stolen data includes basic personal data such as names, resident registration numbers, addresses, mobile phone numbers and company names, as well as financial information such as credit card numbers, account numbers, expiry dates and annual income. However, no passwords or CVC codes3 had been stolen.MEASURES TO EASE CONCERNS AND INCONVENIENCE FROM THE INCIDENTThe three credit companies said that there had been no financial damage reported so far related to the breach. The FSS found that sensitive information such as credit card passwords or CVC codes was not included in the stolen data. Credit card companies will cover any financial damage incurred by fraudulent transactions.They will provide a service for free that sends text message notifications for each card transaction to mobile phones. KCB will provide a privacy protection service for one year to anyone who asks for it.Regulators will consider additional identity valid
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Jan 20, 2014
- TF Formed to Respond to Personal Information Leaks
- The FSC formed a task force (T/F) to respond to the recent leakage of personal information on credit card holders and held its first meeting on January 17 to discuss how to prevent consequences of the incident from spreading and seek for fundamental measures to prevent a repeat of such an incident.BACKGROUNDProsecutors announced on January 8 that personal information of credit card holders were leaked by an employee of an outsourcing company of three credit card companies.The stolen data does not include credit cards’ pass word or CVC code; therefore, it is very unlikely that the leaked information might be misused for financial frau d. Prosecutors also judged that there was no further leakage of the stolen data as they arrested those who had stolen the information and first distributed. There has been no case yet reported as direct damage of the incident.MAJOR CONTENTS OF DISCUSSION1. Measures to prevent further leaks and remedies for those affectedThe card companies will identify details as soon as possible about how and when personal information was leaked and will inform affected customers via SMS, phone, e-mail, and respective financial company’s website.To prevent further damages, the three credit card companies will issue new credit cards to the victims upon request, provide free credit card payment notification SMS service(temporary service), and ban other financial companies subordinated to their mother group from using customers’ private information when promoting their products.Moreover, the responsible credit card firms will operate 24-hour call center, damage control team, and hot line with the FS S to immediately respond to further damages. Respective credit card companies will provide financial reimbursements to the victims of further damage.The FSS is verifying the details of the accident based on information received from the prosecutors. Damages from the data leak will be responded and normalized in a swift manner. The FSS will respond to the
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Jan 17, 2014
- Plan to Improve Security of Derivatives Transactions
- The FSC, the FSS, the KRX, and the KoFIA jointly announced a plan to improve security of derivatives transactions in a bid to prevent accidents of huge losses caused by erroneous orders as well as to reduce settlement risks and excessive price fluctuation in derivatives trading.BACKGROUNDAlgorithmic trading through direct market access (DMAs) has been increasing in Korea’s derivatives market. For KOSPI 200 options trading, for example, algorithm ic trading accounts for about 40%. However, there is a potential risk in algorithmic trading that huge losses could be incurred by erroneous orders due to system errors as witnessed in a recent incident of Hanmag Securities.Huge losses consequent on erroneous orders could undermine derivatives markets’ stability as well as securities firms’ soundness. The FSC and relevant agencies came up with a plan to improve security of derivatives transaction, while ensuring such measures would not curt ail derivatives trading.KEY CONTENTS1. Strengthen securities firms’ internal controlThe FSC will encourage securities firms to voluntarily reinforce their internal control standards to prevent excessive orders that exceed limit bid or limit offer. The FSS and the KRX will also strengthen their oversight on such trading.2. Introduce price banding limitsCurrent safety mechanisms such as price limits and circuit breakers (CBs) exposed limitations in responding to excessive price fluctuations. To such backdrop, the FSC plans to introduce price banding limits on futures and options trading. Upon implementation, investors will only be allowed to place orders of futures and options transaction within a certain range of the latest trade price during market hours.3. Improve remedies for erroneous ordersCurrently, derivatives price could only be corrected when the two respective parties of the transaction reach to an agreement. However, the KRX will be given direct authority to cancel orders if such transaction is deemed to pose threats to
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Dec 16, 2013
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Nov 27, 2013
- Plan to Strengthen Competitiveness of Korea's Financial Industry
- The FSC announced its ‘Plan to Strengthen Competitiveness of Korea’s Financial Industry’ or the so-called ‘10-10 Value-Up Plan’ aimed at raising the added value that the financial industry generates up to 10% of the GDP over the next 10 years.BACKGROUNDThe financial industry greatly contributed to Korea’s rapid economic growth. Since the global financial crisis in 2008, however, Korea’s financial industry has lost its growth momentum and vitality. Moreover, repeated security incidents and fraud scandals in the financial sector significantly undermined financial consumers’ confidence in the industry.At the same time, the financial industry faces new challenges as Korea’s economy is shifting to slower growth, searching for a new growth model based on innovative technology and creative ideas. The population is also rapidly aging. Faced with such paradigm-shifting changes, it is time for both the government and the financial industry to seek new growth drivers.The FSC proposed the ‘10-10 value-up’ as a vision for Korea’s financial industry for the first time when Chairman Shin Je-Yoon met CEOs of financial holding companies in May this year. For the last six months since then, the FSC held 68 meetings with those in the financial industry to gather their opinions.Based on such a bottom-up approach, the FSC drew up the ’10-10 value-up’ plan focused on its feasibility. As a rolling plan, the ‘10-10 value-up plan’ will continue to be reviewed and updated on a regular basis in order to respond to market developments in a timely and flexible manner. OVERVIEWThe ‘10-10 value-up’ plan is to provide a blueprint for the financial industry’s development. The financial industry will be developed into a high value-added service sector as a new growth driver and generate decent jobs. To this end, the plan set three missions and nine objectives.KEY CONTENTS1. Promote competition and innovation in the financial sectorRegulatory barriers will be sig
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Nov 25, 2013
- Basel III Regulations To Be Implemented To Domestic Banks From December 2013
- Basel III capital regulations will be phased in to domestic banks from December 1, 2013, as part of strengthened prudential regulations for banking sector which have been under discussion since the global financial crisis.KEY CONTENTS1. Minimum capital requirementsThe current capital adequacy ratio for banks is a minimum 8% of their risk-weighted assets (RWAs). Under the Basel III, banks will be required to meet detailed adequacy ratios for each category of capital.From December 2013, banks need to hold at least 3.5% of their risk-weighted assets as common equity capital1, 4.5% as Tier capital, which make their overall minimum capital requirement to 8%.2Changes in Minimum Capital Regulations upon Implementation of Basel III Dec. ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 Minimum Equity Ratio (Total Equity Ratio + Capital Conservation Buffer Ratio 8.0 8.0 8.0 8.625 9.25 9.875 10.5 Total Equity Ratio 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Tier 1 Capital Ratio 4.5 5.5 6.0 6.0 6.0 6.0 6.0 Common Equity Tier 1 Capital Ratio 3.5 4.0 4.5 4.5 4.5 4.5 4.5 Minimum Capital Conservation Buffer Ratio - - - 0.625 1.25 1.875 2.5 2. Qualifying conditions for regulatory capital under Basel IIIUnder the Basel III, banks’ total capital, currently composed of Tier 1 and Tier 2, will be divided into common equity capital, additional Tier 1, and Tier 2 capital. Qualifying conditions for each capital class will be modified to enhance quality of banks’ capital.From December 1, 2013, up to 90% of non-qualifying instruments as contingent capital3 already issued will be recognized as regulatory capital under the Basel III. The percentage will be gradually reduced by 10% points per year.4Types of Capital after Revision of Basel III Capital Regulations Common Equity Capital (A) Equity with priority to be conserved from bank’s loss and last to be redeemed from bank’s liquidation. Equity which is subject to redemption only in case of bank’s liquidation. (e.g. capital, capital surplus accrued from i
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Nov 13, 2013
- Plan to Improve Regualtions on Short Selling
- BACKGROUNDShort selling is one of investment techniques that investors sell either securities they do not own or ones they borrowed. Short selling can contribute to enhancing market efficiency as it provides liquidity and serves as a hedging tool for investors when stock prices fall. However, it has side effects as well. Naked short selling involves a risk of unfulfilled settlement.Speculative short selling prevents fair price forming the market.The Korean government has been strictly regulating short selling, compared to other countries.1 Naked short selling is prohibited. Since October 1, 2008, covered short sales of all stocks were banned. Short sales of financial stocks have been banned since then, while ban on short selling of non-financial stocks was lifted in June 1, 2009 except for the period from August 10 to November 9, 2011 when the ban was temporarily reinstated due to concerns about the European debt crisis.As the stock market have stabilized since the second half of 2013, however, there is a need to shift the government’s regulatory approach to short selling from direct regulations, which has been in place since the financial crisis in 2008, to indirect ones.After reviewing short-selling regulations in other advanced countries and problems raised about the current regulations, the FSC announced today its plan to improve regulations on short selling so that we can minimize side effects of short selling, while boost trading activities.KEY CONTENTS1. Lift ban on short sale of financial stocksBan on short sales of financial stocks, which has been in place since October 2008, will be lifted from November 14, 2013.2. Introduce disclosure requirements of investors’ short-selling positionsInvestors whose short-selling position in a stock exceeds 0.5% of total shares will be required to disclose their position on the KRX website.3. Improve effectiveness of the current regulations on disclosure of short-selling positionsThe FSC will establish a legal ground
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Oct 16, 2013
- Progress Report on National Happpiness Fund
- ACHIEVEMENT1. Debt restructuringSince the National Happiness Fund was officially launched in March 29, 2013, a total of 192 thousand individuals have applied for the debt restructuring from April 22 to October 10. Out of the applicants, 160 thousand individuals have had their debt restructured under the program. At the current pace of 1,300 applicants per day, a total of 210 thousand individuals are expected to apply for the debt restructuring until the end of October when the application is due. Under the program, overdue debt of more than 2.84 million individuals was acquired or transferred from lenders and public asset management companies (AMCs).2. Debt converted to low-interest loansFrom April 1 to September 30, a total of 350 thousand debtors had their high-interest loans worth KRW 378.7 billion converted to lower-interest loans.EVALUATIONThe number of beneficiaries far exceeds the initial estimation at the time the National Happiness Fund was launched. In six months since its launch in March, the Fund has already assisted 180 thousand debtors, more than half of the initially estimated number of 326 thousand individuals that the program would reach over five years.The National Happiness Fund outperformed similar programs by public AMCs in terms of the number of debt restructuring beneficiaries and the amount of purchased overdue debt.There were some concerns that the program might cause moral hazard among debtors; however, the problem of moral hazard has not been so serious as initially concerned as most of beneficiaries are found to be low-income borrowers struggling with debt overdue for long time.The government will continue to make efforts to help as many debtors as possible pay back their debt by closely working with relevant ministries and institutions.*Please read the attached file for details.
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Sep 16, 2013
