Press Releases - Financial Services Commission

Press Releases

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Jun 21, 2012

Task Force Formed to Legislate the Covered Bond Act

BACKGROUNDThe FSC formed a task force to legislate the Covered Bond Act which held the first meeting on June 21, 2012.A year ago, the FSC/FSS established guidelines* on the issuance of covered bonds by banks, as one of follow-up measures to properly manage the rapid growth of household debt. However, the process of securitizations incurred excessive costs, and there remained uncertainty for covered bond investors to claim dual recourse of their investment. Therefore, there has been growing need for statutory rules for issuing covered bonds.* Refer to the FSC press release titled “Guidelines on Covered Bond Issuance” published on June 29, 2011With the legislation of the Covered Bond Act, the FSC expects the issuance of covered bonds would help banks reduce their funding costs; covered bonds would serve as a stable and long-term funding source for banks particularly in the event of crises; and it would contribute to enhancing the soundness of household debt by encouraging banks to extend more long-term and fixed-rate loansUPCOMING SCHEDULE- Draft bill of the Covered Bond Act by July 2012- Approval by the FSC and 40-day legislative notice from August to September 2012- Review by the Ministry of Government Legislation; Approval at the vice-ministerial and cabinet meetings: from September to October 2012- Submission to the National Assembly for parliamentary approval: November 2012*Please read the attached file for details.
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Jun 19, 2012

FSC Plan in line with Principles for Financial Market Infrastructures Issued by IOSCO-CPSS

BACKGROUNDThe International Organization of Securities Commissions (IOSCO) and the Committee of Payment and Settlement System (CPSS) announced Principles for Financial Market Infrastructures (FMIs), new international standards for payment, clearing and settlement systems.With the growing importance of FMIs’ management of crisis and risk after the global financial crisis, the IOSCO and the CPSS established stronger principles for FMIs combining the existing sets of international standard and recommended member jurisdictions to reflect the new principles into domestic supervisory standards by 2012.PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES1. General organizationAn FMI should have a clear legal basis for its major activities, transparent governance arrangements, and a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational and other risks.2. Credit and liquidity risk managementAn FMI should secure sufficient financial resources to deal with risk and have appropriate system to manage collateral and margin deposits.3. SettlementAn FMI should provide clear and certain final settlement, at a minimum by the end of the value date and strictly manage risks associated with payment and physical deliveries of securities.4. Central securities depositoriesA central securities depository (CSD) should have appropriate rules and procedures to help ensure the integrity of securities issues and minimize the risks associated with the safekeeping and transfer of securities.5. Default managementAn FMI should have clearly defined rules and procedures to manage a participant’s default.Trusted assets should be kept separately by each participant.6. General business and operational risk managementAn FMI should hold sufficient liquid net assets funded by equity to cover potential general business losses and have appropriate systems to identify plausible sources of operational risk, both internal and external, and mitigate their impact.7. Acce
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Jun 14, 2012

FSC Chairman Visits Thailand and Hong Kong for Further Financial Regulatory Cooperation

The FSC Chairman Kim Seok-dong visited Thailand and Hong Kong from June 9 to June 13 to meet and sign MOUs with financial regulators for further cooperation. Chairman Kim also held meetings with executives of Korean businesses and financial companies to listen to their difficulties and help them localize their business operations.1. Further cooperation with financial authorities of Thailand and Hong KongThe FSC signed MOUs with Thailand’s Office of Insurance Commission (OIC) and Securities and Exchange Commission (SEC) for exchanging financial regulatory and supervisory information and sharing financial expertise.In Hong Kong, Chairman Kim visited the Hong Kong Monetary Authority (HKMA) and the Hong Kong Securities and Futures Commission (HKSFC) to discuss the impact of the eurozone fiscal crisis and policy responses.2. Meetings with executives of Korean businesses and financial companiesChairman Kim held meetings with executives of Korean businesses and financial companies in Bangkok (June 11) and Hong Kong (June 14) to listen to their difficulties in overseas operations and discuss how to successfully localize their business operations.*Please read the attached file for details.
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May 31, 2012

FSB Plenary Meeting in Hong Kong

The FSC Vice Chairman Choo Kyungho attended the Financial Stability Board (FSB) plenary meeting held in Hong Kong from May 29 to May 30. At the meeting, financial regulators from 24 FSB member countries and international standard-setting bodies reviewed progress in financial regulatory reform and coordinated their opinions ahead of the Los Cabos G20 Summit to be held from June 16 to June 19.KEY DISCUSSIONS1. Vulnerabilities in the financial systemIn the euro area, the adverse feedback loop between sovereign debt strains, weak economic growth and fragile banking systems has intensified. There has been a pull-back in cross-border financial activity. Against this backdrop, risks of adverse spillovers to global financial markets and economies have increased.The FSB supports the work of European and national authorities to lower short-term risks and foster lasting confidence and stability, including completing the repair and restructuring of some banks as required. In addition, authorities agreed to work together to minimize the downside risks from the ongoing process of bank deleveraging.2. Addressing systemically important financial institutions (SIFIs)The FSB endorsed the International Association of Insurance Supervisors (IAIS) consultation paper that sets out a proposed methodology for assessing the global systemic importance of insurance companies.The FSB evaluated progress in implementing its Key Attributes of Effective Resolution Regimes for Financial Institutions. FSB members reaffirmed the need for further work to establish international guidance on common terms for information sharing and on the handling of client assets in resolution.3. Over-the-counter (OTC) derivativesThe FSB noted that substantial progress has been made in setting international standards, in advancing legislation and regulations by a number of jurisdictions. However, the FSB recognized that the current momentum should be maintained as much work remains to be done to complete the reforms by
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May 07, 2012

Four Mutual Savings Banks Ordered to Suspend Operations

In a provisional meeting held on May 6, 2012, the Financial Services Commission (FSC) ordered four mutual savings banks – Solomon, Korea, Mirae and Hanju – to halt operations for six months to improve their finances after determining them as “financial institutions in distress”.The order came as a result of the inspection by the Financial Supervisory Service (FSS) and a joint committee’s review on six mutual savings banks, which were ordered on September 18, 2011 to normalize their business operations within a grace period. The suspended four mutual savings banks were among the six.Background and ProgressThe government cleaned up nine troubled mutual savings banks – Samhwa, Busan, Daejeon, Busan II, Jungang Busan, Jeonju, Bohae, Domin, Kyongeun – in the first half of 2011 to resolve the mutual savings bank issue.For the seven weeks from July 5 to August 19, 2011, a management assessment taskforce consisting of the FSS and the Korea Deposit Insurance Corporation (KDIC) inspected 85 mutual savings banks’ management situations* in a preemptive move to remove uncertainty about mutual savings banks.* Out of 98 savings banks in operation as of end-June 2011, 13 savings banks were exempted from the inspection as they already went through inspections in the first half of 2011.On September 18, 2011, the FSC suspended business operations of seven mutual savings banks – Daeyeong, Ace, Prime, Parangsae, Jeil, Jeil II and Tomato – for six months, out of 13 mutual savings banks which had been determined as in distress subsequent to the inspection by the FSS and the review of their management improvement plans.The remaining six savings banks were given a grace period before being ordered to shut down their operations, consequent to the management assessment committee’s approval and a possibility of independent normalization.The FSS conducted inspections of the six savings banks to assess their progress on management improvement plans and additional distress f
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Apr 30, 2012

Resumption of Privatization Plan for Woori Finance Holdings

The Public Funds Oversight Committee has held the 52nd Meeting on April 27 and approved the KDIC’s plan to resume the sale process of Woori Finance Holdings.I. BASIC PRINCIPLEUpholding the three main principles of privatization,* the sale process will be proceeded through the open bidding scheme with preliminary and final biddings.***Three basic principles of privatization:①maximizing the recovery of public funds; ②speeding up the privatization process; and ③contributing to the development of the domestic financial sector**For efficiency of the sale process, the process of submitting LOIs will be exempted.II. SALE OF MANAGEMENT RIGHTSThe sale of Woori Finance Holdings is aimed at selling management rights. The privatization can proceed through either merger or acquisition.*With a revision to the Commercial Act, bidders who propose a merger are allowed to make payment in cash as well as new shares of the merged company.To reaffirm government’s intention to sell Woori’s controlling stake, the minimum bid acceptable is maintained at 30% of the total share.III. SELLING THE GROUP AS A PACKAGEWoori Finance Holdings will be put up for sale in its entirety with its subsidiaries not to be sold separately. This is to simplify the sale procedure and minimize uncertainties of the process.IV. PHASE-OUT OR CANCELLATION OF THE MOU HELD BY KDICThe KDIC’s MOU governing Woori Finance Holdings will be either phased out or cancelled depending on the reduction of KDIC’s stake in Woori in order to ensure Woori’s managerial autonomy as much as possible.If the KDIC still remains a majority shareholder even after a merger, the KDIC’s voting rights can be restricted or delegated by the Public Funds Oversight Committee’s approval.The sale notice for Woori will be announced on April 30, and preliminary bids will be accepted by July 27.* Please refer to the attached file below.
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Apr 16, 2012

Establishment of Korea New Exchange

The FSC announced its plan for creating a stock exchange exclusively for SMEs, tentatively named ‘Korea New Exchange (KONEX)’, in order to facilitate direct financing of venture start-ups and SMEs through the capital market.BASIC DIRECTIONS OF THE PLAN- Provide investors with new investment opportunities by facilitating listing of SMEs with high growth potential- Reduce the costs of listing and maintaining the listing for SMEs- Establish a credible market with fair pricing mechanismKEY SCHEMES FOR KONEX1. Broaden the scope of ‘professional investors’- ‘Professional investors’* under the definition of the Financial Investment Services and Capital Markets Act (FSCMA)*financial investment firms (e.g. securities companies), mutual funds, policy banks (e.g. Korea Development Bank, Industrial Bank of Korea, Korea Finance Corporation), banks, insurance companies, pension funds (e.g. National Pension Service)**In principle, retail investors are allowed only indirect investment through mutual funds.- Among investors who are not ‘professional investors’ by the definition of the FSCMA, those with investment expertise in SMEs or risk-absorbing capability will be allowed to invest in KONEX-listed SMEs.i) ‘venture capital’ under the definition of the Support for Small and Medium Enterprise Establishment Actii) retail investors qualified for hedge fund investment more than KRW 500 million2. Set minimum requirements for listing and delisting- (Listing) The audit opinion on a company’s financial statement is proper; a company satisfies listing requirements on a selective basis in regard with equity capital, financial conditions and business performance; and etc.- (Delisting) A company falls into one of conditions for immediate delisting such as the court’s decision of dissolution or refusal of rehabilitation procedures; the audit opinion on a company’s financial statement is adverse or disclaimer of opinion; and etc.3. Designate advisors to assist SMEs’ l
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Apr 13, 2012

FSC Announcement on North Korea's Rocket Launch

Regarding North Korea’s launch of a long-range rocket, the FSC has convened an Emergency Meeting this morning discussing the possible effects to Korea’s financial markets and countermeasures for any excessive volatility.We have concluded that the effects to the financial markets will likely be very minimal because of the following reasons:- The risk factor for the event has already been reflected on the market because the announcement of the rocket launch in March.- Previous events of North Korea’s rocket launch have been followed by a quick recovery in the market.*a five-day movement right after previous rocket launching events (KOSPI/FX currency):- August 1998: +3.1% /-0.52%- March 2003: -1.5% / +0.70%- May 2005: +1.8% / -0.32%We intend on closely monitoring the market and act quickly to minimize any uncertainties.Emergency Financial Monitoring Team has already been launched and will be operating 24/7.* Please refer to the attached file below.
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Apr 02, 2012

Expanding Microfinance for Young Adults and Low-Income Households

The FSC announced a set of plans for further expanding microfinance to help financially difficult young adults and low-income households manage financially-stable lives.EASE FINANCIAL DIFFICULTIES FOR YOUNG ADULTS AND LOW-INCOME HOUSEHOLDS1. Switch their high-interest loans to low-interest loansBanks will jointly raise KRW 50 billion of guarantee funds within the first half of this year to switch young borrowers’ high-interest loans (over 20% interest rates) to low-interest loans, which will amount to a total of KRW 250 billion.2. Extend microcredit loans for emergency useA total of KRW 30 billion out of the Smile Microcredit Fund will be extended to financially difficult young adults, up to KRW 3 million per person.3. Provide financial support for young entrepreneursA fund of KRW 0.5 trillion will be created to support young entrepreneurs and start-up companies.ENSURE MICROFINANCE PROGRAMS WORK AS INTENDED1. Smile Microcredit Program- The volume of microcredit loans for small merchants in traditional markets will be almost doubled from KRW 35.6 billion in 2011 to KRW 70 billion in 2012.Loan ceilings will be temporarily raised for 10 days before and after the national holidays when merchants’ demand for cash is particularly high.- The review process for loan applications will be made more flexible to take into consideration various factors such as borrowers’ will to repay debt and business feasibility.- In order to build a strong bond with local communities, each branch of the Smile Microcredit Foundation will establish an operating committee and hire experts familiar with local communities as business consultants.- Supervision on the Smile Microfinance Foundation and its welfare business operators will be strengthened to ensure transparency and fairness in management and operation.2. Sunshine Loans- Microfinance products such as ‘Sunshine Loans’ will be exempted from regulation on loan-to-deposit (LTD) ratios for mutual cooperatives.- Various credit facto
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Mar 29, 2012

FSC Signs MOU with Vietnamese Finance Ministry for Cooperation in Insurance Supervision

The FSC Chairman Kim Seok-dong and the Vietnamese Finance Minister Vuong Dinh Hue signed an MOU on March 29, 2012 to expand bilateral cooperation and information sharing in supervision of the insurance sector.The MOU covers a variety of cooperative tasks such as cooperation between the two supervisory authorities, information sharing, establishment of cooperation channels between high-ranking officials of the two countries, and training programs.With the signing of the MOU today, Korea and Vietnam have completed signing MOUs covering supervisory authorities in the banking (August 2006), securities (January 2002), and insurance (March 2012) sectors, which will lead to further cooperation in finance between the two countries.The FSC has so far signed a total of 28 MOUs with 31 financial authorities in 18 countries and one international organization. It will continue to expand cooperative partnership in finance with the G20 major economies and emerging countries.*[US] Federal Reserve Board (FRB), Securities Exchange Commission (SEC), National Association of Insurance Commissioners (NAIC)[UK] Financial Services Authority (FSA)[China] China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC)[Turkey] Banking Regulation and Supervision Agency (BRSA), Capital Markets Board (CMB) etc.*Please read the attached file for details.
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Mar 28, 2012

Plan for Improving Loan Guarantee Programs for Tech Firms

The FSC has announced a set of plans for improving loan guarantee programs for small and medium-sized tech companies.1. Introduce a ‘tech value-linked guarantee program’The FSC plans to introduce a ‘tech value- linked guarantee program’ in which the Korea Technology Finance Corporation (KTFC) reflects potential monetary value of technology that a firm owns when deciding how much loan guarantee it would provide.The newly-introduced guarantee program is expected to help potentially profitable tech-based start-ups and SMEs finance their businesses.2. Establish an evaluation system for converged or combined technologiesThe KTFC will develop an evaluation system for converged or combined technologies by June 2012. The existing model has been focused on a single technology or industry. The new model will introduce indices to evaluate synergy effects between converged technologies.In order to respond to the convergence and combination of technologies, the KTFC has restructured the organization for evaluating technology into a hub-and-spokes regional coverage system.3. Improve evaluating ability for new industries and technologiesThe KTFC will widen a pool of experts to evaluate new technologies and its network with outside advisors particularly in regard with culture and content industries.The KTFC will develop two additional evaluation models for young entrepreneurs’ start-up companies and converged industries by June 2012. The new model will be designed to meet specialized needs for evaluating young entrepreneurs’ tech firms.The existing evaluation models will be subdivided into sector-specific models by September 2012.- KTRS model (evaluation for general technology): In addition to the existing 6 models - general, bio, environment, SW, dotcom, and design sectors, new models for the service industry such as medical and education sectors will be created.- KTRS-Startup model: The existing single model that covers all industries will be subdivided into 8 sector-
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Mar 19, 2012

Chungwoo Suh Appointed to the IASB

The Trustees of the IFRS Foundation, the oversight body of the International Accounting Standards Board (IASB), announced today the appointment of Chungwoo Suh as a member of the IASB for an initial five-year term from 1 July 2012 and renewable for a further three-year term.Dr. Suh served as Chairman of the Korea Accounting Standards Board (KASB) and is a Professor of Accounting at Kookmin University, Seoul.With his appointment, Korea became the 13th among 130 member countries that sent its national to the IASB.As a member of the IASB, Dr. Suh will participate in setting and revising IFRS rules, which will be a valuable contribution to improving Korea’s presence in the international rule-setting body.*Please read the attached file for details.
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Mar 12, 2012

Reporting System of High-Volume Short Sales

BACKGROUNDSince the global financial crisis, major economies have adopted a reporting regime for high-volume short sales in line with global discussions* to enhance transparency of short selling.*Principles for Short Selling Regulation proposed by the International Organization of Securities Commission (IOSCO) on June 2009.n Provide ready access to information on short selling to improve insight into market dynamics;n Deter market abuse;n Mitigate the potential disorderly market effects of aggressive short selling;n Provide early warning signs of a build-up of large short positions and alerts to prompt investigation into suspicious activities that may be potentially abusive or disruptive to the orderly functioning or stability of the markets; andn Provide evidentiary proof that aids in post-event investigation and disciplinary action.By introducing a reporting regime for large short positions, Korea will also join the global effort to expand a pool of information for market supervision and maintain the orderly functioning or stability of the markets.We will continue to reflect global discussions and advanced markets’ regulatory reforms in domestic regulations on short selling in order to make them more compatible with global principles.KEY CONTENTIt will become mandatory for investors to report short positions that exceed a certain threshold to both market authorities and KRX.The Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA)*will be revised to lay a legal foundation for mandatory reporting of large short positions*Article 180 of the FSCMA prohibits short sales in principle and exceptionally allows covered short selling in a manner prescribed by the Enforcement Decree.*Please read the attached file for details.
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Mar 06, 2012

Plan for Improving Loan Approval Process for SMEs

BACKGROUNDSmall and medium-sized enterprises (SMEs) primarily rely on indirect financing such as bank loans due to difficulties in funding their business through direct financing sources such as corporate bonds.1. However, one of the most important elements that financial institutions consider in reviewing a company’s loan application is whether the company can provide collateral for loans; therefore, start-up businesses or SMEs which lack such collateral still have difficulties in borrowing money from banks. Bank officials hold on to such collateral-based standards in reviewing SMEs’ loan applications because they want to avoid their responsibility in the event of SME borrowers’ default.2. Banks also complain of insufficient information about SMEs available in a timely manner to evaluate SMEs’ loan applications. SMEs raise the issue of fairness with banks’ evaluation system of real estate collateral, pointing out that each bank’s different standards make it harder to ensure objective and reliable evaluations of collateral assets.3. The government and policy banks already have various programs to support SMEs; however, such programs are not well known to SMEs so they are not fully utilized.Against this backdrop, the FSC has come up with a set of plans to improve the loan approval process for SMEs by reforming the immunity system for bank officials; fostering an SME-specialized credit bureau (CB); and improving banks’ collateral evaluation system.MAJOR TASKSI. Reform the immunity system for bank officials1. Current situation(1) The financial supervisory authorities have made several reforms to the immunity system in order to stimulate bank lending to SMEs; however, such measures fell short of a permanent reform of the system.Since 2006, an average of 145 officials per bank annually has been sanctioned for approving SME loans that later turned into non-performing ones.(2) Currently, conditions for granting immunity set by both the supervisory authorities
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Mar 02, 2012

Measures on Non-Banking Sector's Household Lending

BACKGROUNDThe Korean government announced last year “Comprehensive Measures on Household Debt”(June 29, 2011) and “Measures to Increase Accessibility of Low-income Households to Financial Services”(April 15, 2011) to preemptively manage household debt growth.In 2011, household loans increased by 7.6%, lower than 8.1% in 2011. However, household lending in the non-banking sector increased by 9.9%. Particularly, household loan growth by cooperative financial institutions and insurance companies still remains high.If household lending by non-banking institutions keeps growing at such a rapid pace, it would undermine the overall soundness of the sector and adversely affect our economy and financial market in the long term.Against this backdrop, the government came up with follow-up measures to keep the growth of household loans by the non-banking sector under control.(1) The measures aim to keep household loan growth particularly by cooperatives and insurers at manageable levels and manage household lending in a sound manner. At the same time, the government will ensure the “Comprehensive Measures on Household Debt” (June 29, 2011) are implemented as scheduled.(2) In order to minimize side effects that these measures could bring to the economy and low-income households, these new lending rules will be phased in gradually, applicable to newly extended loans.(3) We will also make sure the “Measures to Increase Accessibility of Low-income Households to Financial Services” are implemented as scheduled.MEASURES TO CURB COOPERATIVE FINANCIAL INSTITUTIONS’ LENDING1. Stricter loan-to-deposit (LTD) rulesCooperative financial institutions will be required to keep their LTD ratios below 80%. Cooperatives with LTD ratios over 80% will be required to bring down the ratios below 80% within two years. For cooperatives whose LTD ratios exceeding the average ratio of the sector, they will be under supervision to keep the ratios to a standstill at the levels of end-2011
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Jan 30, 2012

Approval for HFG's Acquisition of KEB

The FSC approved Hana Financial Group (HFG)’s acquisition of Korea Exchange Bank (KEB) at its regular meeting on January 27, 2012.Under the Financial Holding Companies Act, a potential acquirer is required to meet the following three conditions: (1) The business plan of a company included as a subsidiary shall be appropriate and sound; (2) The financial standing and business management of such financial holding company and its subsidiary shall be sound; and (3) The funding plan for acquisition shall be appropriate.In granting approval, the FSC shall consult in advance with the Fair Trade Commission (FTC) as to whether the merger or acquisition substantially limits competition in the relevant market.In regard with this matter, the FTC notified the FSC on December 29, 2011 that such acquisition would not substantially limit competition in the relevant market.The FSS also notified the FSC on January 27, 2012 that HFG satisfies the requirements under the Financial Holding Companies Act to acquire KEB as its subsidiary.(1) KEB’s business plan is appropriate to keep its operations and maintain the managerial soundness of HFG and KEB.(2) As of end-September 2011, the BIS capital adequacy ratios of HFG (13.05%) and KEB(13.98%) meet the standard set by the FSC.(3) HFG’s acquisition of KEB was partly funded by its own debt; however, there is no concern that it would significantly hurt its managerial soundness.With approval for HFG’s acquisition of KEB, KEB’s 13 subsidiaries will be included as lower-tier subsidiaries of HFG. As a result, the number of HFG’s subsidiaries will increase from 8 to 9; and lower-subsidiaries from 9 to 22.As a result of the acquisition, seven of all domestic banks will belong under financial holding companies.Hana Financial Group1. General Information- Establishment: 2005.12.01- CEOs: Kim Seung-Yu, Kim Jong-Yeol- Head Office: 101-1 Euljiro 1-ga, Jung-gu, Seoul, Korea- Number of Employees: 12,8702. Financial Analysis (units in KRW, %)- To
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Jan 06, 2012

2012 Financial Policy Agenda

FINANCIAL MARKET OUTLOOK FOR 2012 AND KOREA’S POLICY DIRECTIONAs Europe’s ongoing debt crisis is expected to threaten global economic growth and increase volatility in global financial markets next year, Korea is also likely to face an economic slowdown, which will deal a severe blow particularly to SMEs and low-income households.Under such circumstances, the FSC set three main financial policy goals with six key objectives for 2012 as follows:[Policy goal #1: Preparedness against crises]① Take preemptive actions to secure market stability② Make Korea’s financial system further advanced[Policy goal #2: Support for businesses]③ Create a financial services environment for the growth of start-up companies and SMEs④ Develop financial services for sustainable growth[Policy goal #3: Greater financial inclusion]⑤ Support expansion of microfinance programs for low-income households⑥ Promote social contribution of financial institutions and stronger protection for financial consumersKEY POLICY OBJECTIVES FOR 20121. Preemptive actions to secure market stability(1) Create an emergency response mechanism for prompt actions in the event of a financial crisis- The FSC will conduct thorough tests on foreign currency liquidity conditions of domestic banks and closely monitor foreign capital flows.- We will also review and supplement our action plans on a frequent basis to take prompt and bold actions for market stabilization in the event of a crisis.- The FSC-FSS joint emergency response team will be ready to take swift actions against any possible crisis.(2) Keep household debt growth to a manageable level and normalize bad PF loans Household debt- The FSC will curb household debt growth to a balanced pace with real economic growth.- In order to encourage banks to extend more fixed-rate and installment loans, we will help banks secure their long-term funding sources by facilitating their issuance of MBS or covered bonds.- By end-2016, banks will be required to in
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Dec 14, 2011

Early Repayment of Bank Recapitalization Fund

OVERVIEWIn December 2008, the government announced its plan to create the Bank Recapitalization Fund in order to help banks secure more equity capital in response to the global financial crisis. A total of KRW 20 trillion fund was raised with contributions from the Bank of Korea (KRW 10 trillion), the Korea Development Bank (KRW 2 trillion), and institutional and retail investors (KRW 8 trillion) . With the fund, the government purchased banks’ subordinated and hybrid securities and then securitized subordinated debt of KRW 8 trillion into bonds and sold them to institutional investors.UPDATES ON FUND OPERATIONOn March 31, 2009, the government purchased hybrid and subordinated securities worth KRW 4 trillion from eight domestic banks.As of end-November 2011, a total of KRW 1.3 trillion was repaid. The government fully recovered its investment in banks’ subordinated debt by selling a total of KRW 503 billion* subordinated securities in the market. Out of the investment in hybrid securities, KRW 0.8 trillion** was repaid as issuers chose to buy back their debt before maturity.EARLY REPAYMENT SCHEMESome banks expressed their intention to buy back their hybrid securities before maturity as their earnings this year have increased.Such an early repayment requires approval from the Bank Recapitalization Fund Operation Committee and the FSS Governor for selling those securities before maturity.On December 9, 2011, the Committee has approved sales of hybrid securities worth KRW 1.5 trillion that the Bank Recapitalization Fund held in Kookmin (KRW 0.6 trillion), Hana (KRW 0.3 trillion), Woori (KRW 0.2 trillion), and NH Bank (KRW 1.5 trillion).These banks will go through their internal procedure such as approval from their board of directors for early repayment and then apply for approval from the FSS Governor.Through the buy-back scheme, it is expected that KRW 1.5 trillion will be repaid by the end of this year, and the remaining amount of money to be recovered will be l
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Dec 07, 2011

Best Practice Guidelines for Hedge Funds and Prime Brokers

KEY CONTENTSI. Hedge Funds1. Guidelines for internal control and risk managementHedge fund management firms are required to set guidelines for internal control over hedge fund management, which include work manuals for executives and employees, and designate persons in charge of internal control matters.In order to manage risks involved in hedge fund investment, hedge fund management firms are required to create a risk management division within the company.2. Seeding principles for hedge fund firmsFor hedge fund management firms who want to invest their own capital into hedge funds under their management, the best practice guidelines set the following principles:(1) A hedge fund management firm is prohibited from investing more than 10% of its own capital into the same hedge fund.(2) A hedge fund management firm is prohibited from investing more than 50% of its own capital into hedge funds under its management(3) A hedge fund management firm is prohibited from investing its own capital into collective securities that exceed 30% of total securities issued by the same hedge fund.** This principle will not be applied until one year after the inception date of a hedge fund.(4) In the cases above mentioned, the hedge fund management firm can recoup its investment only upon the remaining investors’ consent.Hedge fund managers are restricted from directly investing in hedge funds under their management.3. Conflict of interest preventionThere should be a “Chinese wall” between a hedge fund management division and other business parts of a company. Executives and employees in the hedge fund division are restricted from concurrently working in other divisions.Hedge fund management firms are required to create an internal committee, composed of compliance officers, in charge of preventing conflict of interest.4. Investor protectionHedge fund management firms are required to provide their clients with sufficient information about risks involved in hedge fund investment w
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Dec 06, 2011

Joint FATF/APG Typologies Workshop 2011 Held in Busan

The Korean government will be co-hosting an international conference on Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) in Busan for six days from December 5th to 10th. The Financial Intelligence Unit (KoFIU) of FSC will be representing the Korean government.The Joint FATF/APG Typologies Workshop 2011, jointly hosted by the Financial Action Task Force and the Asia Pacific Group on Money Laundering, groups of Financial Intelligence Units around the world setting the guidelines and implementing supervisory rules on AML/CFT issues. They are made up of 36 OECD nations and 40 Asia-Pacific nations respectively including Korea, Japan, Canada and the U.S.Roughly 250 representatives from 45 countries and 15 international institutions including the UN, IMF, and World Bank will be participating at the conference.Discussions will be around the following four major topic areas: A. Trade Based Money Laundering; B. Illicit Tobacco Trade; C. Guidance on Financial Investigation; and D. Laundering the Proceeds of Corruption.This would be the first time the City of Busan, which has been designated as one of Korea’s official financial hubs, is holding an international conference on AML/CFT of this magnitude and scale, which will raise the city’s international reputation.The FSC Chairman Kim Seok-Dong will be giving the keynote address emphasizing the need to find innovative countermeasures in response to the rising of newest tactics on money laundering as well as the necessity to narrow the compliance gap between FATF and APG member nations.The Congressman and Chairman Huh Tae-Yeol of Korea’s National Policy Committee will give the welcoming address emphasizing the need to strengthen AML/CFT efforts to combat against the risks and treats to international financial system that oppresses universal values such as democracy and human rights, calling for great international cooperation.*Please read the attached file for details.
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