Press Releases - Financial Services Commission

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Jul 08, 2013

Measures to Normalize Corporate Bond Market

The FSC announced measures to invigorate the sluggish corporate bond market as a preemptive response to prevent worsening corporate funding condition and destabilizing factors in corporate bond market from spilling over the broader economy.MARKET OVERVIEWCorporate bond issuance has decreased since the beginning of 2013. The market condition has been further deteriorated since May this year as yields for corporate bonds and credit spreads began to rise due to growing concerns about potential tapering of the U.S. Federal Reserve’s quantitative easing. Corporate Bond Issuance Volume (unit: KRW trillion) ’09 ’10 ’11 ’12 ’13 Jan Feb Mar Apr May Jun Net Issuance (monthly average) 34.6 (2.9) 18.1 (1.5) 30.8 (2.6) 32.2 (2.7) 11.8 (2.0) 1.4 3.5 1.3 2.8 1.2 1.5 Corporate bond issuance with a BBB rating or lower has decreased since the global financial crisis as investors are reluctant to invest in such bonds. The risk-averse attitude is now spreading to investment in corporate bonds with a single-A credit rating. Corporate Bond Issuance Volume by Credit Rating (unit: KRW trillion) ’09 ’10 ’11 ’12 ’13 Jan Feb Mar Apr May Jun Net Issuance (monthly average) 34.6 (2.9) 18.1 (1.5) 30.8 (2.6) 32.2 (2.7) 11.8 (2.0) 1.4 3.5 1.3 2.8 1.2 1.5 MEASURES TO NORMALIZE CORPORATE BOND MARKET1. Liquidity support program through P-CBOsThe government will issue primary collateralized bond obligations (P-CBOs) with a total of KRW 850 billion.Eligible candidates are companies below certain level of credit rating with corporate bonds set to mature between July 2013 and December 2014. A review committee2 will select recipient companies based on its comprehensive review of such companies’ self-help plan.Once the review committee selected recipient companies, 20% of maturing bonds for a recipient company will be repaid by the recipient company itself. The remaining 80% debt will be taken over by the Korea Development Bank (KDB), which will be resold to financial institutions (1
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Jul 07, 2013

Insurance Coverage by Local Insurers for Asiana Airline Accident

The Boeing 777 owned by Asiana Airlines that crashed in San Francisco is under aviation insurance worth a total of USD 2.38 billion.The insurance is jointly covered by nine local insurers including LIG Insurance. The local insurers cover only 0.55% of insurance coverage, and the remaining is reinsured by Korean Re (3.45%) and foreign reinsurers (96%).Given that local insurers including Korean Re only cover a 2.5% of the insurance coverage, estimated costs of the airline accident amount to around KRW 5 billion. Insurers Share of underwriting (%) Share of insurance coverage(%) LIG (main insurer) 34.0 0.04 Samsung 14.0 0.3 Hyundai 11.0 0.1 Dongbu 11.0 0.01 Lotte 11.0 0.03 Meritz 7.0 0.03 Hanhwa 7.0 0.02 Heugngkuk 3.0 0.01 NH 2.0 0.01 Korean Re (reinsurer) - 2.0 Total 100.0 2.55 The FSC will closely work with the General Insurance Association of Korea and local insurers to ensure prompt payouts of compensations for victims’ families and injured passengers.* Please read the attached file for details.
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Jul 02, 2013

Basel III Capital Regulations To Be Implemented From December 2013

Basel III capital regulations will be gradually implemented to the banking sector from December 2013 as the revised Regulation on Supervision of Banking Institutions is scheduled to take effect.A. Minimum Capital Ratio- Before revision: Total capital ratio (8%)- After revision: Minimum common equity capital ratio (4.5%), minimum Tier 1 capital ratio (6%), minimum total capital ratio (8%) (effective from Dec. 1, 2013)B. Capital Buffer- Banking institutions must accumulate 2.5%p of capital buffer in addition to the minimum capital ratio. (effective from Jan. 1, 2016)C. Prompt Corrective Action- The financial authorities will take prompt corrective action against financial institutions which fail to satisfy minimum level of total capital ratio, Tier 1 capital ratio, and common equity capital ratio. (effective from Jan. 1, 2015)Basel III Implementation Schedule Dec.1, 2013 2014 2015 2016 2017 2018 2019 ▪ Minimum Common Equity Capital Ratio (A) 3.5 4.0 4.5 4.5 4.5 4.5 4.5 ▪ Minimum Tier 1 Capital Ratio 4.5 5.5 6.0 6.0 6.0 6.0 6.0 ▪ Minimum Total Capital (C) 8.0 8.0 8.0 8.0 8.0 8.0 8.0 ▪ Capital Conservation Buffer (B) 0.625 1.25 1.875 2.50 - Minimum Total Capital Plus Conservation Buffer (B+C) 8.0 8.0 8.0 8.625 9.25 9.875 10.5 - Suhyup bank (National Federation of Fisheries Cooperatives) will implement Basel III capital regulations from December 20161 after three years of grace period.*Please read the attached file for details.
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Jun 26, 2013

Plan for Privatization of Woori Finance Holdings

BACKGROUNDThe Public Funds Oversight Committee (PFOC) announced the privatization plan for Woori Finance Holdings after its 78th meeting on June 26, 2013. The Committee members shared common opinion that prompt privatization of Woori Finance Holdings is crucial for recovering the injected public fund and establishing a firm foundation to strengthen our financial industry’s competitiveness. The plan was devised based on the recent market conditions and investment climate.GENERAL PLAN1. General DirectionThe government will sell subsidiary units of Woori Finance Holdings in separate deals to better serve market demands. The 14 subsidiaries of Woori Finance Holdings will be split into three groups for sale. The sale process of each group will be proceeded by the KDIC or Woori Finance Holdings. To facilitate the sale process, the government will simultaneously proceed with the spinoff/merger and the sale process.2. Detailed PlanA. (Regional bank unit) The government will spinoff Woori Finance Holdings to set up Kyongnam Finance Holdings and Kwangju Finance Holdings. The two regional banks, Kyungnam Bank and Kwangju Bank, will be merged with their respective holding companies for sale. The KDIC will sell its 56.7% stake in the two regional banks.B. (Brokerage unit) Sale of Woori Finance Holding’s stake in Woori Investment Securities Co.3, Woori FI, and Woori Financial Group will be initiated concurrently with the sale of regional bank unit.C. (Woori bank unit) Woori Bank will be merged with the remaining Woori Finance Holdings and sold by the KDIC as a bank. Such procedure will be initiated after completing regional bank units’ spinoff and deciding the final bidder of brokerage unit. Minimum bidding level will be decided later with market conditions upon initiation of Woori Finance Holdings’ sale process taken into consideration.* Woori Credit Card, Woori Private Equity Co., Woori FIS Co., Kumho Investment Bank, Woori Finance Research Institute and unsold subsidia
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Jun 24, 2013

Regulations on Financial Institutions' Outsourcing of Data Processing Business and IT Facilities

BACKGROUNDThe FSC approved the proposed legislation of ‘Regulations on Financial Institutions’ Outsourcing of Data Processing Business and IT Facilities’ on June 19, 2013. The legislation is to establish detailed regulations in accordance with Korea’s free trade agreements (FTAs) with the US and the EU on the cross-border transfer of financial information required in the ordinary course of business of financial institutions, while reflecting a global trend that financial firms are increasingly outsourcing their data processing business and IT facilities.MAJOR CONTENTS1. Scope and procedure of outsourcingA financial institution is permitted to outsource data processing business “required in the ordinary course of business” to a third party, domestic or overseas. In case a financial institution intends to outsource data processing business to an overseas company only its head office, branches, and affiliates subordinated to such financial institution are permitted to do so as a means to ensure consumer protection and financial regulators’ access to records of financial institutions relating to the handling of information.In principle, the outsourced company, domestic or overseas, is prohibited to extend the contract to another subcontractor.If related laws prohibit outsourcing, or if a financial institution has punitive records under related laws, the financial firm is forbidden to outsource data processing to a third party.Financial institutions are mandated to apply the provisions of standard form contract when signing an outsourcing contract with a third party to ensure consumer protection and financial regulators’ access to records of financial institutions relating to the handling of information.A financial institution is obliged to report the FSS governor in advance to outsourcing data processing business.2. Protection of data outsourced to a third partyIn regard with outsourcing data processing, all protective measures must be ensured under rele
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Jun 18, 2013

Measures to Improve Financial Institutions' Corporate Governance

The FSC formed a task force team1 to work on ‘measures to improve financial institution’s corporate governance (hereinafter ‘measures’)’ on April 19, 2013 and came up with the draft of measures based on what have been discussed so far.The FSC will proceed with follow-up measures in the nearest future, building upon the opinions gathered from academia and financial industry at the public hearing held on Monday, June 17.TASK FORCE DISCUSSIONSFinancial institution’s corporate governance is nearing the level of international standards thanks to continuous efforts to improve corporate governance since the Asian financial crisis in 1997. Such efforts still fell short of actual changes in practices. Compared to general corporations, financial institutions’ poor governance has a greater risk as it poses direct threat to the financial system. In this respect, financial institutions’ corporate governance needs to have greater accountability and better represent interests of all stakeholders including depositors and financial regulators.Under such awareness, the team has drafted the measures focused on two respects: i) how to bring about actual changes to financial institutions’ governance behavior; and ii) how to make corporate governance of financial institutions better represent public interest.i) The FSC has set a minimum level of standards and adopted the ‘Comply or Explain’ principle to respect diversity of financial institutions within the minimum boundaries of institutional framework in implementing corporate governance rules. Financial institutions will be required to disclose more information on their corporate governance and continuously monitor their own compliance situation.ii) The FSC has raised standards for responsibility and transparency of financial institutions towards their stakeholders so that their corporate governance could well represent both interest of shareholders and the public interest. Boards of directors will be granted grea
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Jun 14, 2013

Revision to Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA)

BACKGROUNDThe revised Financial Investment Services and Capital Markets Act (FSCMA) was promulgated in May 28, 2013, which includes vitalizing investment banking (IB) business, introducing alternative trading systems (ATSs), and amending the current regulatory framework of asset management businesses.In line with the revision to the FSCMA, the FSC plans to revise the Enforcement Decree of the FSCMA to stipulate specific terms on matters delegated by the Act and further improve the current capital markets system.KEY CONTENTS1. Stimulate investment banking (IB) business(Requirements to be registered as an IB) A securities firm will be required to hold equity capital worth KRW 3 trillion or more and have the mechanism of risk management and internal control.(Prime brokerage service) The scope of customers with whom IBs can provide prime brokerage service will be expanded to financial companies, pension funds, overseas hedge funds as well as Korea-based hedge funds stipulated in the revised Act.(Credit extension for companies) The Enforcement decree specifies the scope of credit extension that IBs can provide companies as loans, payment guarantee, and bill discount. It also details types of credit extension exempted from the rule which limits a total amount of credit extension by an IB not to exceed its equity capital.2. Improve capital market infrastructure(Introduction of ATS) To be registered as an ATS, a securities firm will be required to hold equity capital worth KRW 20 billion or more. The Enforcement Decree specifies types of products that can be traded through ATSs as stock certificates and depository receipts (DR).ATSs will be subject to the same rules applied to exchanges in regard with measures on market surveillance and market stabilization such as daily price limit or trading halt, while it will be granted greater autonomy and flexibility in regard with trading business.Securities firms, however, can execute customers’ orders as customers want if there w
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Jun 12, 2013

Public Hearing on Measures to Improve Financial Institution's Corporate Governance

The FSC formed a task force team in April this year to discuss how to improve financial institution’s corporate governance. The team will come up with a draft of measures to improve corporate governance in financial institutions by this week, based on what has been discussed from April to May 2013The FSC plans to hold a public hearing on the draft of measures on Monday, June 17 at 15:00 to gather opinions from experts from academia and financial institutions. The discussion topic will cover how to reinforce functions of boards of directors; how to make outside board members better represent interests of shareholders and the public; and how to strengthen external checks on boards of directors.Based on the opinions raised at the public hearing, the FSC will finalize the measures and proceed with follow-up measures.[Public Hearing]- Host: Financial Services Commission- Time date: June 17(Mon), 15:00-17:00- Place: International conference room, Korea Federation of Bank(2F)- Moderator: Professor Park Kyung-suh, Korea University- Topic: Measures to improve financial institution’s corporate governance- Discussion Panel: corporate governance experts from academia and financial industry*Please read the attached file for details.
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May 31, 2013

Basel III Capital Regulations to be Implemented from December 2013

BACKGROUNDKorea has already finalized preparation of relevant rules for the implementation of Basel III. However, authorities postponed the initially scheduled date for implementation (Jan.1, 2013) considering the uncertainty of adoption status of other member countries and decided to adjust Basel III implementation schedule after closely monitoring the progress of other member countries.CURRENT TRENDAs of April, 23 among 27 Basel Committee on Banking Supervision member countries finalized the implementation schedule. Basel III implementation Schedule (as of April 30, 2013) Region Implementation Schedule Member Countries Asia Not finalized(2) Korea, Indonesia Finalized(7) Japan, Singapore, Hong Kong, China, India, Saudi Arabia, Australia Europe Not finalized(1) Turkey Finalized(11) Switzerland, Russia, EU(UK, France, Germany, Italy, Belgium, Netherlands, Luxemburg, Spain, Sweden) Americas, Africa Not finalized(1) USA Finalized(5) Canada, Mexico, South Africa, Brazil, Argentina IMPLEMENTATION OF BASEL IIIThe FSC, in close coordination with the MOSF, FSS, BOK, and other relevant authorities, came to a decision to implement Basel III on December 1, 2013. The decision was made as major Asian economies have already implemented Basel III capital regulations in 2013 and the banking industry requires time to prepare for the adoption.EXPECTED EFFECTSThe Basel III regulation to take effect this year will be limited to bank capital requirements. Since the capital of most domestic banks consists of common equity, the impact of Basel III capital regulations will not be significant unlike banks in the US and Europe.FUTURE PLANThe authorities will gather additional opinions on the revisions to the ‘Regulation on Supervision of Banking Institutions’ and ‘Enforcement Rules for Banking Supervision’ from May 31 to June 19, 2013. Final decision will be made by the FSC in June.Basel I, II, III Comparison Region Implementation Schedule Member Countries Asia Not finalized(2) Korea
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May 24, 2013

'Growth Ladder Fund' to be Launched to Support SMEs and Venture Companies

BACKGROUNDA healthy investment ecosystem for start-ups and investors is an essential foundation for “Creative Economy”1 and “Creative Finance.”2Start-up companies are often faced with funding shortages as the early stages of business start- up growth involve greater risks for investors due to uncertainties and asymmetric information. The expectation gap between start-up owners and investors about commercial value of technology and business profitability often creates a supply-demand imbalance of funds, called “Death Valley” for start-ups.The government and public financial institutions are called to take the role of addressing such imbalance and create a sound and well-functioning ecosystem.CURRENT FUNDING CONDITIONS FOR SMES VENTURE COMPANIESOverall, SMEs and venture companies are provided with sufficient funds and liquidity through supportive measures by the government.3The funding structure of SMEs is, however, highly dependent on loans from banks and public financial institutions with 99% of SME financing from loans, while the proportion of investment remain small.Investors remain risk-averse with most investment disproportionately concentrated towards the latter phase of business cycle which involves less risks compared to the early stage of business start-up. The percentage of venture capital invested in companies with less than 3 years of operation remains a mere 30%.Loan type investments with high interest burden such as convertible bond and redeemable preferred stock are increasing.(unit: %, Korean Venture Capital Association) Common Stock Preferred Stock CB/BW PF Etc. 2012 19.5 39.6 14.9 19.9 6.1 2011 27.4 35.2 16.4 17.8 3.2 ∙ ∙ ∙ ∙ ∙ ∙ 2006 46.2 19.9 12.1 12.7 9.0 2005 36.8 17.2 16.7 16.2 13.2 CREATION OF ‘GROWTH LADDER FUND’The government plans to create a dedicated fund, tentatively named ‘Growth Ladder Fund’, to address such problems in funding conditions of SMEs venture companies and to provide innovative SMEs venture c
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May 21, 2013

Debts Held by Joint Sureties during the Asian Financial Crisis to be Written-off

BACKGROUNDJoint sureties heavily indebted as a result of business bankruptcy during the Asian financial crisis are still facing difficulty in returning to normal economic activities. Some of them are limited in access to financial services as their delinquent credit record still remains undeleted and shared among financial institutions. It is imperative for the government to bail out those individuals and give them a second chance.RECIPIENTS OF SUPPORTDebtors involved in joint sureties for bankrupt SMEs from 1997 to 2001 are the subject of the government’s debt write-off program.① 1,104 debtors whose delinquent credit record has not been removed;- 528 debtors whose delinquent credit record remains on the court’s list of defaulter.- 576 debtors who are registered as a person responsible for bankruptcy on dishonored bill.② 113,830 debtors who have not yet repaid debts1 from joint sureties.SUPPORTIVE MEASURES① All delinquent credit records registered on the Korean Federation of Banks (KFB) will be deleted.② Outstanding debts from joint sureties will be rescheduled.- Subject to debtors with combined debt of less than KRW 1bn.- 40~70% of the principal2 will be written-off.- Repayment period of 10 years in maximum.③ Korea Asset Management Corporation (KAMCO) will purchase debts from financial institutions for debt restructuring.FUTURE PLANCandidates may apply for the program through KAMCO main office and branches from July 1 to December 31, 2013.*Please read the attached file for details.
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May 10, 2013

Amendments to the 'Best Practice Guideline for Financial Consumer Protection'

BACKGROUNDThe ‘Best Practice Guideline for Financial Consumer Protection,’ enacted on June 9 2006, has contributed to promoting financial industry’s awareness on consumer protection. In response to a global trend toward stronger financial consumer protection after the 2008 global financial crisis, the FSC revised the Best Practice Guideline to protect financial consumers’ rights and interests in a more active and preemptive manner. The newly-amended guideline will be implemented starting July 2013.AMENDMENTS(1) Financial institutions will be required to appoint Chief Consumer Office (CCO) in charge of financial consumer protection and ensure his/her independent authority in the matter.(2) The overall process from product development to product sale and follow-up management will be required to be under stricter control so that financial companies will be able to preemptively deal with consumers’ complaints and provide prompt remedies for consumer losses.- Product development: Bolster prior consultation between product development and financial consumer protection division. Create ‘financial consumer protection checklist’ to prevent potential risks that could harm consumer’s benefit.- Product sale: Draw up each financial company’s individual ‘principle of duty’ containing the principle of good faith and principle of suitability to transparently provide consumers with all information needed before purchasing financial products. - Follow-up management: Establish and operate ‘consumer feedback system’ to enhance communication between financial firm and consumers. Evaluate each employee’s consumer protection performance.* Please read the attached file for details.
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Apr 18, 2013

Comprehensive Measures to Eradicate Unfair Transaction

OVERVIEWDespite dedicated efforts of the financial and judicial authorities to root out unfair transactions, limits and problems have been witnessed. The government, in close coordination with relevant agencies1, came up with a package of measures to eradicate unfair transactions such as stock price manipulation.MAJOR CHANGES AND IMPROVEMENTS(1) Establish and operate surveillance infrastructure in the KRX to better identify unfair transaction practices committed in cyber market.(2) Implement new transaction information verification system to actively respond to unfair transactions using intelligent techniques such as mobile devices.(3) Strengthen incentives for those reporting cases of unfair transaction.(4) Establish special task force dedicated to investigation of unfair transaction cases within the FSC and operate Fast Track system.(5) Classify unfair transaction cases into ‘case of great significance’, ‘case of significance’, and ‘general case’ according to the gravity of issue and handle the case of great significance with equal magnitude as a case requiring immediate investigation.(6) Appoint investigators and FSS workers dispatched to investigation team as special judicial police officers and grant access to telecommunications log and ban overseas travel.(7) Amend the Financial Investment Services and Capital Markets Act (FSCMA) to mandate those sentenced for imprisonment to pay penalty as well as confiscate and charge additional fine in order to claim unfair profits more than two folds.(8) Implement additional penalty system to root out practices which disturb market order.(9) Amend the FSCMA and add clauses related to the rights to make inquiries to the NTS about taxation information in order to increase default penalty collection rate.(10) Establish and operate support center in the KRX to aid investors suffering losses from unfair transaction. Expand subjects of and ease requirements for collective suit related to securities.*Please read the a
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Apr 03, 2013

Financial Policy Agenda for 2013

The FSC set three missions for 2013 with nine key policy tasks. *Please read the attached file for details.
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Mar 25, 2013

National Happiness Fund To Be Launched

OVERVIEWThe FSC unveiled details about the National Happiness Fund, which will be officially launched on March 29, 2013. The Fund aims to help credit recovery of delinquent borrowers and heavily-indebted low-income earners with programs including restructuring debt, easing debt servicing burden on student loans, and converting high-interest loans to lower-interest ones.Those programs will need a total of KRW 1.5 trillion over the next 5 years. The Fund will initially raise KRW 800 billion through the KAMCO-controlled fund, loans and bond issuance. The remaining KRW 700 billion will be funded by the Fund’s proceeds and guarantee fees.Financial institutions and non-bank lenders which sign an agreement for credit recovery assistance will be obliged to sell overdue loans to the Happiness Fund if their borrowers apply for debt restructuring.1PROGRAMS TO BE FUNDED BY THE NATIONAL HAPPINESS FUND1. Credit Recovery Assistance ProgramDebt restructuring for overdue loans will be operated with two tracks:(1) Debt restructuring by borrowers’ prior applicationThe fund will purchase overdue loans by prior application of debtors who borrowed from the enlisted financial institutions.(2) Debt restructuring by borrowers’ later consent Debt restructuring by borrowers’ prior application Debt restructuring by borrowers’ later consent eligible applicants Individuals who borrowed less than 100 million won overdue for 6 months or longer as of end- February 20132 The fund first proposes debt restructuring for “Individuals who borrowed less than 100 million won overdue for 6 months or longer as of end-February 2013” benefits ① Up to 50% of debt can be written off depending on the applicant’s age, period of overdue payment, income ② Repayment schedule can be extended by up to 10 years Equivalent benefits with debt restructuring by prior application. However, the rate of debt write-off will be lower than debt restructuring by prior application. nullification of benefits If t
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Mar 21, 2013

FSC Response to Cyberattack on Bank Servers

CURRENT SITUATIONAt around 2 pm on March 20, some banks including Nonghyup Bank, Shinhan Bank, and Cheju Bank suffered computer network failures. As of 11 am on March 21, banks except some branches of Nonghyup have restored their operations.Investigation is now underway to figure out the cause of the incident, but it is presumed that malicious codes were distributed through the servers that caused computer shutdowns at those banks.FSC/FSS RESPONSEThe Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) jointly formed an emergency response team to respond the crisis in real time and raised its alert to possible cyberattacks from “attention” to “caution.”The FSS dispatched inspection teams to the affected banks including Shinhan and Nonghyup to look into the cause of the incident and monitor progress in restoring operations.In cooperation with the Information Share Analysis Center (ISAC) by Korea Financial Telecommunications and Clearing institute (KFTC) and Koscom to uncover details of the incident.The Korea Internet Security Agency (KISA) distributed vaccine programs against malicious codes and temporarily shut down servers for vaccine updates in case of additional attacks.The FSC and FSS direct banks to come up with measures to compensate for any losses or damages incurred to customers by the cyberattack, if any.So far, there is no case reported that the incident caused leakage of customers’ personal information.*Please read the attached file for details.
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Mar 08, 2013

FSC Emergency Meeting after the Adoption of U.N. Security Resolution against North Korea

As the U.N. Security Council unanimously adopted new sanctions against North Korea’s nuclear test on February 12, the FSC Vice Chairman Choo Kyung-ho convened an emergency meeting this morning to discuss possible impact that the adoption of U.N. resolution would bring to financial markets.As of now, global financial markets seem to be little affected by the adoption of the U.N. resolution. The U.S. Dow Jones Industrial Average index hit a record-high for three consecutive days. The KRW/USD NDF rate slightly fell from yesterday, and Korea’s credit default swap (CDS) spread rose 1basis point from yesterday to 64basis point.Given that the North Korea-related risks in previous cases had temporary and limited impact on domestic and overseas financial markets, market experts forecast that the possible impact of U.N. sanctions against North Korea would be short-lived.However, the Korean government stays alert to a possibility of North Korea’s further provocation as the resolution imposes tougher sanctions against Pyongyang that previous resolutions. If North Korea took further provocative actions, Korea’s geopolitical risks and market volatility would be heightened.The FSC will closely work with the Ministry of Strategy and Finance (MOSF), the Bank of Korea (BOK), and the Financial Supervisory Service (FSS) to monitor financial market conditions and take market-stabilizing actions in a timely manner if needed.*Please read the attached file for details.
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Mar 04, 2013

Revision Bill on the FSCMA Approved by the Legislation and Judiciary Committee of the National Assembly

The Legislation and Judiciary Committee of the National Assembly approved the revision bill on the Financial Investment Services and Capital Markets Act (FSCMA) on March 4, 2013, which includes the creation of a central counterparty clearing house (CCP) and reflects related changes in the Commercial Act amended in April 2012.KEY CONTENTS1. Introduction of a CCP for OTC transactionsA new business sector will be created to deal with clearing of financial investment contracts. Clearing business operators will be approved depending on types of financial products they deal with.Over-the-counter (OTC) derivatives whose default could deliver significant impact to the market will be mandatorily cleared through a CCP.2. Changes in line with the amendment to the Commercial ActThe revision also reflects the related amendments to the Commercial Act which already went into force last year. With the amendment to the Commercial Act, some provisions in the original FSCMA are abolished under which listed companies might be further restricted in clearing off their profits than non-listed companies. In the same context, listed companies will be exempted from disclosure obligations under the Commercial Act as they are supposed to disclose important facts on-line when they allocate new shares.EXPECTATIONS WITH THE INTRODUCTION OF CCPThe creation of a CCP for OTC derivatives is expected to significantly reduce counterparty risk and establish effective risk management system for OTC transactions.In particular, if IRS, which takes up the largest portion of OTC derivative market, were mandatorily cleared through the CCP, the settlement safety of OTC derivatives will be significantly improved.Creating a CCP in Korea as soon as possible will help prevent flight of clearing demands to overseas competitors and survive growing competition among global CCPs.With the introduction of CCP, Korea will be able to implement the G20 agreements and bring OTC derivative regulations in line with global sta
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Feb 28, 2013

FSC/FSS Joint Meeting on Domestic and Overseas Financial Market Situations

The FSC Vice Chairman Choo Kyungho convened an FSC/FSS joint meeting on February 28, 2013 to review recent developments of current global issues such as Italy’s election and the US sequester, analyze the impact on financial markets home and abroad and discuss policy responses in the future.OVERSEAS FINANCIAL MARKETGlobal financial markets face a growing political risk which came from Italy’s political uncertainty and the impending automatic budget cuts in the US known as the sequester.The result of Italian election this week heightened concerns about anti-austerity sentiment across the euro-zone countries, increasing uncertainty surrounding the euro-zone crisis.Global stock markets fell right after Italy’s election but quickly rebounded. However, there remains a possibility that the country’s fiscal condition would worsen and political tensions with other euro-zone countries would heighten depending on future developments in Italy’s politics.The Republican-Democratic confrontation surrounding the US sequester is also a destabilizing factor to global financial markets. If both parties fail to reach an agreement and sequester begins on March 1 as scheduled, the US would suffer a recession of the real economy.DOMESTIC FINANCIAL MARKETThe KOSPI fell on February 26 with the result of Italy’s election but quickly rebounded on February 27.2 The KRW/USD exchange rate remained stable.Despite the outflow of foreign funds since February 26, February ends with a net inflow of foreign capital. Foreign borrowing conditions for domestic banks also remained sound.However, there is a possibility that uncertainty in overseas and domestic financial markets grows depending on how the situations in Italy and the US unfolds in the future.We also need to remain cautions as domestic financial market is exposed to the North Korea-related risk and expanded volatility in foreign exchange markets triggered by major economies’ monetary easing.POLICY RESPONSES IN THE FUTUREThe FSC/
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Feb 26, 2013

Plan for Introduction of Synthetic ETFs

The FSC approved a revision to the KOSPI Market Listing Regulation submitted by the Korea Exchange (KRX) at its regular meeting on February 22, 2013 to lay a foundation for introducing synthetic Exchange Traded Funds (ETFs) to the KOSPI Market and strengthen criteria for listing and delisting ETFs.With the revision, the FSC expects further diversification of ETF market and stronger investor protection.KEY CONTENTS1. Foundation for introduction of synthetic ETFs1The revision sets a regulatory framework to manage the counterparty risk, with structural features of swap agreements included in synthetic ETFs taken into considerationCounterparties for synthetic ETFs are mandated to meet certain eligibility requirements to enter, operate, exit, and disclosure their investment.2 The ETFs will be delisted if the counterparty risk significantly threatens continued trading of the products.ETF management companies are required to establish systems to evaluate and manage the counterparty risk and collateral assets, and disclosure counterparty risk.2. Strengthened criteria for listing and delisting ETFsThe minimum amount of trust principal for listing ETFs is increased from KRW 5 billion to KRW 7 billion.Listing eligibility test is strengthened for qualitative elements such as whether an ETF product can be continuously traded, or whenter the applicant for listing has proper internal control system.Small ETFs will be reviewed semiannually and delisted if they fail to meet certain criteria.3 In the first half of 2013, small ETFs likely to incur losses to investors4 will be encouraged to be delisted on a voluntary basis.3. Upcoming scheduleSynthetic ETFs are expected to be listed to KRX in the first half of this year after amendments to detailed rules on KRX listing regulation and Listing Guideline.*Please read the attached file for details.
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