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Apr 29, 2021
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Apr 29, 2021
- Government Announces Household Debt Management Plan for 2021-2023
- The government announced the household debt management plan for 2021-2023 on April 29. The plan is aimed at (i) managing the growth rate of gross household debt at stable levels for the mid- to long-term and (ii) establishing lending practices based on individual borrowers repayment capability. Background Household debt growth remained stable from 2017 to 2019 as the government was able to implement a consistent policy for household debt management. However, due to expansionary fiscal and monetary policies put in place in response to the COVID-19 pandemic, the household debt growth rate accelerated in 2020.In this year, the growth rate has slowed down somewhat since the government announced a series of policy measures to tighten mortgage regulations and boost housing supply. However, the household debt level still remains high even though credit loans which was a dominant factor in the last years household debt growth in the second half appears to have come down to a stable level. Koreas household debt has been regarded as one of the potential sources of financial risk, given its relatively high ratio against GDP and fast pace of growth compared with major economies. However, the increase in private sector debt in response to COVID-19, which is a common phenomenon, has been inevitable to some extent. In addition, due to the governments efforts at improving the structural soundness of household debt, it is unlikely that household debt turns into a systemic risk in the short-term. Against this backdrop, the government intends to preemptively manage household debt from a macroprudential perspective to prevent it from turning into potential risk factors. Regulatory adjustments at a micro level are also needed to ensure that a tightening of mortgage regulations do not curtail first-time homebuyers access to mortgages. The current regulation of loan-to-value (LTV) ratio, uniformly applied across all homebuyers, has limited opportunities for first-time homebuyers. Moreover
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Apr 19, 2021
- Improved Securities Lending System for Retail Investors to Come into Place from May 3
- The FSC announced that the improvements made to the securities lending system for retail investors will come into place from May 3, 2021. From May 3, seventeen securities firms will begin to provide stock lending services in the amount of about KRW2 trillion to KRW3 trillion. Retail investors wishing to participate in stock short selling are required to complete pre-learning and mock trading programs which will be available from April 20. Based on the level of experience of individual investors, the maximum investment amount allowed for short selling will be differentially applied. Key Details Retail investors access to stock short selling has been limited as a shortage in securities lending led to the decline in the demand for stock borrowing and number of securities firms offering such service. As of the end of February 2020, securities lending services were available from only six securities firmsin the amount of about KRW20.5 billion. In order to improve retail investors access to stock short selling, the FSC and financial investment businesses will begin to offer more opportunities for stock borrowing. A total of twenty-eight securities companies will provide securities lending services. However, as these companies have different schedules for completing the development of their IT system, from May 3, stock lending service will be available from seventeen securities firms first with the rest expected to join within this year. As such, it is expected that a total of KRW2.4 trillion in stock lending will become available for KOSPI 200 and KOSDAQ 150 stocks on May 3.For retail investors, a maximum of sixty days of stock borrowing period is guaranteed unlike institutional or foreign investors. Safeguards and Regulations for Retail Investors The following safeguards have been put in place to bolster investor protection against excessive loss. First, investors should have securities lending agreements with their trading firms and those without an existing account nee
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Apr 15, 2021
- FSC Chairman Holds Talks with Relevant Officials Ahead of Partial Resumption of Stock Short-selling
- FSC Chairman Eun Sung-soo met with officials from relevant institutions and heads of securities companies on April 15 and held talks on the preparatory measures for partial resumption of stock short-selling on May 3,recent stock market trends and virus prevention measures taken by the financial investment industry. The following is a summary of Chairman Euns remarks. (KOSDAQ Surpassing 1,000 pts) KOSDAQ recently surpassed 1,000 points for the first time since September 2000. Throughout the years, the authorities have worked to improve the KOSDAQ market for venture capitals and startups by allowing lossmaking companies to be listed and introducing technology-based preferential listing system. As a result, KOSDAQ emerged as a distinct market for investors with many businesses with significant future growth potential being listed. The Korea Exchange, relevant institutions and the financial investment industry have put efforts to improve the investment infrastructure and seek out promising businesses. Through the Korean New Deal initiative and the government-wide effort to cultivate more innovative businesses, the government will work to support venture startups and innovative firms in KOSDAQ market to further strengthen our economy. (Ensuring Investor Trust in the Market) It is important to ensure that investors have confidence and trust about the fairness in the market. In order to root out illegal and unfair marketing or advising practices in stock markets, the government has been operating a response team since October 2020. The response team will continue to work to prevent inappropriate activities and improve regulations. Prior to the partial resumption of short-selling on May 3, the authorities will continue to work to resolve various concerns of investors. Out of the four regulatory improvement measures announced earlier, stronger penalties on illegal short-selling activities and improved rules for market makers have already become effective. The two remaining m
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Mar 30, 2021
- New Regulations on Stock Short Selling to Take Effect from April 6
- The government approved the revisions to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) during a cabinet meeting held on March 30. The amendments and the revised FSCMAwill take effect on April 6. (Penalty standards) The revised FSCMA created the imposition of penalty surcharges on illegal short sale activities. Specific amounts for monetary sanctions will be determined through comprehensive consideration of the total amount of short orders and profits gained from the illegal short sale activity. (Record keeping requirement on securities lending agreements) The revised FSCMA requires short sellers to keep their securities lending agreements for five years to be presented promptly to the relevant authorities upon request. As such, the Enforcement Decree will be revised to prescribe specific criteria to be maintained, including information on stock items, number of shares, transaction dates, counterparties, lending periods, fee rates, etc. It also requires the maintenance of transactions data stored in an electronic transaction processing platform or other format that is not susceptible for alteration. (Restriction on short sellers participation in capital increase) The revised FSCMA restricts short sellers from participating in a companys capital increase via issuing new shares once the company has made such a plan public, except in certain cases. As such, the Enforcement Decree will be revised to determine a specific time period wherein the short sellers participation in capital increase is restricted as well as specific cases for exception as specified below. If an investor has shorted a companys stocks during the restriction period, the investor cannot participate in the companys capital increase, except for the cases where the short selling is deemed to have no unjust effects on the issuing price as stated below. - Restriction Period: From one day after the disclosure of the companys capital increase plan until the dete
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Mar 25, 2021
- FSC to Closely Monitor Market Situations and Gradually Roll Back Crisis Response Measures
- Vice Chairman Doh Kyu-sang held the 37th financial risk assessment meeting via teleconference on March 25 and discussed the progress in the implementation of the COVID-19 financial support for small merchants and SMEs. The following is a summary of Vice Chairman Dohs remarks. (Pandemic Response Measures) In response to the COVID-19 pandemic, the government implemented a KRW175 trillion-plus emergency financial support package to provide support for small merchants and SMEs, stabilize financial markets and help businesses in key industries with liquidity shortages. Thanks to the active support shown by the financial institutions, markets quickly bounced back and financial difficulties experienced by small merchants and other vulnerable groups began to ease. On the Korean governments bold response to the crisis situation, the IMF in January this year released a positive assessment, and the OECDs recent growth forecast expects Korea to achieve a full recovery within this year. Bold and preemptive responses were effective given that the scale of policy response had to exceed market expectation at a time when extreme anxieties were spreading across markets. However, with signs of an economic recovery in the US, inflation expectations have been rising as well as the long-term bond yields. In this regard, the government will closely monitor market situations and work on preemptive management to prepare for a possible rate hike in domestic markets. In addition, there have been growing concerns about inappropriate trading activities in stock markets. There are active discussions going on in this regard at the National Assembly to strengthen penalties on unfair and inappropriate trading activities, such as price rigging. The government will closely cooperate with the relevant institutions to work on the prevention of inappropriate trading activities. (Maturity Extension Payment Deferral) Since April 1 of last year, all financial institutions made available maturity extensions
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Mar 15, 2021
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Mar 11, 2021
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Mar 02, 2021
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Feb 26, 2021
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Feb 22, 2021
- FSC to Strengthen Liquidity Management of Specialized Credit Finance Companies
- The FSC announced a set of measures aimed at strengthening the liquidity management of specialized credit finance companies on February 22. The measures include (a) establishing best practice guidelines, (b) strengthening disclosure requirements and (c) gradually reducing the maximum leverage on credit finance (non-credit card) businesses. Background Specialized credit finance businesses are lenders without deposit-taking functions.They usually finance their business through borrowings or the issuance of corporate bonds and asset-backed securities (ABS). In particular, their heavy reliance on debt finance, about 73.9 percent of their financing,creates a problem of risk transfer to financial institutions holding their corporate bonds, especially if credit finance companies face solvency problems. In this regard, there have been concerns about credit finance companies turning into a conduit of systemic risk in times of an unexpected economic shock such as COVID-19. Therefore, liquidity problems of credit finance businesses can pose a risk not only to the borrowers with mid-to-low credit backgrounds but also to the real economy as they may cause a drop in consumption and corporate facility investment. Key Measures I. Best Practice Guidelines on Liquidity Management The best practice guidelines on specialized credit finance companies liquidity management will be introduced for implementation beginning in April this year. - (Target) Bond issuing credit finance companies and those with more than KRW100 billion in total assets will be subject to the new guidelines. - (Role of Board and Management) Board of directors should oversee the establishment and operation of liquidity management strategies and the company management should prepare specific management process and criteria and regularly report to its board members. - (Liquidity Risk Indicators) Major liquidity risk indicators include corporate bond maturity distribution, liquid asset ratio, short-term debt ratio, etc.
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Feb 08, 2021
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Feb 05, 2021
- Rules Change Announced for Insurance Businesses Specializing in Small-sum and Short-term Policies
- The FSC announced the revisions to the Enforcement Decree of the Insurance Business Act on February 4, setting entry requirements for the establishment of insurance businesses specializing in small-sum, short-term policies and introducing measures to improve the soundness of the insurance industry. The revisions will be put up for public notice for forty days until March 17, 2021. Key Revisions (Small-sum Shor-term Insurance Policies) The minimum capital requirement for setting up an insurance business specializing in small-sum, short-term insurance policies will be set at KRW2 billion. Small-sum, short-term insurance coverages will be allowed in all insurance coverage areas where applicable with a coverage term of one year, premiums of up to KRW50 million and the insurers annual gross premium revenues up to KRW50 billion. (Requirement for External Evaluation on Policy Reserves) Insurance businesses with total assets of KRW1 trillion or more will be required to have external actuaries approve the appropriateness of their policy reserves. This requirement will also be applied to the insurers with less than KRW1 trillion in total assets but whose policy coverage types are considered as essential for them to ensure the payout capabilities. The external actuaries will be entitled to a right to request relevant information from insurance companies. To guarantee impartiality, external evaluations from the same institution will not be allowed for four consecutive years. (Rules on Subsidiaries) The revisions will clearly indicate that insurers will be permitted to own MyData and health care-related businesses as subsidiaries. Expectation The authorities expect that the revisions will help promote the development of diverse types of small-sum, short-term insurance products for consumers according to their individual lifestyle, improve the soundness and competitiveness of insurance businesses and encourage insurers to boost investment and cooperation in new business areas, su
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Feb 03, 2021
- FSC Announces Decision on Short-selling Ban
- FSC Chairman Eun Sung-soo held a press briefing on February 3 and announced the decision to extend the short-selling ban until May 2, 2021 and to allow a partial resumption of short-selling from May 3 on KOSPI 200 and KOSDAQ 150 stocks. Summary of Chairmans Remarks (FSCs Decision) The FSC has decided to extend the current short-selling ban until May 2 this year and allow a partial resumption from May 3 on KOSPI 200 and KOSDAQ 150 stocks. The partial resumption is intended to minimize the impact on markets, given these stocks have large market caps and liquidity so that the resumption of short-selling would have limited impact on stock prices. Meanwhile, the short-selling ban will remain on the rest of stocks (2,037 stock items) with further decisions on the resumption of short-selling on these stocks to be made later based on market conditions. The resumption date of May 3 has been decided to give the Korea Exchange (KRX) some time for system development and testing. With the revised Financial Investment Services and Capital Markets Act scheduled to go into effect on April 6 this year, with stronger penalty rules for illegal short-selling activities, there will be no issue of a legislative gap. Today, the FSC commissioners raised the same voice on the need to improve the short-selling system as there are investor demands for more transparency and fairness in the short-selling system. (Improving the Short-selling System) Prior to the May 3 partial resumption, the FSC will work on measures to improve the short-selling rules. First, The FSC will work to ensure the detection of and punishment on illegal short-selling activities. With the revised Financial Investment Services and Capital Markets Act, short-sellers will be required to keep their securities lending data for five years and the securities firms will be required to tighten monitoring of illegal short-selling activities. The securities firms are currently in the process of getting their systems ready according
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Jan 28, 2021
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Jan 26, 2021
- Financial Authorities to Work on Risk Management and Support Transition to First-mover Economy
- Vice Chairman Doh Kyu-sang held the 33rd financial risk assessment meeting via teleconference on January 26 to discuss key risk factors in 2021 and review the implementation of the COVID-19 lending support for SMEs and small merchants. The following is a summary of Vice Chairman Dohs remarks. (Risk Management) With the pandemic response measures put in place, the public and private sector debt increased throughout the world and asset prices have seen a rapid acceleration with abundant market liquidities. The accumulation of excessive debt may pose a risk to the economic recovery, and the financial authorities will continue to work on the management of the household and corporate debt. The FSC plans to introduce measures to more effectively manage household debt in the first quarter, which will focus on the application of DSR rules to individual borrowers. On corporate debt, the authorities will set up a monitoring system to check the status of corporate financing across different industries. Stock prices have gone up due to strong trading activities by retail investors. However, there are possibilities of a rising market volatility and the authorities will closely monitor the conditions in the stock markets. In addition, the authorities will work to strengthen the oversight of illegal and unfair trading activities including illegal short selling, while preparing tax incentives for longer-term stock investment. The FSC will also soon introduce measures to improve the competitiveness of the publicly offered funds to make the process more investor-oriented. (Channeling Funds to Productive Sectors) The authorities will work to ensure that the abundant market liquidities are flowing into productive sectors and toward the vulnerable groups in need. In this regard, the FSC will work on a seamless implementation of its policy on New Deal fund, which will be raised up to KRW4 trillion in 2021 with its first investment project hoped to be announced in March. In April, another
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Jan 19, 2021
- FSC Announces 2021 Work Plan
- The FSC unveiled its work plan for 2021 on January 18, highlighting the four areas of policy tasks as follows(a) maintaining the COVID-19 financial support and managing potential risks, (b) supporting K-New Deal initiatives for a green and digital economy, (c) promoting financial innovation and digital finance and (d) strengthening financial consumer protection and support for vulnerable groups. KEY ACHIEVEMENTS IN 2017-2020 A. STEADY MAINTENANCE OF FINANCIAL STABILITY AMID COVID-19 PANDEMIC Over the past four years, the FSC has focused on maintaining stability in the financial system as its utmost policy priority. In the wake of the COVID-19 pandemic, the FSC responded by quickly drawing up and providing financial support packages worth KRW175 trillion-plus and worked to prevent the crisis from spreading further into the financial markets. B. SUCCESSFUL CHANNELING OF FUNDS TO PRODUCTIVE SECTORS The FSC has worked to expand the supply of capital into more productive sectors by introducing innovative ways to assess corporate credit and through revisions to the relevant capital markets rules. In addition, the public sector has provided equity-based funding sources via growth ladder fund and other government-backed financing channels. C. ACTIVE PROMOTION OF COMPETITION AND INNOVATION IN FINANCIAL INDUSTRY The FSC has granted new business licenses to internet-only banks, insurance firms and real estate trust companies based on an industry-level competition assessment. In order to promote and expand financial innovation, the FSC has also worked to establish the necessary infrastructures, including the regulatory sandbox, open banking and MyData in financial services. D. ENHANCED INCLUSIVENESS VIA MICROFINANCE SUPPORT AND CONSUMER PROTECTION The FSC has worked to reduce the interest payment burdens of lower income households by lowering the maximum interest rate that can be charged on loans from 24% to 20%. E. IMPROVED FAIRNESS BASED ON RULES AND PRINCIPLES The FSC has al
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Jan 13, 2021
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Dec 21, 2020
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Dec 09, 2020
