Vice Chairman Kim Soyoung of the Financial Services Commission attended a policy seminar on future finance hosted by Korea Institute of Finance and sponsored by the FSC on July 8. Today’s seminar was held under the theme of “future megatrends and impending changes in the financial sector,” which brought together public and private sector experts with diverse backgrounds, to have discussions on the impact of rapidly changing demographic structure, climate change, and technological advance on the financial market and ways to effectively cope with these changes.
At the beginning of the seminar, Vice Chairman Kim delivered a keynote address on the topic of “megatrends and policy framework for future finance,” in which he emphasized the need for the financial industry and the government to prepare measures to secure sustainable ways to grow in a preemptive manner. The following is a summary of Vice Chairman Kim’s remarks.
Against the backdrop of rapidly changing financial environments and market conditions, the authorities have been thus far mostly focused on responding to issues that needed to be addressed urgently. However, since financial policy can have a significant impact on the structural and macro-level changes, it is important that the authorities set their sight on a medium- to long-term horizon when formulating policy responses. In this regard, the authorities are working on policy frameworks for future finance, based on systematic analyses intended to minimize risks and seek opportunities for growth over a medium- to long-run.
The taskforce on future finance organized into three sub-groups—demographic shift, climate change, and technological advance—have been examining both challenges and opportunities in their respective areas, while seeking policy measures with three specific aims—mitigation, adaptation, and innovation.
The “mitigation” policy is aimed at reducing the impact of impending change and shock, while slowing the pace of their occurrence. The “adaptation” policy is geared toward minimizing potential damage caused by the change and developing a system that can facilitate an adjustment. The “innovation” policy, which is deemed to be the most important of all, intends to lay foundation and establish regulatory frameworks to transform changing situations into new growth opportunities.
Regarding the issue of demographic shift, rising costs and slowing pace of growth pose risks to an aging society. In this regard, the financial industry will need to be able to respond to the growing demand for financial services specifically designed for the elderly, such as long-term care, medical related, and pension services. However, the changing demographic structure also presents opportunities for financial companies to seek diversification in their profit seeking strategies, through which they can offer products tailored to the needs of specific age groups to ensure the supply of financial products suitable for customers’ lifecycle needs.
In this regard, it is important to continue to implement financial policies aimed at boosting birth rate and the size of working age population, such as the lending support for young adults (“mitigation” policy), alongside the measures to bolster financial safety net for the elderly (“adaptation” policy) and broaden the availability of services targeted at old age groups (“innovation” policy).
On climate change, businesses face the need to secure large-scale funds to deal with climate change over a long period of time, and that the financial industry as a whole is also exposed to the risk of climate change. However, since climate related financial markets are expected to see significant growth in the future, this can open up new possibilities with vast investment opportunities.
To this end, the financial sector needs to contribute to greenhouse gas reduction and low carbon emission. In this regard, in March this year, five policy financial institutions announced their plans to supply KRW420 trillion in total to combat climate risks until 2030 (“mitigation” policy). It is also important to continue to carry out joint stress tests (with the Bank of Korea and the Financial Supervisory Service) on financial sectors to ensure prudential management (“adaptation” policy), while seeking ways to develop climate related financial products, promote green finance, and provide support for climate technologies (“innovation” policy).
On technological advance, the availability of AI-driven fintech services and the convergence of financial and non-financial services are becoming ever more relevant in our daily lives. While new technologies provide opportunities for the financial industry, they also present downside risks, such as the potential for market instability, or damage to consumer rights and interests, which also need to be taken into account.
In this regard, measures to boost accountability in the application of AI technologies, ensure data security, and prevent accidents (“mitigation” policy) need to be implemented, alongside the measures to upgrade regulations on network separation and build a technological infrastructure to promote the use of big data analytics (“adaptation” policy). Especially when innovative technologies are being rapidly taken up by financial services around the world, the financial authorities will continue to promote the use of various types of new technologies to propel growth of the financial market and the industry. To make this happen, a concerted effort is required from both the private and public sectors.
Experts at today’s meeting presented their ideas and held discussions on the challenges and opportunities regarding future financial policy strategies. The FSC plans to continue to carry out discussions during the second half and announce more comprehensive measures at the end of this year.
* Please refer to the attached PDF for details.