Financial stability is a prerequisite to innovation and inclusive finance policies. FSC maintains close market monitoring for any signs of market volatility and works to ensure stability in the financial markets. There are risk factors originating from abroad and from within. FSC focuses on making our economy more resilient from external shocks, such as a disruption in the global supply chain, and supporting Korea’s material, component and equipment industries to help boost their global competitiveness. Internally, FSC is closely monitoring the trends in household debt and seeking reforms to corporate restructuring in order to prevent domestic risk factors from turning into systemic risks. Policies aimed at increasing financial stability also include enhancing fairness in the financial markets by introducing a comprehensive legal framework for the supervision of financial conglomerates, improving market discipline and promoting transparency in corporate disclosure and accounting practices.
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Jun 17, 2019
- FSC to Reform Benchmark Interest Rates
- The FSC and the Bank of Korea (BOK) jointly launched a taskforce to develop a new benchmark interest rate, which aims to replace the current benchmark interest rate of certificate of deposits (CDs) by 2021. Co-chaired by FSC Vice Chairman and BOK Vice Governor, the taskforce is composed of officials from the Ministry of Economy and Finance, the Financial Supervisory Service, market participants and research institutions.The rate-rigging scandal of the London Interbank Offered Rate (LIBOR) in 2012 prompted global reform efforts to improve the representativeness and credibility of benchmark interest rates. In preparation for the expiration of LIBOR in 2022, the US, the UK, the EU, Japan and Switzerland are replacing it with new benchmarks such as “risk-free” overnight rates. Other countries including Australia, Canada, Hong Kong and Singapore, whose currencies are not used to calculate LIBOR, are also developing alternatives to enhance the representativeness and transparency of benchmark interest rates and their consistency with international standards.In line with the global move, Korea will also develop a new benchmark interest rate as an alternative to the CD rates, currently being widely used as a benchmark interest rate in Korea’s financial markets.However, the CD rates have fundamental limitations in serving as a benchmark interest rate: (i) the issuance of CDs is not sufficient; and (ii) CD rates are based on quotes, not real transactions.Against this backdrop, the FSC and the BOK jointly launched a taskforce to develop an alternative to the CD rates, which aims to publish a new benchmark interest rate in March 2021. Meanwhile, the taskforce will also come up with measures in the second half of 2019 to boost the issuance of CDs and improve the current method of calculating CD rates.At a kick-off meeting on June 14, FSC Vice Chairman Sohn Byungdoo called for an active role by market participants including banks, financial investment companies and the KRX i
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Jun 12, 2019
- FSC to Extend Guidelines for Comprehensive Supervision on Financial Conglomerates
- The FSC decided to extend the best practice guidelines for comprehensive supervision of financial conglomerates for another year with some revisions.The introduction of comprehensive supervision on financial conglomerates is one of key policy agenda under the Moon Jae-in administration. The comprehensive supervisory scheme is intended to capture and manage group-wide risks of financial conglomerates that conventional sectoral supervision cannot fully address. It will also help prevent any possible contagion of group-wide risks into financial affiliates.Since the FSC announced its plan to introduce a comprehensive framework for financial conglomerates in January 20181, best practice guidelines were established and implemented with seven financial conglomerates2 starting from July last year. As the guidelines are due to expire on July 1 this year, the FSC decided to extend the deadline to July 1, 2020. The FSC also made some amendments to the guidelines to reflect feedback received from financial conglomerates and make it better coordinated with other relevant laws.Given that the one-year pilot test under the guidelines is to be extended for another year, a list of financial conglomerates subject to comprehensive supervisory schemes will remain same with last year: Samsung, Hanwha, Mirae Asset, Kyobo, Hyundai Motor, DB and Lotte.Based on the guidelines, the FSC will provide detailed standards for designation of subjects of comprehensive supervision, capital adequacy and risk management assessment.At the same time, the FSC will continue our efforts to support a new legislation of comprehensive supervision on financial conglomerates. Currently, two bills have been proposed and under discussion at the National Assembly.
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May 30, 2019
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May 16, 2019
- FSC Secretary General Holds Meeting on Soundness of Household and Individual Business Loans
- FSC Secretary General, Sohn Byungdoo convened a meeting with the FSS and the KIF on May 15, to monitor the soundness of household and individual business loans.Summary of Secretary General’s remarksSecretary General Sohn stressed the need to exert more policy efforts to manage the soundness of household and individual business loans, and supporting financially vulnerable borrowers.Mr. Sohn said household loan default rate at the end of January 2019 stood at 0.84%(provisional figure), a slight increase compared to the end of last year(0.75%). However, he diagnosed the level of default rates1 is stable in general compared to last year. Individual business loan default rate at the end of first quarter, 2019 (0.75%) showed an increase as well compared to the previous month (0.63%), however, the default rate is yet reached a significant level.2.Mr. Sohn said that the recent increase in default rate is attributed to relatively loose screening on business loans, which has been on the rise in the recent few years; and rise in default rate in regional financial institutions3. But he stressed that since regional banks and non-bank financial firms4 have sufficient loss absorbing capacity, the risk of increased default rate to the financial system in general is restricted.Secretary General said the debt-service-ratio(DSR) will be fully implemented to the non-banking sector starting from June this year, and the financial regulators will thoroughly inspect that non-bank financial firms are appropriately operating the rent- to-interest(RTI) ratio and loan-to-income(LTI) ratio regulations.Mr. Sohn evaluated the financial industry’s voluntary debt reduction program for defaulted household loan borrowers is smooth-sailing, and emphasized that the government will ensure facilitation of debt reduction program tailored to each individual business loan borrower as well.
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Oct 29, 2018
- FSC Holds Meeting on Financial Market Conditions
- FSC Vice Chairman Kim Yongbeom convened a meeting with representatives of financial institutions this morning to examine financial market conditions and make sure that Korea’s economic and financial conditions are well prepared to deal with the recent market turmoil.SUMMARY OF VICE CHAIRMAN’S REMARKS:► KOREA’S ECONOMIC AND FINANCIAL CONDITIONSKorea’s economic fundamentals remain strong, despite recent downward revision of growth outlook and concerns on global economic conditions.From the macroeconomic perspective, Korea’s economic growth is expected to stay well above 2%. Its current account has recorded a straight 78-month surplus. It maintains sound fiscal balance with 2.3 % of GDP in fiscal surplus. Korea’s currency exchange and CDS premium are stable compared to those of major emerging markets.From the microeconomic perspective as well, Korea’s economic and financial indices have improved since the financial crisis of 2008. Banks’ short-term external debt ratio decreased, while BIS capital adequacy ratio increased. Banks have sufficient buffer against external shocks since they had turned net creditors in 2016.The self-assessment above is in line with evaluations by credit rating firms. Moody’s, SP and Fitch maintain good credit ratings with Korea, highly evaluating its external and fiscal soundness.► POLICY RESPONSESOverall, Korea has strong fundamentals to weather the recent turmoil in domestic and global financial markets. Given its characteristics of a small open economy, however, Korea may not be immune to the effects from external and internal uncertainties. In particular, readjustment of asset prices with monetary normalization in major economies may increase volatility in financial markets.Against this backdrop, the FSC will take measures to stabilize the stock market:First, the FSC will create a KRW500 billion fund with securities-related institutions to support the stock market. Out of the fund, KRW300 billion will come from ‘Ko
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Oct 18, 2018
- Debt Service Ratio(DSR) to be Introduced as Household Debt Management Standard
- BACKGROUNDKorea’s household debt growth has slowed down in recent years. It is unlikely that household debt would pose a systemic risk to the Korean economy in the near future; however, the government needs to stay alert from a longer-term perspective. The sheer size of household debt would continue to grow, and its growth pace still remains high. In the mid-to-long term, the government aims to keep household debt growth rate at a level close to nominal GDP growth rate. The FSC expects the introduction of debt service ratio (DSR) rules in conjunction with other lending standards will help reduce household indebtedness and curb rapid growth of household debt.DEBT SERVICE RATIO (DSR) RULESThe DSR was introduced on a trial basis first with banks last March and subsequently across the financial sector. Based on the test operation with banks for the past six months, DSR rules will be officially introduced as standards for banks to manage their household loans starting from October 31, 2018.Banks will be required to manage “high-risk” loans below a certain percentage of their total loans. To define high-risk loans, the FSC set two-tier DSR standards: loans with a DSR exceeding 70% will be considered as “risky”; and those with a DSR of 90% or above as “highly risky.” Currently, commercial banks are better positioned than local banks and specialized banks to cut back on the proportion of high DSR loans. Loans with a DSR exceeding 100% take up 14.3% of total loans in commercial banks, compared to 30.1% in local banks and 27.9% in specialized banks. The average of DSR is also different: 52% with commercial banks, 123% with local banks, and 128% with specialized banks. Considering the gaps in compliance burden, different levels of targets will apply:► Commercial banks will be required to manage the proportion of loans with a DSR exceeding 70% (hereinafter ‘risky loans’) below 15%; and those with a DSR exceeding 90% (hereinafter ‘highly risky loans’) bel
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Sep 14, 2018
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Jun 27, 2018
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Jun 27, 2018
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Jun 18, 2018
- Draft Bill Proposed for Introduction of Regulatory Framework for Financial Benchmarks
- BACKGROUNDThe FSC proposed a draft bill to introduce a regulatory framework to financial benchmarks. The new legislation was enacted in response to global regulatory moves in which major countries including the UK, EU, Australia and Japan adopted IOSCO’s Principles for Financial Benchmarks into their benchmark regulations. The extra-territorial effect of the EU Benchmark Regulation (BMR), which requires third party country administrators to be authorized by either one of the following three ways – endorsement, recognition or equivalence, prompted the need for Korea to introduce a corresponding regulatory regime in compliance with international standards. Domestically, there is a need as well for Korea to create a new regulatory regime for improving the accuracy and credibility of financial benchmarks and better protect financial consumers.Against this backdrop, the draft bill is intended to:• empower the FSC to designate financial benchmarks recognized as having a significant impact on financial markets as “significant benchmarks” to be subject to the new regulatory and supervisory framework;• stipulate conduct requirements for setting, publishing and using “significant benchmarks”; and• provide legal grounds for the FSC to impose corrective orders or penalties against any activities that could harm the accuracy and credibility of “significant benchmarks.”The proposal, open for public comments from June 18 until July 30, will be submitted to the National Assembly in September 2018.KEY PROVISIONS► Definition of a “financial benchmark”A financial benchmark is defined as a reference index used to determine the amount of payable to a counterparty of a financial contract or the value of a financial instrument; or an index used to calculate such amount or value.► Designation of a “significant benchmark”The new legislation is to empower the FSC to designate financial benchmarks recognized as having a significant impact on financial markets
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Jan 23, 2018
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Jan 08, 2018
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Oct 24, 2017
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Sep 28, 2017
- Revision to the Act on External Audit of Stock Companies
- I. BackgroundThe Act on External Audit of Stock Companies (hereinafter referred as “the Act”) has gone through major improvements since the bill was enacted in 1981. Among them, the latest revision, passed by the National Assembly on September 28, 2017, is the most far-reaching reform of Korea’s accounting and audit practices, compared to a Korean version of the Sarbanes-Oxley Act. To deter a repeat of major accounting scandals in recent years, the revised bill contains fundamental changes in a wide range of issues, including external auditor independence, corporate accountability, and penalties against wrongful acts. Those changes will set higher standards for all stakeholders in their role, including companies, auditors and financial regulators, to further advance Korea’s accounting reform efforts. The revised bill will take effect November 1, 2018, one year after the date of its promulgation.II. Key ProvisionsCompanies, greater accountability and stronger internal control1. The scope of companies subject to external audit, currently limited to ‘stock companies’ under the Act, will be expanded to include ‘limited liability companies (LLCs).’* Specifics about companies subject to external audit and the scope of disclosure of audit reports will be delegated to the subordinate Enforcement Decree of the Act.2. The right to appoint an external auditor, currently exercised by the company’s management, will be transferred to internal audit organizations such as the ‘statutory auditor’ or the ‘audit committee.’3. Companies will be held more accountable for preparation of their financial statements.► A company shall not require an external auditor to prepare financial statements on its behalf.► If a company fails to submit financial statements to the external auditor and the Securities and Futures Commission (SFC) within the statutory deadline, six weeks before the general meeting of shareholders, the company’s representative director shall
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Aug 24, 2017
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Aug 02, 2017
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Jun 28, 2017
- FSC Identifies D-SIBs for 2018
- The FSC identified on June 28, 2017, four bank holding companies and one bank as domestic systemically important banks (D-SIBs) for 2018: Shinhan Financial Group, Hana Financial Group, KB Financial Group, NH Financial Group and Woori Bank.Under the D-SIB framework of the Basel Committee on Banking Supervision (BCBS), the D-SIB higher loss absorbency requirement is phased in by 0.25% per year from 2016 to 2019. Therefore, those identified as D-SIBs for 2018 are required to set aside an additional common equity capital of 0.75%, and the higher loss absorbency requirement will take effect on January 1, 2018.The BIS ratio for the identified D-SIBs at the end of March 2017 exceeds the minimum capital adequacy ratio1. Therefore, there is no actual burden at present for the identified D-SIBs to set aside additional capital.The FSC will identify D-SIBs every year in accordance with assessment criteria recommended by the BCBS.*Please read the attached file for details.
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Jun 21, 2017
- FSC Held Market Monitoring Meeting on Results of MSCI 2017 Market Classification Review
- FSC Vice Chairman Jeong Eun-bo held a meeting on June 21 with officials from relevant agencies to discuss the impact of the MSCI’s 2017 Market Classification Review and the government’s responses.INCLUSION OF CHINA A-SHARES INTO MSCI EMERGING MARKET INDEXIn its annual market review, MSCI decided to include China A-shares, 222 large-cap stocks of Chinese companies listed in either Shanghai or Shenzhen, into the MSCI Emerging Market (EM) Index.IMPACT ON KOREA’S FINANCIAL MARKETAs the inclusion of China A-shares increases China’s weighting in the MSCI Emerging Market Index, Korea’s weight in the same index is expected to decrease by 0.23 %p from its current 15.5%. Given the amount of funds tracking MSCI EM Index, which ranges between KRW 250 trillion (USD 230 billion) and KRW 1,900 trillion (USD 1.8 trillion), Korea may experience possible outflow of KRW 600 billion to KRW 4.3 trillion from the equity market.The FSC, however, sees MSCI’s decision will have a limited impact on the Korean stock market for the following reasons:▪ The change will be actually reflected in the MSCI EM Index in a year, from June 2018.▪ The amount of global funds investing in emerging markets continues to increase, recording a net inflow of USD 18.1 billion into emerging markets from April to May 2017.▪ Given that the Korean stock market attracted a net foreign capital inflow of KRW 9 trillionin the first five months this year alone, the amount of possible outflows (max. KRW 4.3 trillion) is not so significant.GOVERNMENT’S RESPONSESThe government will keep monitoring the impact of the MSCI’s decision to include China A-shares into its emerging market index on the Korean equity market. We will also continue our policy efforts to improve global competitiveness and attractiveness of our capital markets, and consultation with MSCI in regard with the inclusion of Korea on the list for potential reclassification to the MSCI Developed Market Index.* Please read the attached file
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Jun 14, 2017
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Mar 12, 2017
