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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Jul 08, 2013
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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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May 21, 2013
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Feb 28, 2013
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Sep 25, 2012
- FSC/FSS to Tighten Rules on Commercial Papers
- BackgroundCommercial paper (CP) is an unsecured promissory note issued by companies, based only on corporate credits with no collateral backed. It is widely sold by firms for short-term funding needs as the paper requires simpler selling process than corporate bonds.CP issuance shrank temporarily after the Asian financial crisis and the credit card turmoil, but it resumed its growth trend since 2005.However, loose disclosure regulations and lack of transparency in the CP market boosted concerns over risk management and investor protection, as well as improper CP sales.The financial regulator recognized the need to find vulnerabilities in the CP market and develop measures to improve transparency and investor protection.Tighter Rules on CPThe financial regulator will tighten rules on disclosure requirement for CP in a bid to improve transparency in the CP market. It will also strengthen regulation and supervision of CP issuance and support fully-disclosed electronic trading in CPs.Currently, an asset-backed commercial paper (ABCP) issuer discloses trade data and credit rating on the homepage of Korea Financial Investment Association on the day of issuance.From October, an ABCP issuer will be required to disclose more information on the paper, including financial soundness of issuers, collateral assets and specification on product structuring as well as credit ratings.The regulator will push for amendments to Financial Investment Services and Capital Markets Act, which will make it mandatory to disclose the credit rating summary on the FSS’s DART.Currently, brokerages have no reporting obligations for ABCP transactions and the regulator is limited in its ability to monitor the CP market and respond immediately. From next year, brokerages will be required to report details on ABCP transactions.In addition, one-stop inquiry system for CP issuance will be up and running from October to provide investors information including CP’s credit ratings, collateral assets and
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Jul 19, 2012
- Analysis of Korea's Househod Debt and Policy Response
- BACKGROUNDKorea’s household debt has grown rapidly since the Asian financial crisis compared to the growth rate of Korea’s GDP and income, posing a potential risk to our economy. It has been also pointed out that Korea’s household debt is structurally vulnerable as household loans are mostly composed of floating-rate, lump-sum payment, and interest-only loans.Against this backdrop, the government took a set of measures to take the household debt growth under control.Last year, the ceilings on debt-to-income (DTI) ratios, temporarily eased, were reinstated in March. In June, the government took measures to curb household borrowing in the non-banking sector, while strengthening microfinance programs in order to ensure low-income households’ accessibility to financial services.Building on such measures, the government came up with a comprehensive package of measures in June 2011 to ensure a “soft landing” for the household debt risk, which includes properly managing total liquidity, improving households’ ability to repay their debt, strengthening financial institutions’ soundness, and reinforcing microfinance programs.With the recent economic slowdown and slow recovery of household income, there are limitations in taking drastic measures to curb household debt growth. There are also concerns raised about low-income or elderly borrowers’ ability to repay their loans.ANALYSIS OF HOUSEHOLD DEBT TRENDS1. OverviewIn 2011, Korea’s household debt grew at 8.1%, slower than 8.7% in 2010; however, household debt-to-GDP ratio and household debt-to-disposable income slightly rose1 as GDP and disposable income did not grow sufficiently in 2011.However, since the second half of 2011, the growth rate of household debt has slowed down.2 In the first quarter of 2012, outstanding household loans decreased for the first time in three years since 2009.The structural weakness of household debt has also been quite improved. The ratio of fixed rate loans by banks rose fro
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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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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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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
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Nov 18, 2011
- Lone Star Ordered To Sell Down Its Stake in Korea Exchange Bank
- I. Sale Order of Lone Star’s Excess Stake in KEBRULINGThe FSC decided to order Lone Star Fund IV (hereinafter “Lone Star”) to sell its stake in KEB that exceeds 10% of the total number of voting stocks within six months by May 18, 2012.** Article 16-4 of the Banking Act (5) Where a limit excess stockholder, etc. who has received an order under paragraph (3) fails to comply with the order, the FSC may order the limit excess stockholder, etc. to dispose of the stocks of a financial institution held by him in excess of the limit as set in Article 15(3)1 within a specified period of not more than six months.The sale order was made on ground that Lone Star failed to redress qualifications as a majority stakeholder in KEB within the deadline (October 28, 2011) set by the FSC, and the situation still remains unfixed.** Lone Star was ordered to redress its qualification as a majority stakeholder under the Banking Act that requires no record of punishment for violation of financial laws and regulations since it was ruled guilty of stock price manipulation and fined KRW 25billion.The FSC concluded that we should not delay our decision any longer, leaving the situation uncorrected.REASON FOR SETTING A SIX-MONTH PERIODThe FSC decided to give Lone Star a six-month period to reduce its stake in KEB, considering the number of stocks to be sold and precedent cases.Lone Star has to sell a total of 265 million shares (41.02%), the largest number of stocks that any shareholder was ever ordered to sell. We also took into our consideration fairness with a precedent case that a majority shareholder in an insurance company was given a six-month period to sell four million shares (41.4%).REASON FOR NOT SPECIFYING DETAILS OF THE SALEThe FSC decided not to specify details of the sale, considering the purpose of eligibility test for majority shareholders and reference cases home and abroad.The eligibility test for majority shareholders and the sale order of shares aim to eliminate unqua
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Nov 08, 2011
- FSC Lifts Temporary Ban on Short Selling of Non-Financial Stocks
- The FSC decided to lift a three-month ban (August 10 - November 9) on short selling of non-financial stocks from November 10, while maintaining the ban on financial stocks for a while.Stock market volatility has been considerably subdued since August when the financial market turmoil began to unfold.** KOSPI: 2,172 (Aug.1) →1,801 (Aug. 9, short-selling ban) →1,653 (Sept. 26) → 1,919(Nov.7)However, given that potential Eurozone risks still remain such as a possibility of Greek default, growing concerns about Italy’s debt crisis, and upcoming maturity dates of PIIGS sovereign debt,* the FSC decided to maintain the short-selling ban on financial stocks vulnerable to internal and external factors.* PIIGS sovereign debt to be matured (unit: $100 million): 1,843 (4Q2011), 2,832 (1Q2012), 1,769 (2Q2012)In August, Greece, Italy, France, Spain and Belgium also banned short sales; however, Greece is the only country that banned short selling of all listed stocks as we did. The remaining four countries imposed short-selling bans on a few number of financial stocks.*Please read the attached file for details.
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Jul 04, 2011
- Plans for the Soundness of Savings Banks' Management
- CURRENT CONDITIONS OF SAVINGS BANKS(Assets) As of end-March 2011, total assets of 98 mutual savings banks in operation were KRW74 trillion, down 2% from KRW75.5 trillion at the end of 2010.Mutual savings banks’ operations are still focused on extending real estate-related loans including PF loans, which accounts for 42.8%* of their total outstanding loans as of end-March 2011.(*cf. 44.7% at the end of 2010)(Deposits) As of end-March 2011, mutual savings banks received a total of KRW 64.4 trillion in deposits, down 2.8% from KRW66.3 trillion at the end of 2010.(Soundness) As of end-March 2011, the delinquency ratio of mutual savings banks rose to15.8%, up 1%p from 14.8% at the end of 2010, mainly due to rise in the delinquency ratio for real estate –related loans.*As of end-March 2011, the delinquency ratio for real estate loans rose to 20.4%, up 2.4%p from 18.0% at the end-December 2010.Despite incurred losses of savings banks, the BIS capital-adequacy ratio rose to 10.25%, up 0.42%p from 9.83% at the end of 2010, backed by continued efforts for recapitalization.* With losses of seven savings banks whose operations were suspended added, the BIS ratio combined would drop to around 7%. (as of end-March 2011, 7.57%, lower than 9.14% in June 2010)(Profitability) Due to the sluggish real estate market and growing competition in the retail financial sector, mutual savings banks recorded a total of KRW333.3 losses from July 2009 to June 2010; and KRW48.7 billion from July 2010 to March 2011.* From July 2010 to March 2011, 67 savings banks (68.4%) posted profits while 31savings banks (31.6%) incurred losses.PLANS TO ENHANCE THE SOUNDNESS OF SAVINGS BANKS’MANAGEMENT1. To help mutual savings banks’ “soft landing”- Additional purchase of non-performing PF loans from savings banks: As of June 20, the government purchased non-performing PF loans worth KRW1.9 trillion through the Restructuring Fund and singed an MOU with savings banks to help them normalize their oper
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Jun 29, 2011
- Comprehensive Measures on Household Debt
- PROGRESS BRIEFThe government has responded to household debt problems with a series of policy measures in order to enhance the soundness of household debt and financial institutions and at the same time to ensure low-income households’ access to loans.- The application of debt-to-income (DTI) limits for mortgage loans, which had been temporarily eased until last March, was reinstated starting April.- Measures to Encourage Sound Competition among Credit Card Companies (Feb. 9); Measures to Curb Credit Card Companies from Excessively Expanding Their Businesses (June 7)- Measures to Ensure Low-Income Households’ Access to Loans (April 15)DIAGNOSIS OF THE CURRENT HOUSEHOLD DEBT LEVELSAs of end-March 2011, Korea’s household debt reached KRW 801.4 trillion with an annual growth rate of 13% on average since the Asian financial crisis, exceeding the nominal GDP growth rate of 7.3% over the same period.The growth of household debt during the post-crisis period is attributed to the combination of various factors such as low interest rates, abundant liquidity, expectations about rise in real estate prices, and excessive lending by financial institutions.With all the conditions – the soundness of household debt, the proportions of loans extended to borrowers with good credit ratings, loss-absorbing capacity of financial institutions, and household asset holdings – taken into account, we see the current levels of household debt still “broadly manageable.”However, we cannot rule out a possibility that household debt problems would turn into threats to Korea’s economy and financial markets unless we take preemptive measures; therefore, the government came up with a package of measures to contain potential risks of household debt.FINANCIAL POLICY MEASURES ON HOUSEHOLD DEBT1. Measures to keep household debt growth at a manageable paceA. For the banking sector- Apply higher BIS risk weights to high-risk mortgage loans or excessive loans disproportionately concentrated
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Jun 08, 2011
- Progress Report on the Private Equity Funds Market in Korea
- BACKGROUNDPrivate Equity Funds (PEFs)* were introduced to Korea’s capital markets with the amendments to the Indirect Investment Asset Management Business Act (integrated into Financial Investment Services Capital Markets Act in 2007) on December 6, 2004 in order to promote corporate restructuring, MAs and to diversify investment instruments.* A private equity fund, structured as limited partnerships, typically makes investments in companies, funded with the capital raised from a few investors, and sells companies for high returns after value improvement.The domestic PEF market has gone through its introductory period from 2004 to 2007 and is now in its take-off stage. As of end-2010, there were 148 PEFs registered with a total of KRW 26.6 trillion in committed capital.*As of end-May 2011, the number of PEF firms rose to 167 with KRW28.9 trillion in investment commitments.REVIEW OF THE PAST SIX YEARS1. Fund raisingThe number of PEFs has been on the steady rise since its introduction in 2004 and reached 148 as of end-2010.In particular, for the past three years after the global financial crisis, the number of PEFs grew by 104, up 236% compared to end-2007, as more companies determined it to be the right time for investments.Their capital commitments and actual investments also increased to KRW26.6 trillion and KRW16.7 trillion at the end of 2010, up 197% and 234%, respectively, from 2007.- Capital Commitment: Investors’ obligation to provide a certain amount of capital to a PEF for investments at the time of fund formation- Actual Investment: The sum of investments into the target made through equity financing and debt financing- Capital Drawdown: The portion of capital committed to a fund that is drawn down over time2. InvestmentsPEFs expanded their investments from Korean manufacturing companies (212) to foreign companies, which totaled 25 as of end- 2010. They are also diversifying overseas investments*, shifting their focus away from the United States and ind
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Jun 07, 2011
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May 27, 2011
- Additional Measures to Improve the Soundness of ELW Market
- BACKGROUNDAs Korea’s ELW market has rapidly grown in a short period of time, problems such as overheated investment and soaring investment losses have surfaced; therefore, the FSC introduced some measures (e.g., introduction of mandatory investor orientation course, stricter assessment of LP performance and preventive measures against potential unfair trading practices) in November 2010 to create a sound market environment for ELW trading.Since the implementation of the measures above mentioned, the trading values of ELWs declined somewhat as shown below:* KRW 1.7 trillion (Aug 2010) → KRW 1.9 trillion (Sep 2010) → KRW 2.0 trillion (Oct. 2010) → KRW 1.6 trillion (Nov. 2010) → KRW 1.4 trillion (Dec 2010) → KRW 1.3 trillion (Mar 2011)* Daily average number of suspicious trading: 0.84 cases (Oct 1, 2011 ~ Dec 10, 2010) → 0.13 cases (Dec 13, 2010 ~ Feb 28, 2011)However, despite these measures, as a result of some securities companies giving a preferential treatment to scalpers (the prosecutor pointed out that some scalpers bribed the securities companies so that they could have access to dedicated lines to route their orders faster than others), concerns about the soundness of ELW market have resurfaced. Against this backdrop, and we plan to adopt the following measures.PLANS TO IMPROVE CURRENT PRACTICES RELATED TO ELW MARKET AND ORDER ROUTING SPEED◈ Basic deposit requirement will be introduced as an entry barrier to ELW market investment and existing market practices will be revised to help investors easily compare ELW prices.◈ In regard with speed of order routing, brokerages will be allowed to provide only a reasonable range of service to make sure all investors can have a stable and equal access to trading system.I. SOUNDER MARKET ENVIRONMENT FOR ELWS1. Stronger Protection for Investors A. Basic Deposit RequirementIn most of derivatives trading, investors are required to make basic deposits in addition to margins.* However, for ELWs and buying opti
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May 17, 2011
- Internal Rules on Corporate Governance in Banks
- BACKGROUNDCorporate governance in banks can have a significant impact on the interests of shareholders and customers; therefore, banks’ governance rules need to be made public.In order to enhance the transparency of banks’ corporate governance, the FSC has revised the Banking Act on November 18, 2010 to require banks to establish and publicize their internal rules on corporate governance. Banks are required to have internal governance rules in place by May 17, 2011 and make a public notice on their websites and the Korea Federation of Bank’s.MAIN CONTENTS OF INTERNAL GOVERNANCE RULESBanks are given discretion to stipulate more details about what they are mandated under the Banking Act (Article 23-4) and the Enforcement Decree (Article 17-4) of the Banking Act.1. Executives(mandatory) qualifications for executives, principles and procedures for appointment and retirement of executives, training programs for executives and candidates, performance evaluation(optional) qualifications for key executive members of banks e.g. president, vice president, and auditor *; developing a “management succession program”***Given that the mandatory introduction of age limits for executives might undermine the autonomy of banks’ management and basic rights of executives, whether to introduce age limitations for executives is left to the discretion of each bank. For consecutive terms, however, stricter standards based upon performance evaluation during preceding terms will be applied to candidates’ qualifications to be reappointed.** The succession program will include how to elect substitutes or successor in the absence of executives; how to select candidates for executives; and how to utilize results of training and performance evaluation, etc.2. Composition and operation of board of directors(mandatory) composition of the board, qualifications for directors, standards and procedures for appointment and retirement of directors, evaluation of performance of the board(opt
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May 02, 2011
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Mar 30, 2011
- Monitoring Results of Domestic Banks' Foreign Currency Financing
- OverviewThe Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have been operating an Emergency Financial Situation Room and holding Joint Financial Check-up Meetings as the need arose to monitor the effects of external risk factors such as earthquakes in Japan, unrest in the Middle East and European sovereign risk on domestic financial markets including foreign currency funding and management of domestic banking industry and foreign exchange market*.*Refer to the press release dated 13 March 2011, “Result of Emergency Financial Check-up Meeting in relation to earthquakes in Japan”Foreign currency funding in the wake of earthquakes in JapanAs of March 20, 2011, domestic banks including foreign bank branches operating in Korea raised U$248.8 billion through foreign currency borrowings and deposits, etc. They had U$214.5 billion in foreign currency-denominated assets under management in the forms of foreign currency loans, trade financing and foreign currency securities, etc.Since earthquakes in Japan on 11 March 2011, foreign currency funding*, mostly through foreign currency borrowings, increased by U$1 billion and foreign currency management** increased by U $2.6 billion. The increase of U$1 billion in foreign currency funding since March 11 mostly resulted from domestic banks raising more foreign currency funds.* U$1.8 billion up in foreign currency borrowings, U$800 million down in foreign currency deposits **U$1 billion up in foreign currency loans, U$1 billion up in trade financing, U$600 million up in foreign currency securitiesAn FSS survey of domestic banks and foreign bank branches conducted immediately after the earthquakes broke out in Japan found that there were no signs of capital outflows. Instead, borrowings from headquarters by domestic branches of four Japanese banks increased U$940 million from March 14 to 25 even after the breakout of earthquakes.In addition, funding conditions for domestic banks remained stable af
