Press Releases - Financial Services Commission

Press Releases

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Feb 02, 2016

Financial Policy Roadmap for 2016

The FSC outlined its financial policy roadmap for 2016, focused on two main themes: Financial Reform and Financial Stability. The FSC will speed up the implementation of financial reform to promote competition and innovation in the financial sector, while strengthening financial stability in response to internal and external risks. Ten key policy tasks were laid out to push forward financial reform and financial stability: - financing innovative businesses to support the creative economy; - encouraging cultural changes in financial institutions; - promoting the financial industry as new growth driver; - enabling more convenient and innovative financial services; - supporting the growth of household wealth; - managing potential risks of household debt; - managing corporate default risks preemptively;- ensuring stability and fairness in financial markets; - expanding policy support for microfinance; and- strengthening financial consumer protection. 1. FINANCING INNOVATIVE START-UPS AND VENTURE COMPANIES The FSC will further stimulate investments in tech start-ups through tech investment funds worth KRW 750billion. We will continue to make our policy efforts to help the newly-introduced crowdfunding system take root as a fundraising channel for start-ups and venture companies. We will push forward the restructuring of the KRX into a holding company in an effort to bring more competition into the local bourse system. The KOSDAQ and KONNEX will be also reformed to attract more listings. The roles of policy banks such as IBK and KDB will be realigned to provide policy loans and state-backed guarantees for start-ups and SMEs in accordance with their growth cycle. 2. ENCOURAGING CULTURAL CHANGES IN FINANCIAL INSTITUTIONS We will continue our reform of financial supervisory practice and regulation to ease regulatory burden on financial institutions and encourage more private initiatives in the financial sector. Financial institutions will be also required corresponding chang
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Feb 01, 2016

'Omnibus Account' for Foreign Investors to be Introduced

The FSC announced its plan to introduce an ‘omnibus account’ in an effort to make it easier for foreign investors to trade locally-listed stocks in the Korean stock market. The newly-introduced ‘omnibus account’ system is expected to reduce transaction costs of global asset management companies and make foreign investors’ trading of locally-listed stocks through global securities firms more convenient. BACKGROUNDThere is a growing need for the current foreign investor registration system to improve in accordance with changes in investment environment and practice: - As Korean capital markets become mature, index-tracking passive funds are taking an increasing share of the Korean stock market. Such passive funds are sensitive to transaction costs as they frequently trade in many countries. - Global securities companies are increasingly using omnibus accounts to process multiple trading orders. - The current foreign investor registration system needs to become less rigid as foreign investment limits in Korean companies were abolished except for some public purpose companies(PPC). Against the backdrop, the FSC held meetings with various market participants to gather their opinions and came up with measures to make the foreign investor registration system more reasonable and flexible in accordance with global practice. The system will be improved based on the following three principles: - enabling convenient trading of foreign investors in the Korean stock market in accordance with global investment practice, - ensuring conformity with other relevant domestic rules such as Korean tax regime, and- maintaining monitoring of foreign capital in Korea’s FX and stock markets, which is one of the core functions of foreign investor registration system. CURRENT FOREIGN INVESTOR REGISTRATION SYSTEM1. OverviewForeign investors must register their personal information with the FSS before they can invest in locally-listed stocks. Upon registration, foreign investors are
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Jan 21, 2016

HSCEI-Linked ELS Market Conditions and Policy Response

The FSC held a press briefing on HSCEI-linked ELS market conditions and its policy response as the benchmark index sharply fell to 8,015.44 on January 20, raising concerns over increasing volatility in the market. The outstanding balance of HSCEI-linked derivative products decreased from KRW 37.1trillion in September 2015 to KRW 37trillion as of January 19, 2016. ▪ Outstanding balance of HSCEI-linked products: KRW 35.8trillion (June 2015) → KRW 37.1trillion(Sept. 2015) → KRW 37.0trillion (Jan.19, 2016)Recent sharp falls in the index triggered “knock-in” for some HSCEI-linked ELS products; however, that does not necessarily mean investors’ losses. Most ELS products are structured to pay investors previously-agreed profits if the index recovered to certain levels even after the index fell below knock-in levels. Out of the outstanding HSCEI-linked ELS, 96.7% will reach maturity after 2018; if the HSCEI recovered in the meantime, therefore, it would not incur losses to investors. The FSC sees that further falls in the index will be unlikely to threaten soundness of brokerage firms which raised capital through HSCEI-linked ELS issuance. The average NCR of domestic brokerage companies stands at 486.7% at the end of September 2015, up 19.5 %P from 467.2% in June 2015 when Chinese stock market turmoil had not yet occurred. In addition, for capital raised through HSCEI-linked ELS, brokerage companies are hedging against volatility of the underlying index. As volatility in the HSCEI increases, the FSC will strengthen monitoring and supervision on the ELS market. To make sure brokerage firms manage their capital raised through ELS issuance in a sound and transparent manner, the Regulation on Financial Investment Business will be amended to separately handle such capital from other proprietary assets in accounting. We will keep monitoring whether brokerage firms properly manage hedging assets. We will examine sales practice of ELS products, particularly checking whe
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Jan 19, 2016

2016 Financial Policy Focus #2

PROMOTE COMPETITION AND INNOVATION IN FINANCIAL SECTOR The FSC unveiled its second part of policy plan for 2016 in a policy report to President Park Geun-hye on January 18. Following on its first statement on January 14 focused on economic risk management and financial stability, the second announcement is particularly focused on promoting competition and innovation in the financial sector to maintain the momentum for financial reform drive. 1. Financing innovative businesses to boost the “creative economy”▪ Startups and SMEs will be able to raise funds through crowd funding as the newly-introduced funding scheme is scheduled to take effect on January 25.▪ A total of KRW 750billion will be operated through tech investment funds to further stimulate investment in tech start-ups, while loans of KRW 20trillion per year will be extended to tech firms according to evaluation of their technology. ▪ The FSC will push forward the structural reform of the KRX to bring more competition among exchanges and facilitate funding for venture and start-up companies. ▪ A total of KRW 80trillion will be injected to boost new growth drivers such as ICT, software and cultural sectors. ▪ Financial regulations will be enforced in a more transparent, rational and responsible manner. Financial institutions will be also called for cultural changes on their own such as performance-based compensation and stricter standards for compliance. 2. Promoting Fintech and financial industry as key growth driver▪ The FSC will continue to make policy effort to help Korea’s fintech industry to go abroad and provide globally competitive services. ▪ Regulatory constraints will be eased to facilitate use of big data by financial institutions to provide a variety of financial services. ▪ Internet-only banks will be launched in the second half of this year to enable more convenient banking services. ▪ Securities firms will be encouraged to go into high value-added and innovative busine
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Jan 14, 2016

2016 Financial Policy Focus #1

PREEMPTIVE MANAGEMENT OF ECONOMIC RISKS The FSC set out its policy plan to manage economic risks facing the Korean economy in a first round of 2016 policy report to President Park Geun-hye on January 14. Policy focus will be on:  managing household and corporate debt proactively;  increasing stability of Korea’s financial market and financial sector; expanding policy support for microfinance, and; strengthening financial consumer protection. 1. Managing household debt The FSC will manage household debt risks under the principle that “debt should be borrowed within the borrower’s repayment ability and paid back in installments from the beginning.” ▪ Banks will adopt stricter standards for screening mortgage applications as newly-established screening guidelines are to be effective from February in Seoul and its metropolitan area, May in provincial areas. We will scrutinize household lending by non-banking sector to prevent tighter constraints in the banking sector from causing a surge in household lending by non-banking sector. ▪ Policy incentives will be devised to stimulate a reverse mortgage scheme.▪ KRW 26trillion will be provided to offer fixed-rate and amortized mortgages. ▪ New financial products will be devised to utilize a pool of key money deposits that tenants get back as they convert their lease to monthly rent so that they can pay their monthly rent with return on such products. 2. Managing corporate debt Preemptive and prompt restructuring will be pushed forward for marginal companies and ailing industries. ▪ Troubled companies will be sort out through credit risk assessment to be placed under a debt workout program or file for court receivership depending on their chances of normalization. ▪ The government agencies will work out industry-wide restructuring for structurally vulnerable sectors such as shipbuilding, shipping, petrochemical, steel and construction industries. ▪ The FSC will encourage more private initiati
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Jan 13, 2016

FSC Convenes Meeting for Reviewing Responsive Measures Against North Korea's Possible Cyber Attack

Financial Services Commission Standing Commissioner, Koh Seung-beom convened chief security officers of financial institutions and banks on January 13, Wednesday, to review the financial sector’s response plan against North Korea’s possible cyber attack against key financial system, which in the past has been accompanied by armed provocations. Immediately after the nuclear test on January 8, the FSC raised financial security alert* to ‘moderate’ stage and has been maintained so far.* Low → Moderate → Substantial → Severe → CriticalThe Financial Security Institute has been thoroughly monitoring North Korea’s possible cyber attack attempts on domestic financial system since the latest nuclear test, however, no unusual sign has been detected yet.The FSC will maintain its intense monitoring system on key financial systems to prevent in advance financial incidents caused by the North’s cyber attack and ensure financial consumer protection.*Please read the attached file for details
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Jan 07, 2016

FSC Holds Meeting over Risk Factors in Financial Markets in 2016

The FSC held a meeting on January 7, Thursday morning with the FSS, KRX and KCIF to examine internal and external risks in financial markets in 2016 and ensure prompt policy responses to stabilize markets if needed.GLOBAL FINANCIAL MARKETSGlobal financial markets started 2016 with increased volatility amid market anxiety over China’s stock market plunge and geopolitical tensions such as the severance of diplomatic relations between Saudi Arabia and Iran and North Korea’s nuclear test. The Federal Reserve’s monetary tightening began in December last year without causing considerable shocks to financial markets; however, the pace of rate hikes and subsequent movements in the dollar still remain uncertain. Uncertainties in the Chinese economy – China’s stock market turmoil and currency depreciation – could also threaten global financial market stability. A series of events in recent few days this year alerted us to a rough year for global economic and financial conditions. The government will remain vigilant on future developments in financial markets to take swift actions if necessary. DOMESTIC FINANCIAL MARKETSKorea’s financial markets are relatively calm in the face of external destabilizing factors. Affected by China’s stock market plunge on January 4, Kospi fell 2.2% on that day but shortly recovered 0.6% on the following day. North Korea’s nuclear test on January 6 did not have large impact on the stock market. However, the government keeps closely monitoring financial market conditions in response to further developments in China’s stock market turmoil and North Korean nuclear issue. POLICY RESPONSEThe FSC will closely monitor foreign capital flows in Korea’s stock market, especially changes in capital flows by advanced countries with the U.S. interest rate hikes and possible capital outflow by fiscally distressed oil-producing countries. We will also push ahead our policy efforts for the inclusion of Korean stock markets in MSCI advanced m
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Jan 06, 2016

Government Convenes Emergency Meeting over Imapct of North Korea's Nuclear Test

The Korean government convened on January 6 afternoon an emergency meeting over the impact of North Korea’s nuclear test on Korea’s financial markets. North Korea’s official Korean Central News Agency reported at 12:30 p.m. that North Korea had conducted a hydrogen bomb test after a 4.8 magnitude earthquake had been detected near its north east Yanggang Province at around 10:30 a.m. The government officials at today’s meeting checked the possible impact on Korea’s financial markets and discuss policy responses ahead, given that geopolitical risks of the Korean economy are likely to be heightened with the latest nuclear test by North Korea. Korea’s financial markets showed increased volatility right after the report of North Korea’s nuclear test but soon recovered. The government sees that Korea’s financial markets are not likely to be significantly affected by today’s nuclear test, given that impacts of previous events of North Korea- related issues were temporary and limited. However, the government will remain vigilant against any possibility that uncertainty such as a possibility of further nuclear tests could expand volatility in Korea’s financial markets and real economy, amid market’s overreaction to recent events such as Chinese’ stock market plunge and Middle East instability. * Please read the attached file for details.
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Jan 05, 2016

Amendments to the Enforcement Decree of Financial Investment Services and Capital Markets Act

Crowdfunding rules will take effect January 25 this year as relevant amendments to the Enforcement Decree of the Financial Investment Services Capital Markets Act were approved in a Cabinet meeting on January 5, 2016. The amendments are intended to stipulate details regarding the scope of issuers and registration requirements for crowdfunding intermediaries. KEY PROVISIONS 1. Scope of Issuers Smaller and startup companies with their business operations less than 7 years are to be allowed to issue securities through crowdfunding. Venture companies and SMEs engaging in projects such as technology development and cultural business are to be allowed to raise capital through crowdfunding regardless of how many years they are in business. 2. Registration Requirements of Crowdfunding Intermediaries To be registered as an intermediary for a crowdfuning offering, a company must have a minimum capital of KRW500 million and meet requirements similar with those of investment advisory services and discretionary investment services. 3. Investor Protection (1) Limits on capital raising by issuers: A company is allowed to raise up to KRW700 million per year through crowdfunding.(2) Limits on investments by investors: Investors are subject to differentiated caps on the amount of investments depending on their professional knowledge of investment and risk- taking capacity. (3) Exception to ban on securities sales by investors: In principle, investors are prohibited from selling securities within a year of issuance. However, issuers, large shareholders and professional investors are exceptionally allowed to sell their holdings within a year. * Please read the attached file for details.
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Dec 30, 2015

FSC Identifies D-SIBs for 2016

The FSC identified on December 30, 2015 four bank holding companies and one bank as domestic systemically important banks (D-SIBs) for 2016 : Hana Financial Group, Shinhan Financial Group, KB Financial Group, NH Financial Group and Woori Bank. Those identified as D-SIBS are to be required to set aside an additional capital of 1% if deemed needed, by 0.25% per year in the next four years from 2016 to 2019. * The average BIS ratio for banks and bank holding companies – 13.99% for banks and 13.68% for bank holding companies – at the end of September 2015 exceeds the minimum capital adequacy ratio ; 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 proposed by the Basel Committee on Banking Supervision (BCBS). * Please read the attachedPDF for details.
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Dec 17, 2015

Amendments to the Regulation on Supervision of Banking Business and the Supervisory Regulation on Financial Holding Companies

The FSC approved on December 16, 2015 amendments to the Regulation on Supervision of Banking Business and the Supervisory Regulation on Financial Holding Companies. The amendments are intended to implement the Basel Committee recommendations such as domestic systematically important banks(D-SIBs) and countercyclical capital buffer and ease capital requirements for Internet-only banks in their early years. KEY AMENDMENTS 1. The FSC should select domestic systematically important banks (D-SIBs) considering their systemic importance to the financial system. Those identified as D-SIBs are to be required to set aside an additional capital of 1% if deemed necessary, by 0.25% per year in the next four years from 2016 to 2019. * D-SIBs are set to be named by the FSC by the end of December 2015. 2. Considering domestic economic conditions, the FSC should decide on a quarterly basis whether to impose a countercyclical capital buffer and, if so, levels of such capital requirements (ranged from 0% to 2.5%). 3. The FSC may require banks falling behind the evaluation of risk management by the FSS to hold an additional capital under the Basel II. 4. Internet-only banks are to be subject to the Basel I rules by 2019, while the Basel III rules are to be phase in for them from 2020 to full implementation in January 1, 2023. The liquidity coverage ratio(LCR) applied to Internet-only banks are to be raised by 10 percent points ever year from 70% for 2016 to 100% for 2019. EFFECTIVE DATES- additional capital requirements for D-SIBs, countercyclical capital buffer: January 1, 2016- eased capital rules for Internet-only banks: effective immediately* Please refer tothe attachedPDF for details.
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Dec 16, 2015

FSC-FSS Meeting for Monitoring Financial Market Conditions

The FSC and the FSS held a meeting to make sure that Korea’s financial markets are prepared for the impact of the Fed’s possible rate hike. RECENT TRENDS IN CAPITAL FLOWSThe expectation of a U.S. rate increase weighs on global stock markets. External risk factors prompt volatility in Korea’s financial market with foreigners’ net selling of stocks and investors’ appetite for safer assets. Kospi fell 3.0% in recent days(Dec.1~Dec.15), while the yield on 3-year government bonds dropped 5.2bp in the same period. However, the general market view is that capital outflows would not be expanded sharply, looking into characteristics and causes of recent outflows. In 2015, foreign investors sold an average of KRW 1.7 trillion per month in the stock market, which is less than the net selling of KRW 2.5 trillion per month for the past 10 months and less than the net selling of KRW 2.4 trillion per month in the following months of the so-called ‘taper tantrum’ (March~June 2013). Since September this year, oil producers like Saudi Arabia have been leading foreign net selling as their fiscal conditions deteriorate with falling oil prices. The net selling mode is hardly related to changes in foreign investors’ appetite to Korean stocks. US funds, which represent a largest share of Korea’s stock market(40%), continue to remain net buyers in November and December amid rising possibility of a U.S. interest rate increase. European funds sold a net KRW 10.2 trillion of Korean shares from June to September this year, but the pace of selling has slowed since then. STOCK MARKET The Korean stock market is expected to face turmoil in the short term after the Fed’s decision. However, many investment banks forecast that the Kospi will gradually bounce back to a level of 2,100 or beyond in 2016. Given strong fundamentals of the Korean economy, undervaluation of Korean stocks could appeal to investors once the Fed’s rate hike finally removes uncertainty. The FSC will closel
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Dec 14, 2015

Policy Direction for Household Debt Management

The FSC announced its policy direction for household debt management and a guideline to encourage banks to strengthen their mortgage application screening so that borrowers take out loans within their repayment ability and repay in installments from the beginning. HOUSEHOLD DEBT GROWTH POLICY DIRECTION Korea’s household debt grows fast to amount to KRW 1,166 trillion at the end of September 2015. The rapid growth is attributable to a combination of several factors such as growing demand for loans amid low interest rates, eased restriction on lending for home buyers and housing market recovery.The increase is mainly from mortgage lending by banks, which is at lower interest rates and maintains soundness. In particular, group lending for apartment buyers has largely increased as markets for new apartments for sale and reconstruction recover. Since the government-backed program to improve mortgage debt structure was launched in March this year, shares of amortized and fixed-rate mortgages rose to 37.5% and 33.6% respectively out of the total mortgage lending by banks at the end of September 2015, compared to 6.4% and 0.5% at the end of 2010. As household debt grows faster than household income, the government is taking comprehensive measures to 1) increase household income to boost borrowers’ repayment ability, 2) improve household debt structure; and 3) support low-income households. It is all the more important to improve structural soundness of household debt in response to potential risks such as the U.S. interest rate hikes. Household debt management policy also requires a balanced approach which takes into account various factors such as private consumption, housing market conditions and regulatory effects on the real economy. Therefore, the government is working towards minimizing potential risks in household debt, consistently upholding the principle that household debt should be borrowed within the borrower’s repayment ability and paid back in installmen
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Dec 09, 2015

FSC-FSS Meeting for Monitoring Financial Market Conditions

The FSC and the FSS held a joint meeting this morning to monitor and preemptively respond to internal and external risk factors in financial markets amid rising possibility of the Fed’s rate hike at the upcoming FOMC meeting next week. RECENT FINANCIAL MARKET CONDITIONS Externally, stock and bond markets in both developed and developing economies are sluggish as investors remain risk-averse ahead of a possible rate hike this month. Internally, growing uncertainties over the global economy increase volatility in domestic financial markets with net selling of stocks by foreign investors and increased appetite for safer assets.Meanwhile, monetary policy divergence among the world’s central banks will widen with the ECB’s further monetary easing last week and the Fed’s possible increase in the U.S. interest rates next week, which are likely to increase global market volatility. The FSC will keep domestic risk factors in check so that such risks in combination with external factors should not heighten anxiety among market participants. OVERVIEW OF KOREA’S FINANCIAL SECTOR SOUNDNESSFinancial institutions across the sector maintain soundness in their capital adequacy and asset quality. It is unlikely that internal and external risks – e.g. increases in U.S. interest rates or corporate restructuring – undermine the soundness of the financial system. Capital adequacy ratios of financial institutions across the sector have quite improved compared to those at the time of the 2008 global financial crisis to have a greater buffer against external shocks. As of the end of September 2015, financial institutions’ capital adequacy ratios are 2 to 3 times higher than regulatory minimum requirements. Banks’ loan loss coverage ratios, likely to be affected by corporate restructuring, stand at 133.1% as of the end of September this year, which is enough to absorb losses from bad loans. * Ratios of loan loss provision to substandard loans(SBLs): 120.5% (2013), 124.0%(20
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Nov 29, 2015

Preliminary Approval Granted to Kakao and KT Consortiums for Internet-only Bank

The FSC granted preliminary approval on November 29 to two consortiums – one led by Kakao and the other by KT Corp. – out of three bidders to set up internet-only banks under its plan announced on June 19, 2015. Under the current Banking Act, the FSC gave out the preliminary licenses for internet-only banks on two conditions: 1) the two consortiums shall operate banking business in the form of electronic financial transaction business ; and 2) they shall meet qualifications to run banking business such as manpower, organization and electronic facilities before applying for final licenses. The final approval will be granted after a review of relevant regulations upon their applications. The two banks – Kakao Bank and K-Bank – shall start business operation no later than 6 months after they receive the final approval. As a revision bill on the Banking Act was proposed to ease regulations on minimum equity capital and ownership in Internet-only banks, the FSC will additionally grant license for internet-only bank in accordance with the revised Act after the revision is finally passed the National Assembly.* Please refer to the attached PDF for details.
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Nov 27, 2015

Recent Trend in ELS & DLS Issuance

The outstanding balance of ELS DLS issuance surged from KRW 51.6 trillion at the end of 2012 to KRW 94.4 trillion at the end of June 2015. Since then, the pace of increase has slowed down with the outstanding balance of KRW 97.6 trillion as of November 20, 2015. The issuance of HSCEI-tracking ELS DLS remains at the range of manageable levels as securities firms agreed upon voluntary rules in October that limit new issuance of such products within the range of redemption amounts. As a result, the outstanding balance of HSCEI-tracking ELS DLS remains almost unchanged from KRW 36.5 trillion at the end of September and is expected to decrease after 2016. ※ New issuance of HSCI-based ELS DLS from November 1 to 20 this year amounts to KRW 404.6 billion. Net increase in the outstanding balance, however, is only KRW 64.4 billion as the amount of KRW 340.2 billion was redeemed. The FSC assesses that securities firms maintain soundness and liquidity levels to hold risk factors under control. At the end of June 2015, securities firms maintain a net-capital-ratio(NCR) at 466.9% and a liquidity ratio at 138.1%. The results of liquidity stress test conducted on securities firms in September 2015 show that it is highly unlikely for them to experience systemic risk even at high level of stress similar to that of during the 2008 financial crisis.The FSC and FSS will keep monitoring concentration risks in ELS DLS issuance and other risk factors involving securities firms. * Please refer to the attachedPDF for details.
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Nov 02, 2015

Credit Card Merchant Fees To Be Lowered

The FSC plans to cut credit card merchant fee rates by 0.3%p~0.7%p from the end of January 2016 to reflect cost-saving factors in card business. As interest rates continue to remain at low levels, funding cost for credit card companies has decreased since 2012. The ban on VAN operators from providing large merchants with unfair rebate (implemented from July 2015) allows card companies more room for further cuts of VAN and merchant fees. The FSC expects lowering merchant fee rates would save KRW 670 billion for about 2.38 million merchants. * Please refer to the attached PDF for details.
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Nov 01, 2015

FSC Strengthens the Role of Policy Banks

The FSC outlined its plan to strengthen the role of Industrial Bank of Korea (IBK) and Korea Development Bank (KDB) as policy banks in a bid to support sustainable growth of start-ups and foster new growth drivers for the economy. 1. SUPPORT FOR THE GROWTH OF START-UP TECH COMPANIESThe role of policy banks – IBK and KDB – will be revamped in accordance with business growth stages of start-ups. IBK will boost its support for start-up and early-growth stage companies, increasing its financial support per year from the current KRW 9.1 trillion up to 15.1 trillion in 2018. KDB will be more focused on selecting and supporting candidate among small businesses to become strong and medium-sized companies. Its annual financial support for such companies will from the current KRW 21.6 trillion to KRW 30 trillion in 2018. 2. SUPPORT FOR NEW GROWTH INDUSTRIESIBK and KDB will increase financial support for new growth engine sectors such as intelligent robots, wearable smart devices and renewable hybrid systems. KDB plans to provide such new growth industries with more than KRW 20 trillion per year in 20 trillion, up 48.1% from the current KRW 13.5 trillion in 2014. IBK will also boost its annual financial support for such companies from the current KRW 29.6 trillion to KRK 33 trillion in 2018. Policy banks’ investment banking(IB) businesses will be readjusted to more focus on activities in which private IBs are not actively involved – e.g. debt issuance in overseas market, MAs for corporate restructuring, SOC investments, etc. 3. CORPORATE RESTRUCTURING For cyclical industries, KDB will strengthen their screening and monitoring system for corporate lending and provide temporarily financially distressed companies with liquidity. In regard with corporate restructuring, policy banks will take the initiative in restructuring key sectors in accordance with the government’s economic policy, given the impact of restructuring such industries on employment and the national econ
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Oct 30, 2015

Direction for Recovery and Resolution Regimes

CONTEXT AND PROGRESSAfter the Global Financial Crisis, there was a global consensus for the need of improving recovery and resolution regimes to prevent disorder in the financial market when financial conglomerate becomes insolvent and moral hazard of too-big-to-fail. At the G20 Summit in 2010, member countries agreed on adopting recovery and resolution plans (RRP) in line with the Key Attributes of Effective Resolution Regimes for Financial Institutions published by the Financial Stability Board for Systemically Important Financial Institutions (SIFIs). After close consultations with the relevant organizations and experts from financial and legal sectors, the Financial Services Commission (FSC) has determined the basic direction for improving the recovery and resolution regimes, namely introducing recovery and resolution planning framework and bail-in scheme. MAJOR CHANGES(1) Recovery and Resolution PlansRecovery and resolution plans assuming crisis situation will be produced on an annual basis and retained for that year, for major financial institutions identified as SIFIs. Recovery plan is financial institution’s ex-ante measures against insolvency, which aims to facilitate recovery of financial soundness through its voluntary normalization efforts. The plan will be drafted by each SIFI, assessed by the Financial Supervisory Service and reported to the FSC.Resolution plan, on the other hand, is an ex-ante plan drafted by the Korea Deposit Insurance Corporation and assessed by the FSC, to minimize negative impact on financial system after a troubled financial institution fails to recover its business based on voluntary endeavors. (2) Bail-in SchemeThis scheme is designed to require not only shareholders but also creditors to bear losses when a financial institution becomes bankrupt, thereby addressing moral hazard. The FSC is planning to provide a legal basis for ordering insolvent financial institution to convert debt to equity and/or write-off debt when deemed
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Oct 30, 2015

FSC Improves Prudential Standards Across Financial Services Sectors

The FSC plans to implement prudential regulations in accordance with global standards, while streamlining prudential standards for each sector to prevent regulatory arbitrage across financial services sectors. PRUDENTIAL REGULATIONS IN ACCORDANCE WITH GLOBAL STANDARDS- (BANKS) Regulatory regimes for Domestic Systemically Important Banks (D-SIBs), capital buffers, and Basel Pillar 2 will be implemented from 2016 and gradually strengthened over time. Detailed plans will be set out to adopt Recovery and Resolution Plans (RRP) from the end of 2017. Leverage ratios and Net Stable Funding Ratios (NSFR) are scheduled to be implemented from 2018. - (INSURERS) Consolidated Risk-Based Capital (RBC) and Own Risk Solvency Assessment (ORSA) are scheduled to be implemented in 2016 and 2017 respectively. The FSC is also considering recapitalization plans for insurers in preparation for IFRS4 phase 2 and measures to strengthen credit risk management for off-balance-sheet exposures. - (FINANCIAL GROUPS) The FSC plans to establish a best practice guideline for consolidated supervision over financial groups in 2016 to assess and manage risks by group unit, as the current system is much focused on sector-wide supervision. PRUDENTIAL STANDARDS BY SECTORThe FSC will ease regulations deemed excessive given the purpose of such measures.- (BANKING)Loan-to-deposit (LTD) regulations will be maintained for now , while LTD regulations on foreign banks’ branches will be partially eased. Foreign branches will be allowed to include their long-term borrowings with a maturity longer than one year from headquarter offices in calculation of deposits. The “legal reserve” requirement will be abolished as its regulatory effectiveness has diminished with the introduction of Basel III. - (INSURERS) When deemed necessary preemptive measures for financial soundness, insurance companies will be allowed to issue subordinate bonds. Issuance of hybrid bonds will be permitted whenever necessary to secure so
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