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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
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Oct 22, 2015
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Oct 19, 2015
- FSC Roadmap for Insurance Business Reform
- BACKGROUNDKorea’s insurance industry has rapidly grown since 2000 to become the world’s eighth largest market with its total assets worth KRW 862 trillion, representing 19.8% of the Korean financial industry’s total assets, and 440,000 employees which account for 55.1% of the financial industry’s workforce. However, excessive ex-ante regulations on insurance policies and premiums stifled competition and innovation in insurance business, weakening the industry’s growth momentum. The FSC, therefore, outlined its plan to overhaul the regulatory framework on insurance business, which will be a remarkable reform initiative in 22 years since the insurance liberalization of 1993. Under the roadmap, the FSC will shift its regulatory focus from ex-ante regulations to ex-post supervision to promote price and service competition in insurance business, while strengthening the protection of policyholders and the financial soundness of insurance companies. MAJOR REFORMS1. GIVE INSURERS MORE AUTONOMY IN DEVELOPING INSURANCE PRODUCTS In principle, insurance companies will be no longer required to report their new products to the financial authorities prior to the sale, except for mandatory insurance and insurance products with new types of risk coverage. (Scheduled to be implemented in April 2016 after relevant regulations are amended) Standard insurance policies established by the financial authorities will be abolished to encourage insurers to develop more diverse insurance products. Necessary provisions such as protection of policy holders will be set out in relevant regulations. For indemnity and car insurance policies that need standardization, the industry association will be required to establish standard policies to report to the FSS. (Scheduled to be implemented in the second half of 2016 after consultations with the industry and amendments to relevant regulations) 2. REFORM PRICING REGULATIONS The liberalization of insurance premiums in 1993 allowed insurance co
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Oct 16, 2015
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Oct 02, 2015
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Sep 07, 2015
- China's Economic Slowdown and Its Impact on Korea's Economy
- CHINA’S ‘NEW NORMAL’The IMF recently downgraded China’s economic growth forecast in 2015 and 2016 to 6.8% and 6.3% respectively, slower than the stable growth of 7% in three years since 2012. The growth rate of around 6% is still high, given the size of China’s GDP; however, the actual impact of such slowdown from 7% to 6% could be felt far more profound. China’s slowdown is attributed to excessive and inefficient investments by its massive economic stimulus plan. Inventory adjustments and deleveraging will weigh on China’s economy for a considerable period of time. It will be difficult to resolve oversupply in property market in a short period. To manage a soft landing of Chinese economy, the Chinese government set out a new economic model, so-called ‘Xin Chang Tai(新常態, new normal)’ since President Xi Jinping came to power in 2013. The new growth model is aimed to shift Chinese economy from export-driven rapid growth to consumption-led stable growth. It also includes structural reform, diversification of growth drivers and liberalization of financial markets. The effectiveness of the Chinese government’s stimulus plan to downward pressure is key to a soft landing of Chinese economy as it would take time for structural reform to achieve results. The Chinese government still has capability to prevent a hard landing of Chinese economy. However, emerging economies also need to be prepared in response to the spill-over effect of China’s new normal. IMPACT ON KOREA’S FINANCIAL MARKET There is a possibility that volatility might increase due to worries over China’s economic slowdown and potential spill-over effects of its structural reform. However, market participants view that it is unlikely for Chinese slowdown to cause a serious financial crisis. Since the 2008 global financial crisis, Korea’s economic fundamentals have been steadily improved. Its current surplus has grown to USD 89.2 billion in 2014 from USD 3.2 billion in 2008; its
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Sep 04, 2015
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Aug 25, 2015
- Opening Remarks by FSC Chairman at Market Monitoring Meeting over Current Stock Market Conditions
- The FSC Chairman Yim Jong-yong convened a meeting with the FSS, KRX, and KCIF at 7 a.m. on August 25 to monitor global and domestic financial market conditions and to discuss measures to weather through the current market turmoil. *Please find in the following the summary of the Chairman’s opening remarks at today’s meeting. ***********Korea’s stock market is undergoing tough times with heightening concerns over external factors such as China’s stock market plunge, the Chinese yuan devaluation and the prospect of Fed’s rate hike. The KOSPI has sharply fallen to a year-low of 1,829.81 on August 24 from the year’s high of 2,173.41 on April 23 2015, as global stock markets tumble. Foreign investors turned net sellers since June this year. Korea’s stock market, however, fell less than other major markets in the Asia region. Stock prices in Korea dropped 13.5% compared to the end of May this year, while 30.4% in China, 22.5% in Hong Kong and 23.6% in Taiwan. The amount of net sales by foreigners in Korean stock market is relatively small. Foreign investors sold 0.36% of market capitalization in Korean stock market from June to August, while 0.51% in Taiwan, 0.49% in Thailand, 0.51% in Malaysia over the same period. These are evidence that market participants home and abroad see Korea’s market fundamentals sound. As external uncertainties seem to continue for some time, I would like to ask relevant institutions to join our efforts and take actions to reduce volatility in Korea’s capital markets. To this end, we need to continue our efforts to restore market confidence and keep foreign investors informed accurately about Korea’s economy and financial sector. In the longer term, it is important to make Korea’s capital markets robust enough to withstand external shocks by pushing ahead structural reforms and strengthening competitiveness of our capital markets. I would like to ask heads of relevant institutions here today to join our efforts on the foll
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Aug 21, 2015
- FSC Holds Meeting over Recent Global Financial Market Condition & Its Impact on Korea's Stock Market
- The FSC held a meeting with the FSS, KRX, and KCIF at 8 a.m. on August 21 to discuss recent global financial market condition and its impact on Korea’s stock market.GLOBAL FINANCIAL MARKET CONDITIONGlobal stock markets recently went down with heightening global risk factors such as China’s stumbling stock market, its currency devaluation and speculation about the Fed’s rate hike. - Stock markets in major economies mostly went on a downward trend since June this year. Emerging markets slumped further compared to advanced ones. - Global stock funds are flowing into advanced market out of emerging markets amid growing uncertainty over global financial condition. IMPACT ON KOREA’S STOCK MARKETVolatility in Korean stock market has increased recently as foreign investors began to sell and stock prices stumbled with growing external uncertainty. - Foreign investors have turned net sellers of KRW 4.3 trillion KOSPI shares since June this year as external uncertainties heightened.- The KOSPI and KOSDAQ indexes have slumped recently. * KOSPI: 1,916(end-2014) → 2,173(April 23, 2015) → 1,915(August 20, 2015) KOSDAQ: 543(end-2014) → 783(July 20, 2015) → 657 (August 20, 2015) Recent adjustments in stock market prices are seen largely due to external factors such as diminishing global market confidence, rather than domestic market factors. - While foreign investors are selling shares in most of Asian stock markets, the amount of net sales by foreigners in Korean stock market is relatively small.- Korea’s stock market indexes did not fall sharply, compared to those of Asia’s major markets. Market fundamentals in Korea are sound, and global financial markets remain stable in comparison to previous market turmoil in 2011 and 2013. We see market participants do not have to react excessively to recent market developments. - Korean stock prices are relatively undervalued. Korea’s foreign exchange reserves stood at USD 374.7 billion, the world’s sixth largest as o
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Aug 17, 2015
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Aug 07, 2015
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Jul 23, 2015
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Jul 22, 2015
- Household Debt Management Measures
- The government announced today a package of measures to manage household debt. A consultative body was formed among relevant government agencies in March this year to discuss and come up with comprehensive and preemptive measures to manage household debt in response to potential internal and external risks. The measures are focused on accelerating the improvement of household loan quality, strengthening the assessment of a borrower’s repayment ability, tightening household debt management in the non-banking sector, and strengthening banks’ ability to respond to internal or external shocks. CURRENT STATUS OF KOREA’S HOUSEHOLD DEBTThe household debt has grown fast recently after years of stabilized growth around 6%. Particularly, mortgage lending from banks has been rising fast since the second half of last year , which is attributed to multiple factors such as eased mortgage restrictions and growing demand for loans with interest rate cuts. Mortgage lending by banks which amounted to KRW 375 trillion at the end of March 2015 maintains its financial soundness with a delinquency rate of 0.39% at the end of March 2015. Banks have sufficient capability to absorb potential losses with a BIS capital adequacy ratio of 13.9% at the end of March 2015. Since the government-led KRW 32 trillion program was launched in March this year to help mortgage borrowers switch to fixed-rate and amortized loans, the shares of such mortgages continue to increase and hit 30%, initially targeted by the end of 2016, in the first half of this year. In addition, 70% of household debt is held by households in the highest income brackets – fourth and fifth quintiles. Household financial assets are more than twice household financial liabilities. Given the soundness of household debt, the possibility is limited that household debt risks would cause a systemic risk.As household debt continues to grow faster than income with a slow economic recovery, however, the government needs to take pree
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Jul 22, 2015
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Jul 22, 2015
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Jul 21, 2015
- Statement on Privatization Plan for Woori Bank
- The Public Fund Oversight Committee (PFOC), a deliberative body in charge of privatizing Woori Bank, held a meeting today to discuss how to push forward the privatization and decide on the new plan. 1. The PFOC decided to consider a new approach of selling 30% to 40% out of the government’s 48.07% stake to multiple buyers in smaller portions ranging from 4% to 10%, in addition to its previous plan of selling the controlling stake to a single buyer. After searching for potential buyers, we came to a conclusion that it is difficult to find a single buyer for the controlling stake, while there are multiple potential investors interested in a partial stake, who will form a group of major shareholders to control the board of directors. We expect the new option to draw more diverse market interests. The remaining stake, a maximum of 18.07%, will be open for smaller investors. 2. Woori Bank needs to continue to make efforts to further boost its corporate value in order to facilitate its privatization. 3. In the process of tapping potential buyers, we recognized that market participants are still concerned whether the government would continue to intervene in the bank’s management after the bank is privatized. In order to dispel such worries, the government will improve the implementation of the MOU with the bank even before the completion of the sale in order to ensure the bank’s autonomy in management. Upon the sale, the MOU will expire. We reaffirm that the government will never intervene in the bank’s management. 4. Given insufficient investors’ interest in Woori Bank, it is difficult to proceed with the sale process immediately. We will continue to make our efforts to make the market condition mature enough to attract sufficient demand for the bank. 5. The government has a strong commitment in pushing forward the sale of Woori Bank and will continue to make our utmost effort to privatize Woori Bank as early as possible. * Please refer to the attached PDF for
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Jul 02, 2015
- Plan to Strengthen Competitiveness of Korea's Exchange Market
- The FSC outlined its plan to strengthen global competitiveness of Korea’s exchange market and boost vitality in capital markets to fund innovative businesses.BACKGROUNDFree capital flows and technology innovation intensify competition among stock exchanges across the globe. The world’s stock exchanges are actively seeking mergers, acquisitions and strategic alliances to expand their business scope and offer competitive services. A growing number of stock exchanges are turning themselves into a form of holding companies for organizational flexibility in response to changing market environment. Listings of stock exchanges have become increasingly common.The Korea Exchange(KRX) has been isolated from such a global trend, partly due to its status of monopolistic, non-profit public institution. The plan announced today is to reorganize the KRX’s ownership and governance structure to boost competitiveness and vitality of Korean stock exchange market.DETAILED PLAN1. Establish a holding company of the KRXThe FSC will make a revision to the Financial Investment Services and Capital Markets Act(FSCMA) to establish a holding company of the KRX(tentatively named ‘KRX Holding Company’). The KOSPI, KOSDAQ, and derivatives exchanges will be spun-off into subsidiaries of the KRX. Market oversight functions, currently carried out by the Market Oversight Commission under the KRX, will be transferred to a non-profit entity which will act independently from the KRX Holding Company and its subsidiaries. The Korea Securities Depository(KSD) will reorganize its governance structure to minimize a possibility of conflicting interests, given its role as public infrastructure. Clearing business, currently conducted separately by each exchange, will be carried out by a specialized clearing company. The company will also clear OTC derivative products.2. Strengthen competitiveness of KOSDAQThe KOSDAQ will be fostered to strengthen its competitiveness after its spin-off by boosting KOSD
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Jul 01, 2015
- Laws to Curb Market Disruptive Activities to Take Effect from July 1, 2015
- As of July 1, 2015, the Financial Investment Services and Capital Markets Act(“FSCMA”) was amended to regulate so-called “market disruptive activities”, a newly created category of unfair trading activities in addition to the traditional insider trading and market manipulation activities. Under the amended FSCMA, those who engage in market disruptive activities will face a monetary penalty up to 1.5 times the undue profit gained from such activities. KEY PROVISIONS1. Types of market disruptive activities (1) Market Disruptive Activities using information Monetary penalty will be imposed on anyone who uses material non-public information that he or she produced or acquired in relation to his or her job responsibilities, or acquired from insiders and first-level tippees (e.g., second and third-level tippees) or in an improper manner (e.g., computer hacking, stealing, blackmailing, etc.), for his or her trading in listed securities, listed derivatives or OTC derivatives with listed underliers. (2) Market Disruptive Activities manipulating market pricesMonetary penalty will be imposed on anyone who engages in any of the following activities that affect or may affect market prices unfairly even in the absence of the specific intent: (i) Submitting a large number of quotations that are highly unlikely to be executed, or correcting or cancelling such quotations repeatedly after submission;(ii) ‘Wash sale’ without any real intent to transfer the rights;(iii) Matching orders aiming for the profit/loss transfer or tax evasion; and(iv) Spreading rumors or devising a scheme that could mislead others on the supply demand or price of listed securities or listed derivatives, or distort their prices.2. Calculation of Monetary Penalty For the market disruptive activities, monetary penalty up to KRW 500 million may be imposed; provided that if undue profit gained from such activities exceeds KRW 500 million, 1.5 times the undue profit shall be the maximum monetary penalty
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Jul 01, 2015
