Financial Supervisory Commission
to Ease Regulations

Move aimed at invigorating financial market by softening checks on financial institutions

The Financial Supervisory Commission in its recent report to the National Assembly Financial Committee said it plans to prevent financial mishaps, instead of taking measures after problems developed in the financial institutions. It will work to strengthen its watch on financial loans concentrated in a particular sector of business so that the loans could be spread widely across business sectors including private sectors.
It also plans to strengthen macro-supervision of the financial industry during cyclical changes in the economy in order to prevent system risk following changes in financial and real economy. It will set up a model for an early warning system for the financial industry to forecast the development of financial crises before they occur. It will find a model that includes the prediction of soundness of financial companies six months ahead by checking their financial indicators.
The FSC will look for the development of signs for crisis by constant checks by using inspection indicators. The indicators examine the liquidity of financial firms on daily basis.
The financial watchdog said it will come up with supervisory measures for new financial products. It will strengthen the watch on transactions involving derivatives and supplement the supervisory standards on the new derivative products. It will build constant watch system for financial derivative products by March next year and the crisis situation analysis system by July.
The FSC said it will make a set of regulations for supervising retirement funds including the operational rules for installment savings and the registration requirements for retirement fund managers. It will turnaround the regulations on outsourcing by financial firms into a negative system in July to cope with the trend for taking on additional businesses and support management rationalization.
The financial watchdog also plans to modify its regulations on entering the financial business in order to allow the establishment of large financial institutions with the ability to compete in the international financial market. It will also try to have financial companies install a relationship manager system to strengthen the connection between constant inspection and on-the-spot inspection. The expert group for management risks and IT will have to sharpen their professionalism for the effective support to relationship managers at financial institutions.
The inspection manual will be revised centering on the check list and will be released to the public and secure the regularity of the inspection centered on the manual. The inspection will be made transparent through the introduction of the measures recommended by the inspection list.
Top managers of the financial institutions will be heavily punished for mishaps in their institutions as a means to prevent financial accidents with the strengthened internal controls. Penalties for accidents will be increased to raise the effectiveness of regulatory control of financial institutions.
The FSC said it plans to relax financial regulations in such a way that the move will make the regulations be more in line with the international supervisory practices. It will revise 52 cases of revision requests out of 102. It will also see that 'One-stop Service'system put into force by strengthening the units dealing with foreign financial institutions in the country in matters like government approval for new financial products, difficulties and recommendations made by foreign financial institutions operating in the country.
The financial watchdog will strengthen its ties with foreign financial watchdogs through increased exchange of information for a strong base for international cooperation and launch overseas public relations activities. It will send its officials to visit their counterparts in such countries as the U.S., Germany, Britain, Japan, China and Dubai, among others, and sign MOUs with them.
The FSC will lead the banks to raise their capital according to the BIS capital ratio and for the quality of their capital levels. BIS capital ratio stood at 11.2 percent, 12.1 percent at the end of 2004 and 12.5 percent at the end of June; basic capital ratio recorded 7 percent at the end of 2003, 8 percent at the end of 2004 and 9 percent at the end of June this year.
The financial authority will make efforts to prevent the development of non-performing assets and strengthen checks on the records for disposal of those bad loans to safeguard the soundness of banks. It will also lead the banks to strengthen their risk management system, especially, against mortgage loans on guard against changes in the property market. It will introduce the new BIS agreement by the end of 2007 and prepare the standard for setting the new BIS loan ratio, and a model for risk estimates and other procedural steps on a gradual basis.
The FSC plans to change the current payment reserve system of the insurance industry to the Risk-based Capital Requirement system from 2007 to upgrade insurance companies?ability to cope with risks. It will also introduce the Risk Assessment and Application System next year to make its supervisory activities against insurance firms flexible depending on risk scale and management capability.
Approval regulations for securities firms taking on trust business will be streamlined and switched to a negative system. The FSC will revise regulations for securities and futures trading firms?operation risk calculation methods under the Capital Regulation System by June next year to help them cope with increases in derivative financial products better. In order to allow fund management firms to grow, the standard for the financial soundness of fund management firms will be revised by September of next year and limit the emergence of similar companies. It will set up guidelines by fund product kinds designed to protect customers and support the development of a variety of fund products.

Chairman of the Financial Supervisory Commission Yoon Jeung-hyun

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