Reshaping Finance Industry

New FSC chairman Kim stresses tighter management of risks under new capital market law

Chairman Kim Yong-duk of the Financial Supervisory Commission and the Financial Supervisory Service, during his inaugural speech on Aug. 6, said he will exert his efforts first to risk management due to its growing importance with this year being the presidential election year and the general election early next year, requiring a special attention to risks in the financial market so that it would not affect the entire economy. He said the base of a sound financial market should be maintained on both mid-to long- term basis. Second, he would like to see that reform of financial supervisory systems to build a foundation for Korea to be a strong financial country in Northeast Asia.
Looking back, he said, at the end of the presidential terms, large financial accidents dominated the front pages of news papers, giving large impacts both social and economic to the country. At the end of the Kim Young-sam government, the foreign exchange crisis exploded and during the last year of the Kim Dae-jung regime, the crisis of credit cards and individual credit developed. The foreign exchange crisis was called the biggest national disaster to hit the country since the Korean war. Unemployment alone hit 1.78 million at the end of February, 1999 and some 4 million cardholders defaulted their loans as of April, 2004. creating a serious social problem, the new FSC chairman recalled.
All these happened because of the deficient risk management by banks and uncontrollable increases in liquidity and the lack of proper supervision by the financial supervisory agencies. We should never allow similar incidents to happen again learning from the past.
In order to prevent financial accidents, he said financial firms should take measures to strengthen their risk management and prevent those accidents to occur. Supervisory organizations monitor the financial market and monitor the market to eliminate potential risk factors with market-friendly manner using preemptive means to make sure that past incidents would not return.
And then, we should reform the financial supervisory systems in a drastic manner, taking the examples of advanced countries as models so that Korea's financial market would be a financial hub in Northeast Asia.
'Building a financially strong country through the advancement of financial supervision'is what I would like to pursue and in order to achieve it, I would like to put forward four policy objectives.
First, reform of supervisory systems. Second, training manpower and boosting the supervisory capacity. Third, Providing support for globalization of the financial sector and giving it a big push. Fourth, making competition in the financial market fair and protect the rights of consumers, the new FSC chairman called out.
Before taking up reform of the financial supervisory systems, the regulatory system must first be improved to the global standards. It must be reorganized by the business sectors, and products and changed based on function. For identical financial deals, identical financial regulations should be applied. Non-systematic and those that infringe upon other regulations should be improved and be phased out on sunset regulations.
Autonomy of individual financial firm should be respected as much as it can under the regulations and guarantee creative development of financial products. Financial supervisory systems should be reformed before the new capital market law comes into force in 2009 so that we can be well prepared when a big bang goes off in the financial industry set off by the new law.
Regulations should be reformed enough to make it easy for a financial firm to enter the business and closed down when needed. The supervisory authorities should encourage financial firms to grow bigger through capital expansion and M&As. We should also protect the rights of consumers, especially, investors in the capital market and small business operators and small-time borrowers. The supervisory organizations also monitor the financial market closely to prevent collusions and other illegal acts by financial firms to ensure order in the financial market transactions.
Kim called on the supervisory authorities, both FSC and FSS, to keep independence and neutrality in their execution of responsibilities and services to customers. They should secure confirmation as an independent financial supervisory authorities with high morality and professionalism, not as rulers. nw

Chairman Kim Yong-duk of the Financial Supervisory Commission.