[Asia Economy Reporter Kim Hyo-jin] The financial authorities are pushing for the legalization of supervision over six complex financial groups including Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo, and DB.
The Financial Services Commission (FSC) announced on the 7th that it has publicly notified the draft bill for the "Act on the Supervision of Financial Groups" containing these details. The FSC plans to collect related opinions until the 15th of next month and submit the draft bill to the National Assembly in September.
If the bill passes the National Assembly, a legal basis for supervisory actions over "non-holding company financial groups" among complex financial groups with assets exceeding 5 trillion won, namely the six financial groups including Samsung, will be established.
The draft bill stipulates that to manage the soundness of financial groups, a representative company should create group risk management policies and establish and operate risk management organizations. Financial groups must build and operate an "internal control system of financial groups" centered on the representative company at the group level for compliance with laws and regulations and sound management.
The draft bill also requires additional capital reserves based on the evaluation of group-level risks such as the impact of internal transactions and risk concentration on the soundness of financial groups, and the possibility of risk transfer from affiliates.
The representative company of a financial group must report and disclose the status of capital adequacy and risk factors at the group level to the Financial Services Commission.
If the capital adequacy ratio or risk management evaluation results of a financial group fail to meet certain standards, the FSC can order necessary measures to improve soundness, such as submitting and implementing management improvement plans including capital expansion and reduction of risky assets.
The financial group supervision system is already implemented in major advanced countries such as the United States, Europe, Australia, and Japan. In South Korea, supervision is conducted under the "Financial Holding Companies Act" for financial groups in the form of financial holding companies, but non-holding company financial groups have remained a regulatory blind spot despite their significant impact on the financial sector, according to the financial authorities' assessment.
The International Monetary Fund (IMF), through its Financial Sector Assessment Program (FSAP), pointed out this issue in South Korea and repeatedly recommended promptly establishing a legal basis for supervising non-holding company financial groups and strengthening supervision.
Financial group supervision was selected as one of the 100 national tasks with the launch of the Moon Jae-in administration. The FSC has been piloting the financial group supervision system since July 2018 by creating the "Model Code on Financial Group Supervision."
The current model code selects a representative company within the financial group, and the representative company is responsible for carrying out soundness management tasks such as establishing risk management and internal control policies.
Accordingly, risk management councils and internal control councils involving major financial affiliates are established and operated, and the implementation status must be reported and disclosed quarterly to the financial authorities.
The FSC stated, "We will faithfully reflect opinions from all sectors during the legislative discussion process and promote legislation more systematically in the future."
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