"Set Standards and Report for Exemption"... Financial Services Commission Slightly Eases Pressure on Financial Groups

Reannouncement of Enforcement Decree One Month After Initial Notice
Exemption Possible with Thorough Internal Control and Risk Management Preparation
Certain Fines Increased to 50 Million Won

[Asia Economy Reporter Song Seung-seop] Ahead of the enforcement of the ‘Financial Conglomerate Supervision Act’ which oversees financial companies affiliated with Samsung, Hyundai Motor, and others, financial authorities have decided to revise the regulations to somewhat ease the burden on these companies. The approach involves establishing internal standards for risk management and exempting companies from administrative actions if they report in advance.

According to financial authorities on the 8th, the Financial Services Commission recently re-announced the draft enforcement decree of the Financial Conglomerate Supervision Act containing these details. This re-announcement came about a month after the decree was initially announced following the passage of the bill in the National Assembly last December and the administrative procedure law announcement on the 9th of last month.

The Financial Conglomerate Supervision Act mandates that groups with total assets exceeding 5 trillion won and owning two or more companies in the deposit-lending, financial investment, and insurance sectors be subject to financial supervision. Target companies must designate a representative financial company among their affiliates to perform internal control, risk management, and soundness management tasks and report to the Financial Services Commission. Six groups are subject to this: Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo, and DB.

The law requires affiliated company executives and employees to establish standards and procedures to manage risks arising from their duties and various transactions such as asset management. They must also establish and operate a council composed of the affiliated financial companies.

The re-announced enforcement decree stipulates that if a company establishes ‘internal control standards’ and ‘risk management standards’ and reports them to the Financial Services Commission, administrative actions will be exempted even if related provisions are violated. This means that if the provisions stipulated by law are faithfully implemented, companies will not be punished for violating the standards except in cases of malicious acts such as false reporting or non-compliance with orders.

Authorities: "Additional Exemption Conditions Will Reduce Corporate Burden"

Within the industry, there had been significant concerns that the passage of the Financial Conglomerate Supervision Act would increase regulations and thus the burden on companies. Although financial authorities maintain that this supervision is entirely different from existing regulations in individual sectors and is not a form of double regulation, there have been criticisms that the financial authorities’ monitoring and sanctions on internal transactions among affiliated financial companies are somewhat excessive.

A Financial Services Commission official explained, "There was a consensus within the authorities that imposing administrative actions on companies for minor mistakes was excessive," adding, "The addition of exemption clauses in the enforcement decree will also reduce the burden on companies." However, the official noted, "There were no direct opinions or protests from companies."

The draft also includes a plan to increase fines for certain items. The existing enforcement decree stipulates a fine of 20 million won for institutions that fail to comply without justifiable reasons with orders such as submission, modification, or supplementation of management improvement plans or that do not follow administrative disposition procedures. However, the newly announced decree raises this fine to 50 million won.

Financial authorities stated that the purpose is not to strengthen the level of punishment. Since the maximum fine specified by the Financial Conglomerate Supervision Act is 100 million won, the minimum fine for institutions had to be set at 50 million won. A Financial Services Commission official explained, "The institution’s fine must be at least half of the maximum fine stipulated by law," adding, "The Ministry of Government Legislation informed us that some fine regulations violate this and need to be corrected."

Individuals and organizations with interests in the draft enforcement decree can submit their opinions to the Financial Group Supervision Innovation Team under the Financial Services Commission. The re-announcement period is until the 19th of this month.