[Q&A] "President Yoon Orders More Bold Measures on ISA"

Post-Briefing on Financial Services Commission Work Report on the 17th

Financial Services Commission Chairman Kim Ju-hyun is giving a post-briefing on the financial sector at the Public Livelihood Discussion with the People held at the Government Seoul Office in Jongno-gu, Seoul on the 17th.
[Photo by Yonhap News]

The government has announced plans to resolve the Korea Discount (the undervaluation phenomenon of the Korean stock market) alongside bold tax reforms. In addition to measures to strengthen minority shareholders through amendments to the Commercial Act, more aggressive tax benefits will be provided for the Individual Savings Account (ISA) system.

On the 17th, Kim Joo-hyun, Chairman of the Financial Services Commission, held a post-briefing at the Government Seoul Office in Jongno-gu, Seoul, titled "Public Discussion with the People: Financial Coexistence, Expanding the Ladder of Opportunity," explaining the policy plans by stating, "We will support the formation of national assets through the capital market."

Chairman Kim said, "The President also mentioned that bold tax reforms can reduce investors' tax burdens while securing sufficient tax revenue," and added, "He said that the Korea Discount can be resolved by reforming excessive taxation compared to global standards and strengthening the protection of minority shareholders."

In particular, President Yoon ordered "to take bolder measures than announced" regarding the ISA system. According to the initial announcement by the ministries, the annual contribution limit for ISA accounts will increase from 20 million KRW (total 100 million KRW) to 40 million KRW (total 200 million KRW). The tax-exempt limit will also expand from 2 million KRW (4 million KRW for low-income and farming/fishing types) to 5 million KRW (10 million KRW for low-income and farming/fishing types). A domestic investment-type ISA, mainly holding domestic stocks and funds, will also be introduced.

Furthermore, the government reiterated its intention to alleviate the high-interest burden on citizens through livelihood finance and support the recovery of vulnerable groups through coexistence finance.

The following is a Q&A session with Kim Joo-hyun, Chairman of the Financial Services Commission; Koo Sang-yeop, Director of the Legal Affairs Office at the Ministry of Justice; Lee Jeong-sik, Minister of Employment and Labor; and Jeong Jeong-hoon, Director of the Taxation Office at the Ministry of Economy and Finance.

- President Yoon mentioned that the amendment to the Commercial Act focuses on preventing directors from pursuing private interests. Does this mean that changes to the duty of loyalty clause for directors are included among the options being considered but may not proceed this time? I ask for confirmation.

▲ The duty of loyalty for directors currently has bills submitted to the National Assembly. These include provisions that directors owe a duty of loyalty not only to the company but also to shareholders, or, for example, in the UK, although rare, directors must pursue the interests of shareholders as a whole. Domestic bills propose that directors must pursue proportional interests. We actively agree with the intent to protect shareholders. However, the Ministry of Justice's practical concern is that even if such provisions are enacted, they may remain abstract and declarative. Therefore, it is more important to establish practical mechanisms that allow shareholders to be tangibly protected. When such declarative provisions are violated, there should be a system to claim damages. Regarding this, our Commercial Act already includes directors' liability provisions toward third parties, self-dealing, or appropriation of opportunities. Particularly, the rules requiring prior approval for appropriation of opportunities are unclear and controversial. We will legislate to clarify that prior approval must be obtained to enable more fundamental filtering.

Financial Services Commission Chairman Briefing on the Results of the Public Discussion on Financial Sector [Photo by Yonhap News]

- Regarding electronic general meetings of shareholders, the government's bill states that they can only be held if there is a basis in the articles of incorporation. This seems to leave it to corporate discretion. What incentives are planned to encourage this?

▲ Regarding electronic general meetings, the 2023 White Paper on Shareholder Meetings of Listed Companies shows that 67% of shareholder meetings ended within 30 minutes. More than 75% had less than 10% shareholder attendance. Over 97% had no shareholder proposals. The shareholder meeting is the most important occasion for minority shareholders to participate. How to make these meetings substantive is, in my opinion, a much more important issue than the duty of loyalty. The fundamental reason is that minority shareholders cannot attend meetings concentrated in March due to their livelihoods. The plan is to make shareholder meetings online via electronic meetings. Some may question the effect, but it is very significant. First, broadcasting the meeting online means minority shareholders' speeches are also public. Large Korean companies in the 21st century are very sensitive to public opinion and international trends, so having these records and real-time sharing is a huge burden. Concerns about whether including this in the articles of incorporation allows companies to do as they please seem to be raised. Specific measures will be included in subordinate legislation such as the Enforcement Decree of the Commercial Act, but fundamentally, questions or speaking rights cannot be deprived. This is not a declarative provision. The Commercial Act and company law are mandatory laws. Violations can lead to objections or legal actions by minority shareholders, potentially invalidating the meeting itself. Therefore, this is a very serious regulation. I believe it will be a very important momentum for minority shareholders to have speaking rights and voice in company management.

- The authorities seem to emphasize that the ultimate goal of supporting vulnerable groups is self-sufficiency through employment linkage. Employment support plans are not new; could you explain how this will be concretely implemented?

▲ Jobs are indeed the greatest welfare. The core of the recent linkage between the Ministry of Employment and Labor and the Financial Services Commission is that, although the government is seen as one by the public, there are silos between ministries, making it difficult for citizens to receive comprehensive one-stop services. The Prime Minister emphasized this before. One of the biggest features of this government is breaking down silos between ministries and providing integrated support. The President also emphasized this. At the end of last year, we considered that people defaulting on bank fees of less than 10,000 KRW per month means they have no jobs. On January 24, we (the Ministry of Employment and Labor) plan to sign an MOU with the Financial Services Commission to expand linked services. Currently, only seven locations are linked; we plan to more than double this and institutionalize two-way online and offline services so citizens can access both.

▲ Currently, those visiting the Committee on Livelihood Finance are not only seeking small emergency loans of 500,000 KRW but also need jobs. For example, some require debt adjustment or help finding dormant deposits. All these complex consultations are provided, but since the focus has been on those seeking small emergency loans, the number of people served has been limited. This time, by linking with the Ministry of Employment and Labor's programs, everyone visiting the Korea Inclusive Finance Agency will be connected to the employment ministry's programs as needed. Conversely, if someone visiting the employment ministry needs financial help, they will be linked to the agency's programs.

Financial Services Commission Chairman Kim Ju-hyun is giving a post-briefing on the financial sector at the Public Livelihood Discussion with the People held at the Government Seoul Office in Jongno-gu, Seoul on the 17th.
[Image source=Yonhap News]

- There are reports that losses related to the Hong Kong Hang Seng Index Equity-Linked Securities (ELS) could amount to trillions of won. What is the current situation? There is also criticism of the Financial Services Commission's responsibility. What are your thoughts? Also, what are the procedures for damage relief and compensation?

▲ As you know, since the second half of last year, the Financial Supervisory Service has been investigating and assessing the situation. I want to emphasize that we have been closely monitoring this issue. Depending on the investigation results, we will identify problems and areas for system improvement. Compensation issues will also be addressed accordingly. We are preparing to take action. Some say the Financial Services Commission failed in risk management, but I ask you to judge for yourselves.

- Regarding the application of the Debt Service Ratio (DSR) to jeonse loans, questions arose during yesterday's briefing. When will DSR be applied, and what are the specific plans?

▲ We have been working with the Ministry of Land, Infrastructure and Transport to improve the jeonse loan system. The DSR system is continuously discussed. Jeonse loans are relatively large in scale. Many citizens still rely on jeonse financing, and abruptly introducing strict DSR regulations could be problematic. There are many loopholes in the DSR system, so we plan to start with areas that are more urgent and less impactful. In the low-interest era, real estate prices have risen, increasing household debt, credit loans, and project financing (PF) debt. Our country is heavily indebted, so proper management is widely agreed upon. The DSR aims to ensure repayment within reasonable means. However, sudden enforcement could cause shocks. We will monitor household loan management trends and minimize harm to citizens.

- From this year, accounting standards for virtual assets have been established, which is said to enhance stability. Are you considering partially easing restrictions on financial companies' holdings or purchases of virtual assets?

▲ Regarding virtual assets, although related to ELS issues, we have issued several press releases clearly stating our position. There is nothing to add or subtract.