Official Implementation After Pilot Test Since March 2019... Revision of Supervisory Regulations
Enhancing International Consistency of Risk Management System
On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where the financial authorities decided to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. The financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@
Since March 2019, financial authorities have been piloting the large exposure limit regulation set by the Basel Committee on Banking Supervision through administrative guidance, and have now formalized it as an official system.
On the 18th, the Financial Services Commission announced that it had approved partial amendments to the 'Banking Supervision Regulations' and the 'Financial Holding Company Supervision Regulations' at the first regular meeting held that day. The FSC explained, "This amendment to the supervision regulations aims to formalize the international standards set by the Basel Committee on Banking Supervision to enhance the international consistency of South Korea's financial regulations."
The large exposure limit regulation requires banks and bank holding companies to manage exposure to each counterparty within 25% of the Bank for International Settlements (BIS) Tier 1 capital to prevent large-scale losses due to counterparty defaults. While this is similar to the current credit extension limit system under existing law, it allows integrated management by considering both control relationships and economic dependence when recognizing counterparties. The scope of exposure also includes credit extensions such as loans and financial products like stocks and bonds, as well as guarantee amounts provided by guarantors.
The amended supervision regulations are scheduled to take effect from the 1st of next month, and this institutional improvement is expected to enhance the management level of large concentration risks in the banking sector. The FSC stated, "Financial authorities will closely monitor risks in the banking sector and faithfully proceed with necessary institutional improvements, including the introduction of international standards."
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