[Exclusive] Differential Insurance Premium Standards for Securities Firms to Be Strengthened to Bank Level

Forecast for 28th 'Differentiated Insurance Premium Rate System Improvement' Public Hearing
Policy to Apply New Standards for Comprehensive Investment Companies
Increase in Deposit Insurance Premium Rates for Securities Firms Inevitable... Financial Investment Industry Opposition

In the future, the burden of differential insurance premiums for comprehensive financial investment business operators (CIFIBOs) is expected to increase. The Korea Deposit Insurance Corporation (KDIC) is considering strengthening the capital adequacy and liquidity indicators used to calculate the differential insurance premium rates for CIFIBOs to the level of banks. The financial investment industry is expressing concerns that if such improvements are realized, the deposit insurance premium rates could rise by about 5%, increasing their burden.

According to the financial investment and finance industries on the 26th, KDIC will hold a public hearing on the improvement of the differential insurance premium rate system at its headquarters auditorium in Jung-gu, Seoul, on the afternoon of the 28th, where it will announce these results. KDIC had previously announced in March that it would reform the differential insurance premium rate system, aiming to finalize the improvement plans and related regulatory amendments by the end of this year and apply the new system starting from next year's evaluation.

The differential insurance premium rate system refers to the practice of assessing the management risk of individual financial companies and imposing deposit insurance premium rates differentially within a range of up to ±10%. Its purpose is to induce autonomous sound management by financial companies, appropriately reward efforts to reduce risk, resolve moral hazard, and strengthen financial stability.

Accordingly, KDIC is preparing improvement plans for calculating differential insurance premium rates through a project by the Korea Institute of Finance. The core of the improvement plan is to change the criteria for differential insurance premium rates for CIFIBOs. Currently, KDIC uses the Financial Supervisory Service’s standards when calculating capital adequacy indicators. The main point is to create its own standards and apply the new criteria to CIFIBOs.

A KDIC official explained, "We are not directly applying Basel methods or the bank LCR (Liquidity Coverage Ratio) indicators, but we are referencing them as one of the improvement measures," adding, "The comprehensive investment companies have different system risks and fund management methods compared to general securities firms, so the intention is to apply slightly different standards."