Meeting with CEOs of 20 Domestic Banks
"Consumer Protection" as an Unwavering Principle
Calls for Stronger Internal Controls
Urges Support for New Growth Industries, Criticizes "Easy Interest Business"
On August 28, Lee Chanjin, Governor of the Financial Supervisory Service, met with the heads of domestic banks for the first time and stated, "In all work related to financial supervision and inspection, protecting financial consumers will be our top priority."
The Financial Supervisory Service held a 'Bank Presidents' Meeting' with the heads of 20 domestic banks at the Bankers' Association Hall that afternoon, declaring, "Protecting financial consumers will be an unwavering principle."
At the meeting, Governor Lee outlined several key points: strengthening financial consumer protection and internal controls; expanding productive finance and promoting financial support for small and medium-sized enterprises (SMEs) and small business owners; managing household debt risks; and enhancing innovation efforts within the banking sector.
The first point of emphasis was 'financial consumer protection.' Governor Lee said, "There must be no large-scale cases of consumer rights violations, such as the recent incomplete sales of equity-linked securities (ELS). We must establish a 'preventive consumer protection system' by operating a responsibility structure for strengthening consumer protection and improving the sales practices of high-risk investment products."
As part of this, he also addressed the need to 'strengthen internal controls.' Governor Lee remarked, "If banks experience financial incidents such as personal information leaks or employee embezzlement, it is no different from a vault with a broken lock. To prevent such incidents, it is essential to fundamentally strengthen internal controls, especially for work areas with a high likelihood of accidents."
He added, "Please reflect on whether previous efforts to strengthen internal controls have been sufficient, and also consider innovative and efficient ways to enhance internal controls, such as utilizing artificial intelligence (AI)."
He also requested that banks move away from collateral- and guarantee-centered operations and focus on 'productive finance,' where funds flow into future growth industries.
Governor Lee stated, "Banks are facing social criticism for focusing on 'easy interest income' through low-risk collateral and guarantee products. Whether banks can now channel funds into productive sectors that form the foundation for the growth of future industries, such as AI, will be a litmus test for determining the future direction."
He continued, "The Financial Supervisory Service will actively pursue improvements in prudential regulations and the promotion of venture capital supply to ensure that financial sector funds are supplied to productive sectors. I ask banks to pay special attention so that surplus capital secured through improved prudential regulations can be utilized for productive finance."
He also emphasized expanding financial support for SMEs and small business owners and announced plans to review the current state of such support. Governor Lee said, "With the maturity extension for borrowers affected by COVID-19 scheduled to end in September, please faithfully implement the management plans prepared by each bank, and ensure that the maturity extensions proceed smoothly and do not increase interest burdens."
He explained that SMEs and small business owners are the foundation of the Korean economy and the source of employment and innovation. If the banking sector provides them with breathing room when needed, it can enhance the 'resilience' of the overall economy. The Financial Supervisory Service intends to pursue institutional improvements after reviewing the status of financial support for SMEs and small business owners.
Managing household debt risk was given somewhat lower priority. Governor Lee asked banks to focus on loan screening based on repayment capacity, such as the debt service ratio (DSR) regulation, and to manage the total volume of household debt so that household debt risk factors do not become permanent. He particularly emphasized the need to prevent circumvention of the June 27 lending regulations.
Governor Lee concluded, "The Financial Supervisory Service will strictly uphold principles so that banks can fulfill their core functions, while listening to the market and supporting the innovation and efforts of the banking sector as a partner in supervision."
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