Major financial firms such as Samsung, Hanwha, Kyobo, Hyundai, and Dongbu are expected to receive integrated supervision by financial authorities in addition to the existing financial holding companies. The Financial Supervisory Commission (FSC) has decided to pursue an integrated supervision system for complex financial groups composed of two or more financial companies from next year. As a result, the regulatory level of large financial firms, see.

The Korea Institute of Finance held a `public hearing on integrated supervision of financial groups` at the Auditorium of the Korea Deposit Insurance Corporation on September 27, and the total assets of the financial group were over KRW 20 trillion for the integrated supervision. The total assets of the financial companies for at least two regions exceeded KRW 5 trillion Complex financial groups and all complex financial groups, and all complex and similar financial groups (one financial sector). The Financial Supervisory Commission has decided to introduce an integrated supervisory system focusing on these three measures until next month, and plans to start full-scale implementation from next year.

The financial authorities intend to strengthen the supervisory system for the complex financial group as a measure to strictly apply the jumbo segregation rules for large corporations and to prevent the abuse of money by internal money support.

"We will strengthen the supervision of the financial group so that financial companies in the financial group can utilize the customer`s assets for the misappropriation of the affiliated companies or neglect risk management among the affiliates to prevent the loss of customers," he stated at the public hearing.” Especially Chairman Choi said, "The integrated supervision of financial groups will strengthen the management and supervision of group-level risks that can be missed under the current supervision system of financial companies and prevent unfair activities in financial groups such as illegal transactions between affiliates.”

Although the government is implementing integrated supervision through the Financial Holding Company Act enacted in 2000, financial groups, not in the form of financial holdings, are continuously increasing. Especially, it has decided to introduce a financial group integrated supervisory system in order to prevent cases such as the Tong Yang Group becoming a financial affiliate, or threatening financial system like AIG, through the global financial crisis.

A total of 7 proposals were presented by the government as an integrated supervision plan, including five companies including Samsung, Hanwha, Hyundai, Dongbu and Lotte, and two financial parent companies (Kyobo Life Insurance and Mirae Asset) Group. Also, as part of the original plan of the financial authorities, the second plan includes all of the complex financial groups including the seven joint financial groups (Samsung, Hanwha, Hyundai, Dongbu, Lotte, Taekwang and Shinan) . However, the bank parent company groups such as KB Industrial Bank and IBK Industrial Bank and other financial groups are excluded.

Meanwhile, the last three inspections should include all multifamily and similar financial groups except for the bank parent company group. In this case, it is possible to get rid of the debate on equity as it does not set subjective qualification criteria, but there are disadvantages that surveillance authorities and the regulators have excessive social costs. Besides, it is difficult to expand the supervisory capacity within a short period of time, so that the financial authorities in the early stage of implementation may face difficulty in supervision.

In the financial sector, the introduction of a full-scale integrated supervisory system by the financial authorities suggests that more rigid and intense regulations will be applied to large financial firms in the blind spot of regulation because they are non-financial owners.

Right now, when selected as a target for integrated supervision of a financial group, it should be managed so that the eligible capital of the entire financial group is equal to or greater than the required capital.

There is also a plan to add the shares held by non-financial subsidiaries in the financial group to the required capital in order to curb expansion of business using financial companies` customer funds.

The Financial Supervisory Service presented a plan to add all of the contributions of non-financial group companies to the required capital, and to suggest that the more the amount of the non-financial group companies` equity capital in relation to the equity of the financial group, the more the amount added to the required capital gradually. If the plan is approved by the government, Samsung Life Insurance, which owns 8.5% stake in Samsung Electronics, will have to expand its capital and sell its stake.

Hanwha and Lotte are expected to overcome a complex stakeholder structure in addition to Samsung Life Insurance, expand their capital, and clean up stakes in subsidiaries.


By Kim Dong Wook east@


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