KFTC or FSC?
Financial companies, such as Kyobo and Mirae Asset, are keeping an eye on who will take the helm to supervise financial business groups. The subtle difference in the supervision details of the Financial Supervisory Commission (FSC) Korea Fair Trade Commission (KFTC) can greatly affect them.
According to related government ministry sources on September 3, the government plans to carry out the system of supervising financial groups, starting from next year. The system supervises business groups which don’t have a holding company system but have financial subsidiaries and inspects the risks of group-wide internal transactions between all subsidiaries, rather than separate financial subsidiaries. It will also set up a subsidiary that represents the group and report the results of capital adequacy, subsidiaries’ major shareholder eligibility and group-wide internal transaction and risk management to regulators.
The KFTC is likely to implement a stricter supervision system. Director Kim Sang-jo defines the group-wide supervision system as the measures to strengthen the separation of banking and commerce. He has argued that financial groups should be based on the concept of the de facto control according to the Monopoly Regulation and Fair Trade Act, not share rates. It is to include groups that are dominated by their founder’s families with a minority share. He has said that the regulators needs to supervise mainly Samsung and Hanwha in the bracket of groups doing financial and non-financial businesses, and Mirae Asset and Kyobo Life Insurance in the bracket of pure financial business groups. He points out that Samsung Life Insurance, a financial subsidiary of Samsung Group, invests in stocks of Samsung Electronics and other subsidiaries that are eight times higher than the average of the life insurance industry and it is risky asset management and inflates the total capital of the group.
On the other hand, some financial authorities say that the object of the group-wide supervision system is to examine the possibilities of proliferation risks and capital inflation caused by internal transactions instead of the separation of banking and commerce. They also say that the existing policy that separates banking and commerce is ineffective at the moment when the financial industry sees innovation and growth slow down. In regard to the KFTC’s stance that the group-wide supervision system should include non-financial subsidiaries, the FSC believes that forcible supervision on non-financial companies exceed its authority of supervision determined by law.
However, both the FSC and the KFTC agree that they should prevent risks from shifting through the industrial capital’s control on nonmonetary institutions and cross shareholding structure by using the system. In short, they should regulate groups’ misconduct that temporarily inflates debts or reduces capital in order to fail to meet the requirements of holding company systems that requires higher levels of management responsibility and that revives voting rights later by exchanging treasury stocks with other companies. An official from the financial authorities said, “We will take the industry’s opinions in a bid to improve the unclear governance structure and make a soft landing at the same time.”