The financial authorities of South Korea recently finalized a plan to improve financial group supervision. The targets of the plan are major financial groups that are not bank holding companies and are engaged in at least two out of lending and deposit, insurance, and financial investment. Specifically, the targets are the financial groups belonging to the six conglomerates of Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo and DB.
Those groups are currently subject to no risk management regulations unlike bank holding companies, which are subject to the Financial Holding Companies Act. Instead, the financial authorities have implemented certain supervision standards applied to them since 2018. The standards, which focus on their capital adequacy levels, are follow-up management tools for risk management based on capital regulation.
According to the authorities’ recent research, further risk prevention is necessary in the six groups and the necessity can be met by adding governance and risk management structures to the supervision scheme. In other words, the same regulations are necessary for financial group supervision with the Financial Holding Companies Act covering governance structures as well as capital adequacy levels. In addition, the plan is expected to control capital concentration risks in the groups and their inter-subsidiary insolvency transfer risks.
The standards were revised in July last year and are scheduled to be revised again this year. Then, those can be turned into a law for forced enforcement.