The Financial Services Commission met with financial group CEOs and released new financial group supervision guidelines on Feb. 24. According to the new guidelines targeting Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo and DB, the commission will look into their shareholdings in non-financial subsidiaries and the stability of their governance structures in evaluating their capital adequacy.
The guidelines are updated in every July. This year, however, the commission will implement the new guidelines in May so that those can be applied earlier. Each of the six financial groups has a financial asset of five trillion won or more and is engaged in two or more out of lending and deposit, insurance, and financial investment. According to experts, the main target of the new guidelines is Samsung and the main purpose of the new guidelines is to limit Samsung Life Insurance’s and Samsung Fire & Marine Insurance’s shareholdings in Samsung Electronics.
The commission is going to reflect the concept of concentration risk in capital adequacy assessment. In each of the six, the capital adequacy defined by dividing the eligible capital by the required capital must exceed 100 percent and the concentration risk will be included in the required capital along with the contagion risk and the minimum required capital. In June last year, the commission did not apply the concentration risk, saying that the concept needs to be reviewed in relation to legal discussions in the National Assembly. Then, the Solidarity for Economic Reform said that Samsung is the only one of the six that has a high concentration risk attributable to subsidiary investment, the non-reflection of the concentration risk means Samsung Life Insurance can maintain its Samsung Electronics shares, and the non-reflection is a special treatment for Samsung Group.
“Scholars’ consensus is that the contagion and concentration risks are hard to clearly distinguish and it is the latter that has been reflected in international standards,” the commission explained, adding, “We are going to come up with an integrated calculation model by April this year and run a simulation in the third quarter.” The new guidelines will include not only the concentration risk but also non-financial elements such as subsidiary management and business management, the complexity of governance structures, internal transaction volumes, etc.
In addition, the commission is going to guide the groups to set up group-wide internal control systems based on a council including their representative companies and compliance officers. The scope of public disclosure will be expanded from group-specific risks to their financial statuses, investment structures, and risk statuses.