Brochure 2004

Transcription

Brochure 2004

FINANCIAL SUPERVISION IN KOREA 2004
CONTENTS
FOREWORD
FINANCIAL INSTITUTIONS & SECURITIES MARKET IN 2003
6
¡
Financial Institutions
6
¡
Securities Market
12
PRUDENTIAL REGULATION & SUPERVISION IN 2003
15
¡
Supervision of Financial Institutions
15
¡
Supervision of Securities Market
19
¡
Examination of Financial Institutions
22
¡
Transition to Risk-Based Supervision
23
¡
Corporate Disclosures
23
¡
Consumer Protection & Consumer Debt Management
25
LOOKING AHEAD
¡
Reinforcing Safety and Soundness of Financial Institutions and
26
26
Stability of the Financial System
¡
Consumer Protection & Support for Consumer Debt Management and
27
Credit Repair Programs
¡
Improving the Supervisory Framework
Financial Supervisory Commission
Financial Supervisory Service
Laws Governing FSC/SFC/FSS Supervision
FSC/SFC/FSS Officers
27
29
32
36
38
FOREWORD
Although the recent growth prospect for the economy has been
dampened by sluggish consumption and investment as well as
problems in the credit card sector, Korea¡fl
s financial system as a whole
very much remain fundamentally sound. In no small measure, the
underlying strength of the financial system can be attributed to the
success Korea has had with its broad-based reform and restructuring
efforts of past six years.
In 2003, the Financial Supervisory Commission/Financial Supervisory
Service continued to focus on prudential regulation and supervision
backed by new policy initiatives directly aimed at promoting
competition, innovation and market discipline and further improving
the efficiency and the soundness of the financial system. Among
others, efforts were undertaken to facilitate a smooth transition to
risk-based supervision, establish an effective preventative and
forward-looking supervisory structure and provide meaningful postexamination management guidelines and consulting for financial
institutions. We also continued to reinforce the accounting and
disclosure regimes to protect investors and ensure transparency and
discipline in the marketplace.
With a mixed outlook for the economy, we are likely to encounter
some difficulties in the financial market. But our experiences and track
record as well as our unwavering commitment to prudential regulation
and supervision leave us with more than enough confidence that
Korea¡fl
s financial market will continue to gather strength and
demonstrate its full potential in the near future.
This brochure is intended to give an overall picture of market
developments and financial supervision in 2003 and an outline of
what¡fl
s on the horizon for the Financial Supervisory Service in terms of
its supervisory policy objectives. I very much hope that it will prove to
be a useful reference and help you better understand our supervisory
goals in the financial market.
Thank you.
Yoon Jeung-Hyun
Chairman/Governor
Financial Supervisory Commission/Financial Supervisory Service
FINANCIAL INSTITUTIONS & SECURITIES MARKET IN 2003
FINANCIAL INSTITUTIONS
BANKS
Banks Assets, Deposits and Loans
(In KRW, trillions)
As of the end of 2003, there were a total of 19 bankseight nationwide banks, six regional banks and five
specialized banks-in business. There were also a total of
61 branch operations by 39 foreign banks. Bank
employees numbered 60,608 for the eight nationwide
banks, 7,312 for the six regional banks and 21,591 for
the five specialized banks for a total of 89,511 at the
end of 2003.
Number of Banks & Bank Employees
Domestic banks’ net income totaled KRW1.8 trillion for
2003, down 64.4% from KRW5.1 trillion in 2002.
Much of the drop resulted from higher provisions for
problematic loans to SK Global and LG Card as well as
increased provisions for distressed credit card
receivables and consumer loans. But income before
provisioning jumped 12.9% to KRW16.9 trillion,
suggesting improved income-generating ability of
domestic banks. With a drop in net income for the
year, the average ROA and ROE fell 0.19% and
3.77%, respectively, in 2003.
Assets held by domestic banks rose 8.5% in 2003 to
KRW1,132 trillion as the pace of lending slowed. With
interest rates remaining low, bank deposits grew at a
modest rate of 5.4% to KRW662 trillion, while bank
lending rose 13.9% to KRW599 trillion, as business
borrowing for capital investment remained sluggish
and banks tightened credit screening for consumer
borrowing.
6 FINANCIAL SUPERVISORY COMMISSION
Income before Provisioning & Net Income
(In KRW, trillions)
FINANCIAL INSTITUTIONS & SECURITIES MARKET
Domestic banks’ BIS capital adequacy ratio, a
leasing companies and 7 new technology venture
barometer of capital strength, fell from 11.33% at the
capital companies-operating at the year’s end. Credit
end of 2002 to 11.2%. Loans classified as substandard,
unions numbered 1,086 and credit cooperatives 1,555.
doubtful or presumed loss averaged 2.6%, compared
with 2.3% a year earlier.
Bank Capital Adequacy & Bad Loan Ratios
(In percent)
Mutual Savings Banks
For the fiscal year 2002 ended June 2003, mutual
savings banks saw an 11.7% increase in their assets to
KRW26.98 trillion on the back of higher deposit rates,
expanded branch operations and integration into the
electronic network system maintained by Korea
Financial Telecommunication & Clearings Institute.
Deposits increased 11.5% to KRW24.01 trillion and
loans 25.6% to KRW21.41 trillion during FY2002.
Mutual Savings Banks’
Assets, Deposits and Loans
(In KRW, trillions)
NON-BANK FINANCIAL INSTITUTIONS
Non-bank financial institutions refer to merchant
banks, money-brokerage companies, mutual savings
banks, finance companies, credit card companies,
leasing companies, installment finance companies, new
technology venture capital companies, credit unions
and agricultural, fishery and forestry credit
As of the end of FY2002, mutual savings banks’ net
cooperatives.
income totaled KRW129.8 billion, up 5.79% from
KRW122.7 billion a year earlier, with higher revenues
There were two merchant banks and two money
from project financing, interest income and service fees.
brokerage companies in business at the end of 2003.
There were also 114 mutual savings banks, 50 creditspecialized finance companies—8 credit card
companies, 19 installment finance companies, 16
FINANCIAL SUPERVISORY SERVICE 7
Mutual Savings Banks’ Net Income
(In KRW, billions)
Credit Card Companies
Credit card companies’ assets in terms of total
managed assets (i.e., B/S assets plus credit card
receivables securitized), fell 33.8% from the previous
fiscal year to KRW54,987.4 billion at the end of
FY2003 ended December as credit card companies
aggressively disposed of distressed assets and
strengthened their liquidity positions.
Total Assets on Managed-Asset Basis &
B/S Assets
(In KRW, trillions)
The BIS capital adequacy ratio of mutual savings banks
at the end of FY2002 averaged 9.95%, down from
11.21% a year earlier. On the other hand, the share of
loans classified as substandard, doubtful or presumed
loss averaged 11.27%, an improvement from 12.42%
for FY2001.
Mutual Savings Banks’
Capital Adequacy & Bad Loan Ratios
(In Percent)
Credit card companies’ net income came under
pressure in 2003 as a result of rising consumer credit
delinquencies, higher provisioning against distressed
assets and business downsizing. For 2003, credit card
companies reported net losses totaling KRW10,474.2
billion, a sharp drop from net income of KRW235.5
billion a year earlier.
Credit card purchases fell 24% to KRW517.3 trillion
from KRW680.8 trillion in FY2003. The number of credit
cards issued fell to 95.2 million, down from a year earlier.
Credit Card
Purchases
(In KRW, trillions)
Credit Cards
Issued
(In KRW, millions)
FY2001
480.4
850.04
FY2002
680.8
104.80
FY2003
517.3
95.22
For the fiscal year 2003 ended March 2004, assets
reported
by
insurance
companies
totaled
KRW226,208.8 billion. Assets held by life insurance
companies rose 14.1% to KRW187,361.5 billion and
those by non-life insurance companies 9.7% to
KRW38,847.2 billion. Net assets (shareholders’ equity)
With LG Card and other credit card companies
rose 65.18% to KRW15,315.8 billion for life insurance
experiencing large net losses for FY2002, the adjusted
companies and 35.86% to KRW5,863.7 billion for
capital adequacy ratio averaged -5.45%, a sharp drop
non-life insurance companies in FY2003.
from 12.44% a year earlier. Credit card delinquency
ratio (on the basis of payments overdue more than one
Life Insurance Companies’ Assets and
month) averaged 14.05% for 2003, sharply up from
Shareholders’ Equity
6.6% in 2002.
(In KRW, billions)
INSURANCE COMPANIES
As of the end of 2003, 23 life insurance companies
(including 3 foreign branches) and 27 non-life
insurance companies (including 11 foreign branches)
were engaged in insurance business.
Number of Insurance Companies and Employees
Non-Life Insurance Companies’ Assets and
Shareholders’ Equity
(In KRW, billions)
Life insurance companies’ net income for FY2003 fell
Insurance Companies’ Bad Loan Ratios
KRW1.24 trillion or 43.9% to KRW1,587.4 billion from
KRW2,828.2 billion a year earlier with much of the
drop stemming from fewer new policies sold and
higher policy cancellations amid continuing economic
slowdown. Other than Seoul Guarantee Insurance,
which saw its net income jump by KRW405.0 billion to
KRW243.5 billion, non-life insurance companies saw
the overall net income fall 33.8% or KRW163.9 billion
to KRW320.8 billion, partly as a result of high loss
ratios for auto insurance.
Insurance Companies’ Net Income
With the commencement of bancassurance on
(In KRW, billions)
September 1, 2003, premiums received from
bancassurance between September and December
totaled KRW1,899.6 billion for life insurance
companies and KRW37.2 billion for non-life insurance
companies. These figures represent approximately
9.6% and 0.5%, respectively, of the insurance
premiums received during the four-month period in
2003.
SECURITIES COMPANIES
The solvency margin ratio, a key measure of the capital
As of the end of FY2003 ended March 2004, there
adequacy of insurance companies, averaged 217.2%
were 59 securities companies (including 15 foreign
for life insurance at the end of FY2003, modestly down
branches), 14 futures companies, 45 asset
from 225.9% a year earlier. But the ratio for non-life
management companies (32 investment trust
insurance companies rose sharply to 280.3% from
companies and 13 asset management companies
234.1%. The bad loan ratio (i.e., ratio of loans
created under the old Securities Investment Companies
classified as substandard, doubtful or presumed loss), a
Act) and 54 investment advisory companies in business.
measure of the overall asset soundness, averaged
1.5% for life insurance companies and 1.82% for nonlife insurance companies.
Number of Securities Companies in Business
Securities Companies’ Assets
(In KRW, trillions)
Assets held by securities companies totaled KRW48.37
Securities Companies’ Net Income
trillion as of the end of FY2003, down 4.1% from KRW
(In KRW, billions)
50.48 trillion a year earlier mainly due to a drop in
customer deposits and orders amid lingering
sluggishness in the equity market. Likewise, assets
managed by the 45 asset management companies
came to KRW160 trillion, down approximately 2.2%
from the previous year.
Securities companies’ net income for FY2003 came to
KRW1,281.7 billion, a substantial turnaround from
FY2002 net loss of KRW601.7 billion brought about by
Asset Management Companies’ Pretax Income
gains from securities trading amid rising stock prices.
(In KRW, billions)
Asset management companies’ net income came
under pressure as a result of intense competition and
falling asset management fees. For FY2003, asset
management companies reported pretax income of
KRW133.1 billion, a drop of 27.1% from a year earlier.
Net Buying by Investor during 2003
SECURITIES MARKET
EQUITY MARKET
(In KRW, trillions)
6
The equity market began 2003 on a bearish note amid
geopolitical concerns emanating from North Korea and
2
Iraq, SK Global accounting fraud and problems in the
credit card sector, but soon began to rebound on the
-2
termination of hostilities in Iraq, heavy buying by
foreign investors and expectations of global economic
recovery.
Equity Indices and Trading Volume during 2003
Stocks issued through the Korea Stock Exchange (KSE)
and the KOSDAQ rose 11% to KRW9.4 trillion in 2003.
Initial public offerings (IPOs) fell 35.7% to KRW1.1
trillion, mostly due to weaknesses in the KOSDAQ
market. In contrast, seasoned public offerings (SEOs),
helped by debt-to-equity swap by Hynix Semiconductor
and new equity issued for the takeover of Chohung
Bank by Shinhan Bank, jumped 23.0% to
approximately KRW8.3 trillion.
IPOs and SEOs during 2003
(In KRW, billions)
While domestic retail and institutional investors largely
remained net sellers, foreign investors led the market
2002-03
2002
2003
IPOs
17,156
11,024
-35.7%
SEOs
67,310
82,816
23.0%
Total
84,466
93,840
11.0%
with aggressive buying beginning in the second quarter
of the year. The share of foreign equity holdings
reached 40.1% by the end of 2003.
BOND MARKET
The sluggish economy kept bond yields fairly low and
steady during the first half of the year, but expectations
of economic rebound pushed yields higher in the
second half. With investors increasingly becoming more
risk-averse and showing a strong preference for safety,
the spread between the treasury and corporate bonds
the issuance of financial bonds (debt issued by financial
(debentures) widened in 2003 compared to 2002. In
institutions) fell sharply amid falling consumer credit
the corporate bond market, demand for corporate
demand and liquidity problems of credit card
bonds were heavily biased toward issuers with strong
companies. The corporate debt market also came
credit ratings, and yields among bonds with varying
under pressure from SK Global accounting fraud and
credit ratings showed a sharper contrast in 2003 than
anemic business investment and fell 9.1% from a year
in 2002.
earlier.
Benchmark Bond Yields and Spreads
Debt Issued in 2002 & 2003
2002
2003
2002-03
Yield on 3-Year
Treasury Bonds
5.11%
4.82%
-0.29 pp
Yield on AADebentures
5.68%
5.58%
-0.10 pp
Spread between AADebentures and 3-Year
Treasury Bonds
0.57 pp
0.76 pp
0.19
Spread between BBBand AA- Dentures
3.40 pp
4.31 pp
0.91
Benchmark Bond Yields
(In KRW, trillions)
2002
2003
Government Bonds
36.8
60.7
Monetary Stabilization Bonds
69.9
89.7
Financial Bonds
81.5
68.0
Corporate Bonds
55.5
50.2
Special Bonds
14.5
13.9
258.0
282.6
Total
Note: Bond issued by certain non-private, public-purpose
companies authorized under the law
Debt Issued in 2003
Despite a somewhat modest pace of bonds issued by
Bond trading was led by treasury and Monetary
financial institutions and businesses, new bond
Stabilization Bonds and rose 26.9% to KRW1,434
issuances for 2003 jumped 9.5% to KRW283 trillion
trillion for the year. Strong investor preference for risk-
with increased issuances of government bonds and
free investments as well as structural improvements in
Monetary Stabilization Bonds. Both rose in 2003 to
the way treasury bonds are issued and traded
finance higher government expenditures, maintain
contributed to the increased trading of treasuries.
stable exchange rates and adjust market liquidity. But
FUTURES AND OPTIONS MARKET
Trading Shares of KOSPI200 Futures and Options
by Investor
In the futures and options market, trading of KOSPI200
futures and options continued to gain strength in 2003,
while trading of treasury bond futures fell. With ample
liquidity and active trading by individual investors, the
average daily trading of KOSPI200 futures and options
reached 250,000 and 11.48 million contracts,
respectively, which in total represents an increase of
48.2% from 2002. In contrast, the daily trading of 3-year
treasury bond futures averaged 41,472 contracts, down
20.8% from a year earlier. Stable interest rates and
declining hedging by investors are said to have
contributed to the drop.
Average Daily Trading of Futures and Options
(Number of contracts)
KOSPI200 Futures
KOSPI200 Options
2002
2003
175,689
251,841
2002-03
76,152
7,744,551 11,488,765 3,744,214
3-Year Treasury
Bond Futures
52,369
41,472
-10,897
5-Year Treasury
Bond Futures
-
1,927
1,927
Institutional investors were more active in futures and
options trading at the Korea Futures Exchange than
individual investors. In particular, the share of trading by
investment trust management companies fell 8% in 2003
as a result of a drop in government bond futures trading.
Trading by individual investors made up more than 50%
of the KOSPI200 futures and options trading. Whereas
the share of KOSPI200 futures trading rose modestly from
a year earlier, the share of KOSPI200 options trading fell
somewhat due to an increase of the initial account
deposit from KRW5 million to KRW15 million in March.
The share of futures and options trading by foreign
investors rose from a year earlier as they increasingly
sought to hedge their positions on equity-linked
securities.
Trading Shares at the Korea Futures Exchange
PRUDENTIAL REGULATION & SUPERVISION
PRUDENTIAL REGULATION & SUPERVISION IN 2003
The FSC/FSS focused on prudential regulation and
notification that had previously been used only for the
supervision with a particular emphasis on preventative
quarterly general examinations to partial examinations,
and forward-looking supervisory posture to respond to
which are conducted in connection with specific
rapid changes taking place in the marketplace and
supervisory policies.
promote the safety and the soundness of the financial
service industry. With respect to bank supervision, the
Based on the extensive examination experiences of the
FSC/FSS came up with plans for bank-specific, entity-
past five years, the FSC/FSS also set forth and has been
tailored capital adequacy supervision, provided new
implementing in phases “Mid- to Long-Term Plans for
guidelines on issuing debt to increase capital and closely
the Advancement of Examination” that consist of
monitored progress with the reduction of distressed
supervisory objectives for risk-based examination,
assets. To ensure the soundness of consumer loans, the
strengthening the management improvement aspects
FSC/FSS made downward adjustments to the loan-to-
of examination, and encouraging self-regulation of
value ratios banks use to determine lending against the
financial institutions. In step with the growing focus of
borrower collateral. Steps were also taken to strengthen
supervision and examination on risk management and
the oversight of the credit card assets. For the non-bank
prevention, the FSC/FSS also established plans to
financial institutions, the FSC/FSS focused on preventative
further strengthen and improve supervisory sanctions.
supervision of credit card companies and protecting
consumer rights. A number of measures were also taken
to step up supervision of mutual savings banks and other
small lenders that serve low-income groups and small
SUPERVISION OF
businesses. For the supervision of insurance sector, the
FSC/FSS set forth a comprehensive plan for risk-based
BANKS
supervision and began to work on building riskmeasurement models and laid the groundwork for an
Supervisory regulations were amended in April to allow
“early warning system.” In August, bancassurance
banks to issue new bond-type hybrid securities (hybrid
began. The FSC/FSS also completed a continuous
tier 1) for capital addition. In July, bank supervisory
monitoring system designed to strengthen the oversight
regulations were amended to clarify the criteria for
of the risk management of securities companies.
recognition of tier-1 capital from preferred shares so
that bank share capital can be more clearly classified
With respect to examination, the FSC/FSS focused on risk
into subordinate debt or new hybrid capital in
management and providing management consultation
accordance with the BIS criteria on the basis of the
so as to strengthen the managerial soundness of financial
redemption period or who holds the right to call.
institutions. A number of new initiatives were also
In response to the rise in bad loan ratios during the first
launched to improve the transparency of the financial
quarter of 2003, the FSC/FSS began quarterly
market, raise market confidence, and enhance consumer
inspections of the status of bad loans and progress on
protection. As a way to encourage self-policing and raise
reducing distressed loans. Banks were instructed to
the transparency of supervisory examination of financial
write off loans classified as presumed loss from the
institutions, the FSC/FSS expanded the pre-examination
previous quarter in the current quarter. In particular,
banks were urged to promptly write off small credit card
also reached among the main creditors to grant debt
debt (less than KRW5 million) that had been classified as
maturity extension to CCCs. In June, supervisory
presumed loss. Banks whose bad loan ratio exceeded
regulations were amended to include securitized assets
3% were instructed to submit to the FSC/FSS plans to
in determining the delinquency ratio in light of the fact
clean up distressed loans (including plans for disposition
that asset-backed securities issued by CCCs constituted
of sub-standard and doubtful loans). The FSC/FSS also
approximately 40% of their total debt obligations.
urged banks to reduce at least by half loans classified as
doubtful as of the end of March.
The FSC/FSS also stepped supervision of CCCs by
incorporating delinquency ratio and net income in the
NON-BANK FINANCIAL INSTITUTIONS
criteria for prompt corrective actions (PCA). The stiffer
PCA criteria brought about such positive developments
Mutual Savings Banks
as more aggressive efforts by the CCCs to reduce their
delinquency ratios and raise capital for additional write-
Beginning in March, the FSC/FSS allowed healthy mutual
offs of distressed assets. But they also led to increased
savings banks that met or exceeded certain financial
conversion of credit card debt into loans (converted
soundness requirements to expand their branch
loans) by the CCCs to avoid PCA as well as higher losses
operations and authorized a total of five new branches
due to excessive asset write-offs and dispositions. In
and smaller units by the end of 2003. The provisioning
response, the FSC/FSS adjusted its earlier approach and
requirements for small loans of KRW3 million or less (as
announced in October new measures that included
of the end of June) that had been classified as normal or
signing MOUs with the CCCs to lower the delinquency
precautionary were set at 1% and 7%, respectively, to
ratio and incorporating the converted loans in
ensure sufficient capital reserves. Mutual savings banks
computing the delinquency ratio.
were also encouraged to conduct a thoroughly review of
the business feasibility of project financing, consumer
Credit Unions and Cooperatives
loans requiring daily repayment and other niche market
businesses as well as bancassurance to ensure strict
Supervisory regulations on credit unions and cooperatives
credit risk and loan management.
were amended in December to significantly reinforce the
oversight of the business activities of credit unions and the
Credit Card Companies
agricultural, fishery and forestry credit cooperatives. The
amended regulations enable the FSC/FSS to directly
Throughout the year, the credit card sector came under
provide management improvement guidelines for
pressure as a result of problems precipitated by the SK
distressed credit unions without a recommendation from
Global accounting fraud in March. In a joint effort to
the credit unions’ national headquarters and to oversee
respond to the distress in the market, the regulators
implementation of financial soundness improvement
implemented a set of measures that called for, among
plans. For capital adequacy ratio computation, only up to
others, substantial new capital injections by the principal
1.25% of the total assets were allowed as capital from
shareholders of credit card companies (CCCs) and other
loan-loss provisioning set aside against assets classified as
aggressive restructuring measures. An agreement was
sub-standard. As a way to encourage the management
normalization efforts of the credit union members,
systematic basis, the FSC/FSS initiated the Early Warning
subordinated borrowings were introduced, and additional
System for insurance supervision. As a first step toward
steps were taken to improve the net capital computation
building the new system, the FSC/FSS developed 156 key
rules. As part of an effort to encourage and facilitate the
insurance business indicators in early 2003. From the 156
ongoing management normalization of the National
key indicators, those that were found to be reliable
Credit Union Federation of Korea, the national
predictors of past distresses in the insurance sector were
headquarters of credit unions, the FSC/FSS conducted
selected and are currently used for four basic early
regular monitoring checks on the status of the
warning models (two for life and two for non-life
implementation of the normalization plan.
insurance companies).
Quasi-Financial Service Companies
Bancassurance
Information on illegal activities of 133 quasi-financial
Financial service providers were allowed to offer
service companies outside FSC/FSS jurisdiction was
bancassurance through insurance sales offices or agents
collected and supplied to the law enforcement
for the first time in August 2003. In light of concerns
authorities for criminal prosecution. Of the 3,184
over policyholder protection and potentially adverse
complaints on usury and questionable debt collection
impact of bancassurance on the insurance industry, the
activities that had been reported to the FSC/FSS, 210
FSC/FSS decided to gradually expand the range of
cases were forwarded to the law enforcement
insurance products and services to be offered to
authorities. In addition, 1,614 cases involving illegal credit
consumers through March 2007. As a part of this plan,
card discounts and other credit-card-related transactions
banks and other financial service providers were allowed
that had been identified through a credit card
to offer annuity, savings-type insurance and other
monitoring unit jointly run by the FSC/FSS and the credit
consumer policies through March 2005. As of the end of
card industry were forwarded to the law enforcement
December, 101 financial service providers—18 banks, 18
authorities and the National Tax Service. The FSC/FSS
securities companies and 65 mutual savings banks—
also initiated new measures aimed at curving lending by
were registered as insurance sales agents. Policies sold
unregistered sub-prime lenders. To curb illegal credit card
totaled approximately KRW2 trillion (a monthly average
discounting through payment gateway service providers,
of KRW500 billion), which is somewhat higher than
the FSC/FSS directed CCCs to build and maintain
initially expected.
delinquency-monitoring controls for the payment
gateway service providers.
INSURANCE COMPANIES
Reduced Entry Barriers to Insurance Business
The regulations on entry into insurance business were
eased as a result of amendments to the Insurance
Early Warning System
Business Act in May. Under the amended regulations,
insurance businesses were grouped into life, non-life,
In an effort to measure insurance companies’ risk
and the “third” insurance businesses. Each of the three
exposures and their potential danger on a more
insurance types was further divided into specific
insurance services (to be individually authorized). The
2002, steps have been taken to improve the disclosure
minimum requirement for capital for each line of
regimes for insurance policies to better protect
insurance business was also adjusted to vary from
consumers and help them make more informed policy
KRW5 billion to KRW30 billion. For companies offering
choices. Beginning in January 2001, insurance
a single line or limited lines of insurance services, the
companies were required to disclose the contract terms
minimum capital requirement was reduced from
and other relevant information for all the policies they
KRW10 billion to KRW5 billion. To promote competition
sell to consumers on the Internet. In addition,
among insurance companies through more diverse sales
disclosures on such basic indicators as interests
channels, insurance businesses specializing in telephone
assumed, expected risk rates and expense ratios were
and/or online sale of insurance policies were allowed
required. Since January 2003, insurance companies
with capital requirement at roughly two-thirds of that
have been required to disclose the types of protection
for other insurance companies.
and premiums for all the insurance policies that are sold
to consumers. To help consumer make more informed
Supervision of Asset Management
policy decisions, industry groups representing domestic
insurance companies have been required to provide
The regulation of insurance companies’ asset
comparative information on the policies they sell so as
management was changed from a positive system that
to enable consumers to compare the policies offered by
enumerated the types of investments insurers were
other insurance companies and make more informed
allowed to make (e.g., marketable securities and real
policy decisions (effective November).
estates) to a negative system that provided for
regulatory oversight to achieve more general objectives
SECURITIES-RELATED COMPANIES
such as preventing abuses by the principal shareholders
and concentrated lending to certain borrowers. To
Promoting Competitiveness of Securities Industry
ensure more effective supervision of insurance
companies’ exposure to credit risks, the FSC/FSS
In February, the Securities Exchange Act was amended
instituted a credit-ceiling system that brings together all
to designate equity-linked securities, warrants and other
the asset management and investment activities of
new instruments as securities. In August, 5-year treasury
insurers and sets an overall limit on the credit risks that
bond futures and options on treasury bond futures
insurance companies may take on. For investment and
began trading at the Korea Futures Exchange. As a way
asset management activities involving foreign
to promote a market environment more favorable for
currencies and derivatives that can result in substantial
restructuring in the securities industry, the FSC/FSS
losses, the FSC/FSS established a boundary for the types
allowed in November the addition of treasury stocks that
of foreign currency and derivatives trading in which
had been acquired as a result of a merger in the net
insurance companies may engage.
operating capital of securities companies. In December,
securities companies were allowed to promptly reflect a
Disclosures on Insurance Policies
drop in the risk amount resulting from foreign capital
injection, business transfers and other restructuring
Since the deregulation of insurance premiums in April
activities in the computation of the overall risk amount.
Managerial Soundness
New Supervisory Initiatives on Asset
Management Business
In March, the FSC/FSS ordered securities companies
dealing in OTC derivatives and new types of securities
In July, the FSC/FSS conducted a review of regulations
to se up risk-monitoring systems. As a step to
on option CPs and barred trust funds from engaging in
strengthen the supervision of the risk management of
certain non-contractual transactions of option CPs and
securities companies, the FSC/FSS established new
other questionable practices. In August, new measures
management evaluation items and criteria in April. To
were implemented to improve the sale of fund shares
prevent securities companies from taking on excessive
and dividend distribution. In October, the credit rating
risk by providing financial support to distressed
and maturity of securities eligible for money market
subsidiary units, the computation method for net
funds (MMF) were reinforced to raise the safety and
operating capital was amended in November to
liquidity of MMF assets. Steps were also taken to
discourage securities companies from large acquisitions
improve the transparency of fund activities involving
of securities issued by their subsidiaries. The FSC/FSS
the acquisition and disposition of the treasury stocks of
also put forth new guidelines designed to identify and
the investor companies.
prevent suspicious securities trading.
Indirect Investment Asset Management
Market-Friendly Supervision and Building
Business Act
Market Confidence
In October, the Indirect Investment Asset Management
The FSC/FSS took supervisory steps to keep pace with
Business Act (IIAMBA), which combines and
the continuing advances in information technology and
streamlines the Securities Investment Trust Business Act
its growing application and integration in the financial
and the Securities Investment Company Act as well as
service industry. In March, electronic authentication
provisions on indirect (collective) investment advisory
became mandatory for all online securities transactions.
businesses from the Securities Exchange Act, was
New guidelines on firewalls and other security
enacted. The IIAMBA, which took effect in January
measures for cross-border securities transactions
2004, broadens the scope of collective investments by
became effective. The FSC/FSS also took a number of
including derivatives, real estate and other tangible
steps to restrain excessive retail investors’ participation
assets and takes precedence over other laws applicable
in the futures and options markets. They included (1)
to collective investment activities.
higher customer deposit requirements for futures and
options accounts, (2) post-transaction deposit privilege
for institutional investors, (3) higher risk-weighting for
speculative option sales, (4) giving securities companies
SUPERVISION OF SECURITIES
MARKET
the discretion to refuse speculative orders and (5) new
measures designed to raise security deposit payments
Much effort was undertaken in 2003 to fine-tune
so as to lower uncollected customer payments for
supervision and regulation of the securities market so as
futures and options trading.
to facilitate capital access to businesses and bring about
greater discipline in the securities market. To help
Futures & Options Market
companies gain easier access to capital, regulations were
eased for companies issuing securities for capital increases.
During the first half of the year, the FSC/FSS announced
Regulatory measures were also taken to reinforce the
a number of stabilization measures for the futures and
listing requirements at the KSE and dividend disclosures
options market and during the second half preparations
and improve the price bid and offer rules. Likewise, at the
for the move of certain futures and options trading from
KOSDAQ, listing requirements were raised, and new
the KSE to Korea Futures Exchange (KOFEX). The
measures were instituted to promote M&A.
stabilization measures the FSC/FSS announced included
higher account deposits to encourage retail investors to
In the bond market, the settlement dates for OTC bond
exercise greater caution and restraint when engaging in
trading were revised, and the number of counterparties
futures and options trading. To prevent deep out-of-the-
with which the OTC bond brokerage companies may
money options turning into a vehicle for speculation, the
deal was expanded. In the futures market, five-year
risk weighting for such options was raised for
treasury bond futures were introduced and security
computation of the net operating capital of securities
deposits required for futures and options trading by retail
companies. During the second half of the year, the
customers were raised. As part of the ongoing effort to
FSC/FSS approved futures trading by securities
curb unfair and illegal securities trading, the FSC/FSS
companies in anticipation of moving trading of futures
stepped up its efforts to collect and analyze information
and options from the KSE to KOFEX. A number of
on suspicious trading and actively encouraged securities
supervisory regulations were also amended to ensure
companies to build in-house surveillance systems to
smooth transition of futures and options trading from
identify suspicious buying and selling of securities.
the KSE to KOFEX.
Supervisory actions were also taken to improve and
reinforce full and fair disclosures to help investors make
Bond Market
timely and informed investment decisions.
Concerted efforts were made in 2003 to improve the
Securities Underwriting and Offering
infrastructure for bond market with the goal of
enhancing market efficiency. Steps were also taken to
Based on extensive studies and analyses of securities
improve credit rating of bond issuers. The settlement
underwriting and offering in the local securities market,
period for OTC bond transactions was extended from
the FSC/FSS adopted a number of new measures in
between T+0 to T+14 to between T+1 to T+30, and
2003. They include greater latitude for securities
institutional investors were actively encouraged to utilize
underwriters and granting individual stock subscribers
the DVP (delivery-versus-payment) bond clearing and
put-back options, i.e., the option to sell the subscribed
settlement system. The counterparties eligible to deal
shares back to the underwriter. The 45% stock
with primary bond dealers were expanded to include
allotment (55% for KOSDAQ) given to high-yield funds
ordinary companies, and a new electronic system
from a public offering was adjusted to 30%. On-site due
designed to monitor the pricing of bond-pricing
diligence by the lead underwriter of a company about to
companies became operational. In an effort to raise the
go public was also mandated.
credibility and objectivity of credit rating, the rating
coverage and disclosures by credit-rating companies
give investors more efficient trading tools. New pre-
were expanded. In addition, the standards for the
hours trading was also added. In December, the delisting
internal controls of credit-rating companies were
criteria were revised so that companies whose share
strengthened, and default analysis of credit ratings was
ownership was well distributed—i.e., not concentrated
instituted. Also, the foreign exchange stabilization fund
to a few—were exempted from being placed on the
bond was reclassified as a government bond, and the
watch list (for potential delisting) even if the trading
issuance gap for government bonds was uniformly set at
volume fell short of the minimum requirement.
six months to increase their liquidity. To prevent volatile
interest rate movement that can be triggered by a
In the KOSDAQ market, supervisory efforts were directed
temporary supply shortage, a new bond trading that
at enhancing investor confidence and market integrity. In
allows the government to issue repurchase agreements
March, regulations were amended to allow listing of ETF
(RP) and meet the market demand was also adopted.
and real estate investment trusts (REITs). To help investors
better anticipate companies likely to be delisted from
Regulatory Changes in the KSE and
KOSDAQ
KOSDAQ, those failing to comply with disclosure rules
twice or more were designated for warning and
automatically delisted if another disclosure violation
In March, companies traded in the KSE were directed to
occurred. In June, regulations were amended so that
provide separate disclosures on their dividend policies for
accounting misconduct became a sufficient cause for
investors. To ensure timely corporate disclosures,
rejection of listing application (and to remain effective for
auditor’s report for periodic disclosures became
three years thereafter). Listed companies that were found
mandatory. In June, stiffer sanctions on fraudulent
to have engaged in reporting misconduct were put on
financial reporting and other accounting misconduct
the watch list for possible delisting. Pretax income and
were instituted against both listed and list-seeking
market capitalization requirements were also newly
companies. Companies that had been found to have
added to the delisting criteria. In an effort to attract
engaged in accounting fraud were denied listing in the
financially strong or otherwise sound companies, the
KSE and barred from applying for listing for a period of
regulatory provisions concerning the capital and audit
three years. To promote simultaneous listing of domestic
requirements for new companies were strengthened
companies at home and abroad, exemptions from the
along with higher revenue requirements.
minimum shareholder requirement and restrictions on
pre-listing stock offerings were newly adopted. For
Securitization of Distressed Assets
investor protection, the re-listing eligibility requirements
for delisted companies were strengthened and a
In August, the FSC/FSS reinforced the supervisory
preliminary pre-listing review system was newly
guidelines for securitization of non-performing assets to
instituted. To prevent price manipulation with fake stock
(1) prevent banks from taking on excessive positions in
orders, a five-minute random-end to the opening and
the subordinate tranches, incurring losses from asset
closing call periods was newly added (October 6). Two
disposition, and merely lowering bad asset ratios on the
new order types—immediately executable limit order
balance sheet and (2) bring the loss recognition criteria up
and best bid/offer limit order—were added to the KSE to
to the international standards. Under the new ABS
guidelines, banks are barred from providing such extra
Examination Criteria
credit enhancements as put-back options, cash reserves
and credit lines. Banks were also instructed in principle
The frequency of general examinations typically varied
to treat the entire subordinate ABS they acquire as
with the overall ratings financial institution receives for
losses. If only partial losses were recognized as a result
management status evaluation. But in the event of a
of an independent assessment from credit-rating
discovery of an unusual activity during the regular
companies, a significant portion of the subordinate
monitoring or the emergence of a significant event,
classes was to be excluded when determining the BIS
examinations took place irrespective of the previous
capital adequacy ratio.
examination schedule. Partial examinations were
conducted on a more ongoing basis to prevent
financial incidents or irregularities and unsound
EXAMINATION OF
business practices. The duration of the general
examinations and the number of examiners assigned
were usually dictated by the asset size of the subject
The number of financial institutions (including branch
institutions and their risk levels. For partial
operations) the FSC/FSS examined in 2003 totaled
examinations, the decision was mostly determined by
1,744, down 933 or 34.9% from 2002 mostly due to
the nature and the purpose of the examination as well
higher compliance of financial institutions with internal
as the unique characteristics of the subject institutions.
control requirements and fewer examinations
conducted for crime-prevention purposes. For the non-
Post-Examination Sanctions
bank financial institutions (NBFIs), the number declined
by 187 (30.1%) with fewer inspections of credit card
The FSC/FSS issued a total of 82 sanctions on financial
issuers. For securities companies and insurance
institutions in 2003, compared with 122 a year earlier.
companies, the number fell by 128 (33.7%) and 137
Of the total, 41 were issued against NBFIs. The number
(28.5%), respectively.
of sanctions issued against individuals also fell to 940 in
2003 from 1,225 in 2002. Of the 940, officers at NBFIs
made up 192. For non-management staff-level
Examinations in 2003
General
Examination
No. of
Institutions
employees, 278 sanctions were for those employed by
Partial
Examination
No. of
Branches
Total
KRW1.467 billion were also imposed as a result of 11
Banks
32
652
714
NBFIs
43
392
435
Insurance
23
229
252
Securities
41
302
343
139
1,605
1,744
Total
securities companies and 190 by banks. Fines totaling
separate post-examination actions.
Mid- to Long-term Examination Planning
In August, the FSC/FSS released a blueprint for Mid- to
Long-Term Examination Plan designed to significantly
improve examination of financial institutions based on
an extensive review of the supervisory structure for
examination that has been in place since the creation
Preparatory work for the transition to RBS for the
of the FSC/FSS as an integrated financial supervisor.
insurance sector began in earnest in 2003. In March,
The blueprint embraces five basic approaches:
the master plan for RBS for the supervision of insurance
companies was completed, and work on developing
(1) Transition to risk-based supervision that
focuses on risk analysis and management;
(2) Management consulting that emphasizes
consolidated risk measurement system began in
December as laid out in the master plan (measurement
systems for insurance and interest risks were in the
stringent sanctions against non-compliance
development stage as of May 2004). A measurement
and provides management consultations
system for credit risk was also expected, and once all
based on thorough diagnosis of credit
the risk measurement systems are completed, they are
decisions and other key management issues;
expected to be brought together along with other
(3) Self-regulation with particular focuses on selfcompliance and self-policing;
(4) Tailor-made examination that emphasizes a
monitoring and feedback systems into the Integrated
Risk Information System. The FSC/FSS has also been
closely monitoring and supervising the compliance and
more differentiated and discriminated
progress of insurance companies with the risk
approach to examination, and
management improvement plans insurance companies
(5) Specialization of the examiners and improving
themselves have established.
the institutional structure and arrangement for
the examiners.
CORPORATE DISCLOSURES
TRANSITION TO RISK-BASED
SUPERVISION
Fair Disclosure
The FSC/FSS undertook much effort to ensure that the
For the transition to risk-based supervision (RBS) that
fair disclosure regime take root and its effectiveness
began in earnest in October 2001, an FSC/FSS task force
continue to improve. The “Fair Disclosure Q&A” was
conducted a review of the applicability of the evaluation
updated and widely distributed, and companies were
criteria that had been set up in 2002 as the first phase
mandated to include their compliance with fair
of the transition to measure and manage risks
disclosure rule in the reports they file periodically to the
associated with the major operating activities of banks.
FSC/FSS. Follow-up supervisory actions were also taken
A pilot test was conducted on a number of banks using
to raise compliance. Supervisory and regulatory support
the risk evaluation criteria, and implementation of a plan
was also given to the KSE and other self-regulatory
to build a new risk information management system
organizations to enable them to take stronger
also began. The first phase of FSC/FSS credit risk
enforcement actions against non-compliance.
management system, which was designed to measure
the economic capital for credit risks, was also
Acquisition & Disposition of Treasury Stocks
completed. Preparations for the adoption of the New
Basel Accord (NBA) also continued in 2003.
The ceiling on the price at which companies may bid for
their stocks was raised and other measures were
became operational. Between July and November, the
implemented to improve the rules on acquisition and
FSC/FSS identified a total of 163 disclosure violations
disposition of treasury stocks. Companies were also
using the monitoring system. For the violations
allowed to buy or sell shares during the regular trading
discovered during 2003, the FSC/FSS issued 525
hours and bid for shares at the highest price during the
warnings and 391 admonitions (a milder form of
day’s trading. However, to prevent unfair trading,
warning). Individual shareholders who failed to comply
companies were allowed to bid for or offer treasury
with the equity disclosure were ordered to disgorge
stocks only up to 30 minutes before the daily closing.
gains realized from stock trading (a total of 57 cases).
Block trading during the after-hours session and trading
through the ECN market were also allowed. When filing
Accounting Supervision & Audit Review
a report on treasury stocks acquired, companies were
exempted from having to provide information already
The FSC/FSS reorganized and expanded its accounting
disclosed in the periodic filings to the FSC/FSS.
supervision department into two and raised the audit
review ratio of companies traded in the KSE and
Enforcement against Non-Compliance
KOSDAQ from 5% to 10%. New steps, including
assigning each team in the accounting supervision
The FSC/FSS stepped up review of registration filings and
departments a specific industry, were also instituted to
other disclosures and took aggressive enforcement
raise specialization and efficiency of the audit review
actions against non-compliance. The FSC/FSS issued a
staff. Review of quarterly and semiannual financial
total of 45 correction orders from the registration filings
statement filings was also added to the supervisory
it reviewed, mostly due to defective securities valuation
review of annual flings to improve the consistency and
and omissions of investment risks and the intended
reliability of financial disclosures. For the year, the
purposes of the capital sought. Disclosure filings were
FSC/FSS conducted audit review of 93 companies and
also closely scrutinized for any illegal loans to the
found accounting violations in 17 companies. For
principal shareholders and public offerings disguised as
accounting violations, the FSC/FSS imposed fines on the
overseas offering of convertible bonds and bonds with
auditors involved in the accounting misconduct and
warrants. Enforcement actions taken for these violations
designated outside auditors for the companies involved.
ranged from heavy fines to recommendation for
For the accounting firms, the actions taken ranged from
dismissal of the officers and employees responsible for
cancellation of business registration to suspension of
the violations. Of the 124 other disclosure violations
duties. Companies involved in accounting impropriety
detected, 66 were related to non-compliance with
also faced restrictions on securities issuance and received
periodic disclosure filings.
recommendations for dismissal of individuals involved in
the accounting misconduct.
Monitoring Changes in Shareholder Equity
In February, a monitoring system that verifies the
disclosure compliance of companies reporting changes
in the equity positions of the principal shareholders
CONSUMER PROTECTION &
CONSUMER DEBT MANAGEMENT
September, the FSC/FSS ordered banks that reported net
losses for the previous year and credit card delinquency
ratio 10% or higher to enter into an MOU to improve
CONSUMER PROTECTION & SERVICE
bank business management and announced that bank
credit card businesses would be factored in CAMELS.
The FSC/FSS launched a number of consumer education
programs in 2003 to help consumers make more
responsible and informed decisions on financial products
CONSUMER DEBT MANAGEMENT &
CREDIT REPAIR PROGRAMS
and services. The FSC/FSS published the basics of
financial products and services and distributed them to
The FSC/FSS implemented supervisory policies and
schools and other educational institutions and conducted
measures aimed at helping distressed borrowers manage
consumer education in collaboration with the Consumer
debt and repair credit. In an effort to contribute to the
Union of Korea and Korea Institute of Finance. Efforts on
debt management and credit repair programs designed
consumer protection were also stepped up to improve
for debtors with multiple creditors, the FSC/FSS actively
the quality of FSC/FSS consumer services and raise
supported Credit Counseling & Recovery Service (CCRS),
consumer satisfaction. A one-stop online counseling
an agency administering the consumer debt management
service was launched, and the processing of consumer
programs, with financial contribution for its 2004 budget
complaints was automated to analyze information
and amended the supervisory regulation on credit
collected more effectively and help the regulators better
information service providers to enable it to access
respond to consumer issues. The FSC/FSS Internet
consumer credit information. Because the success of CCRS
homepage was actively used to provide useful
heavily depended on the participation of all the major
information to consumers and continuously disclose how
banks and other creditors in the consumer credit workout
the FSC/FSS has handled consumer complaints and
program, the FSC/FSS also actively encouraged financial
disputes involving financial services and products.
institutions that had not joined the workout program to
do so. The FSC/FSS also closely scrutinized the monthly
CONSUMER DEBT
reports that the major creditors filed to the FSC/FSS on the
status of the debt management and credit workout
In response to the rapid growth of retail lending, the
programs they instituted on their own initiatives. Aside
FSC/FSS closely scrutinized bank lending in 2003. In June,
from CCRS, a separate debt management & credit repair
the loan-to-value (LTV) ratio for new mortgage loans was
program through a special-purpose company jointly
lowered from 60% to 50% for loans with maturity of
established by the Korea Development Bank and LG
three years or less and backed by real properties located
Investment & Securities began in November. Under the
in speculative areas. In October, the bank LTV ratio for
program, the special-purpose company takes over
loans with ten-year or less maturity and backed by
individual debt from ten creditors and applies for an
apartment units in speculative areas was further reduced
accelerated credit workout to the CCRS on behalf of the
from 50% to 40%. Banks were ordered to prepare
individual debtors whose debt to the ten creditors exceeds
separate income statements for their credit card
50% of their total debt. For the debtors, the new program
businesses beginning with the first quarter of 2003. In
means a simplified and accelerated credit workout.
LOOKING AHEAD
REINFORCING SAFETY AND
SOUNDNESS OF FINANCIAL
INSTITUTIONS AND STABILITY OF
THE FINANCIAL SYSTEM
SUPERVISION OF THE SECURITIES
MARKET
Reform on corporate accounting and disclosures,
coupled with aggressive enforcement actions against
Ensuring the safety and soundness of individual
violations of securities laws and regulations, will
financial institutions and fostering stability in the
continue with the goal of bringing about a significant
financial system will continue to remain at the top of
improvement in market transparency and investor
the supervisory agenda for the FSC/FSS. As a key
confidence. As part of this effort, the FSC/FSS plans to
component of the safety and soundness supervisory
continuously expand the coverage of the audit review
agenda, the FSC/FSS will step up both onsite and
of publicly traded companies and impose stiffer
offsite monitoring of financial institutions so as to
sanctions for fraudulent financial reporting as well as
identify potential risks at the earliest possible time and
negligent audit. Fine-tuning of the disclosure regimes
take timely and corrective supervisory actions. In
will also continue to ensure full and fair corporate
particular, the FSC/FSS plans to closely monitor the
disclosures to investors. Investigations and enforcement
soundness of retail lending and lending to small- and
actions against market manipulation using online
medium-sized companies as well as the credit default
trading and abuses by principal shareholders of publicly
trend.
traded companies will also be stepped up. Securities
companies will be expected to comply with stricter
In the non-banking sector, the supervisory focus will be
internal controls for and monitoring of suspicious
on maintaining calm and ensuring stability as widely
securities trading. Internal controls for stock analysts
expected restructuring and consolidation begin to take
and fund managers as well as their professional code
shape. With respect to mutual savings banks and other
of conduct will also continue to be fine-tuned and
lenders that mostly provide credit to low-income and
strengthened.
small business borrowers, the focus of the regulators
will be on ensuring capital adequacy and well-paced
Supervision of Asset Management Industry
disposition of distressed assets.
As asset management services continue to grow in
There are also plans to closely monitor and scrutinize
importance, the supervisory policy will focus on
the liquidity positions, capital adequacy and disposition
fostering a well-disciplined market in which
of distressed assets by credit card companies to ensure
transparency and investor protection are respected and
stability in the credit card sector. The FSC/FSS will also
vigorously enforced. As a part of this goal, the FSC/FSS
continue to encourage orderly resolution of the debt
plans to require asset management companies to
held by creditors of the credit card companies and
operate within clearly established risk management
continue to emphasize prudential supervision and
guidelines and policies, improve risk management
market discipline in the credit card sector.
processes, and expand disclosures on their fund
management activities.
LOOKING AHEAD
New measures are also planned to ensure that brokers
The growing reliance of consumers and businesses on
selling funds to investors abide by high standards of
electronic money and payment methods raises a
conduct and do not mislead investors with unrealistic
number of important consumer protection policy
claims. Because of the beneficial role that trustees can
issues. As the marketplace continues to evolve with
play in providing the needed checks on the investment
new technologies, the regulatory and supervisory goal
activities of asset managers, supervision will be
will be on promoting the safety and the security of the
reinforced to ensure trustee perform their duties to
electronic payment system and fostering competition
better protect investors. Aggressive enforcement
to ensure that consumer rights and interest are not
actions will also be taken against fund managers who
harmed. The FSC/FSS will also redouble its efforts on
engage in trading practices that favor one investor to
consumer harm that can be caused by anticompetitive
another in the same fund and other abuses that harm
business practices with bancassurance and other hybrid
investor trust.
financial services. Aggressive supervisory and
enforcement actions will also continue to be taken
against predatory lenders and other quasi-financial
CONSUMER PROTECTION AND
SUPPORT FOR CONSUMER
DEBT MANAGEMENT AND
CREDIT REPAIR PROGRAMS
service providers that harm consumers.
The FSC/FSS also will continue to lend its supervisory
and policy support for consumer debt management
and credit repair programs. One important part of this
Consumer protection and providing support for
effort will be directed at encouraging financial
consumer debt management and credit repair
institutions to improve their borrower credit-scoring
programs will continue to remain high on the
systems and promote credit bureaus in the consumer
supervisory agenda. A key part of the effort on
credit information market. There is room for
consumer protection is raising public awareness and
improvement in the way consumer credit history is
understanding of the growing array of often-complex
currently shared and processed by lenders and credit
financial services and products being offered to
rating companies, particularly with respect to credit
consumers and educating the public of the importance
delinquencies, and measures designed to further
of responsible personal finance management. To this
improve sharing and processing of consumer credit
end, the FSC/FSS plans to continually expand
information are under an active consideration.
comparative disclosures on financial services and
products to help consumers better compare
differentiate them and step up the existing consumer
education and awareness campaign. In particular, the
IMPROVING THE SUPERVISORY
FRAMEWORK
FSC/FSS plans to emphasize youth education on the
importance of responsible personal finance and
The FSC/FSS remains committed to developing and
maintaining “clean” credit history. Educational and
advancing the supervisory system and will continue to
counseling support to the Credit Counseling &
upgrade and fine-tune the supervisory framework to
Recovery Service will also be stepped up.
effectively carry out its mission of ensuring the safety
and soundness of financial institutions and maintaining
risk management processes on a continuing basis.
stability in the financial system.
More efforts will also be directed at reducing the
compliance burden of financial institutions with,
Risk-Based Supervision
among others, shorter, less intrusive on-site
examinations and fewer, less time-consuming
Transition to risk-based supervision is one of the top
document requests. Other areas where the regulators
objectives of the efforts currently under way to improve
will continue to pay close to attention to include (1)
the supervisor framework. Under the new risk-based
supervision of financial institutions on a consolidated
supervision the FSC/FSS envisions, the risk exposures,
basis, (2) more balanced supervisory approach for both
risk management practices and risk management
domestic and foreign financial service providers, and (3)
performance of financial institutions would be
eliminating or easing of excessively burdensome and
monitored on a continuous basis and dealt with
anticompetitive regulations.
proactively to minimize the likelihood of a distress
emerging out of individual financial institutions or the
financial system. New efforts will also be undertaken to
raise the efficiency with which the supervisory resources
are allocated by tailoring supervisory activities to areas
where risks are heavily concentrated.
Market-Friendly Supervision
The FSC/FSS will continue to give a full and serious
attention to inputs and feedback it receives from
market participants and take them into account when
formulating supervisory policies and implementing
them. Deregulation and self-regulation also remain
high on the supervisory agenda. For one, the FSC/FSS
will actively encourage and support self-examination
and self-regulation of financial institutions and
minimize or exempt all together on-site examinations
and other supervisory interventions for those that
demonstrate a proven track record of self-compliance.
The FSC/FSS is also moving away from the old
approach of demanding corrective actions ex post
factor toward a new approach that emphasizes the
responsibility and accountability of the entire
management of financial institutions to monitor and
take corrective actions to improve internal controls and
FINANCIAL SUPERVISORY COMMISSION
THE FSC COMMISSIONERS
FSC FUNCTIONS
The Financial Supervisory Commission is a government
The FSC performs broad supervisory functions in three
agency led by nine Commissioners: the Chairman, the
primary areas: financial supervision, oversight of
Vice-Chairman, the Standing Commissioner, and six
restructuring in the financial sector, and delegation of
Non-Standing Commissioners. Each of the
supervisory authorities to the FSS. As part of its
Commissioners is appointed by the President for a
supervisory functions, the FSC sets forth broad policy
three-year term and may be reappointed to serve
parameters for the supervision of financial institutions
additional terms.
and securities markets. Matters pertaining to the
securities and futures markets are largely delegated to
The Chairman, who heads the FSC, concurrently holds
the SFC. Under its supervisory authority, the FSC may
the position of the Governor of the Financial
issue and revoke the business licenses of financial
Supervisory Service. The Vice-Chairman is appointed by
institutions.
the President with the recommendation of the Minister
of Finance and Economy and concurrently holds the
The FSC is organized along three offices: Planning and
position of the Chairman of the Securities and Futures
Administration Office (PAO), Financial Supervisory Policy
Commission. The Standing Commissioner is appointed
Bureau I (FSPB I), and Financial Supervisory Policy
with the recommendation of the Chairman of the FSC.
Bureau II (FSPB II). The PAO plans financial policies and
issues vis-à-vis the National Assembly and coordinates
Three of the six Non-Standing Commissioners are the
matters pertaining to foreign financial institutions and
Vice-Minister of Finance and Economy, the Deputy
international supervisory organizations. The FSPB I
Governor of the Bank of Korea, and the President of
supervises financial institutions, such as authorizing
the Korea Deposit Insurance Corporation, all of whom
banking and trust businesses and monitoring of
serve as ex officio Commissioners of the FSC. The other
financial markets. Oversight of restructuring in the
three Non-Standing Commissioners are appointed with
financial sector is another important function of FSPB I.
the recommendations of the Minister of Finance and
The FSPB II performs prudential supervision and
Economy, the Minister of Justice and the President of
oversees securities, insurance, and other non-banking
the Korea Chamber of Commerce and Industry. The
financial institutions. It also plans and conducts
Minister of Finance and Economy recommends an
investigations on suspicious stock market transactions.
accounting expert, the Minister of Justice a legal expert,
and the Chairman of the Korea Chamber of
Commerce and Industry an industry representative.
SECURITIES AND FUTURES
COMMISSION
BOK, MOFE, AND KDIC
Because of its regulatory oversight of Korea’s banks,
The Securities and Futures Commission was created on
the FSC/FSS closely consults with the Bank of Korea
April 1, 1998, under the Act on Establishment of
(BOK) on such matters as prudential regulations and
Financial Supervisory Organizations to oversee the
supervision of domestic banks, particularly on matters
securities and futures markets. The SFC is led by five
that may affect the monetary policy of the BOK, which
Commissioners who are appointed by the President for a
remains the exclusive domain of the BOK. Joint
three-year term. The Vice-Chairman of the FSC
inspection of financial institutions by the FSC/FSS, the
concurrently serves as the Chairman of the SFC. The
BOK and the Korea Deposit Insurance Corporation
Standing Commissioner and three Non-Standing
(KDIC) may also be conducted. The FSC/FSS also works
Commissioners are appointed with the recommendation
closely with the Ministry of Finance and Economy
of the Chairman of the FSC.
(MOFE) in carrying out its supervisory mission and
formulating financial policies.
The principal role of the SFC is to enforce securities
laws by investigating insider trading and price
manipulation in the securities and futures markets and
overseeing accounting standards and audit reviews.
The SFC also conducts a preliminary review on
regulatory and supervisory matters pertaining to the
securities and futures markets for the FSC.
ORGANIZATIONAL STRUCTURE OF THE FSC
Financial Supervisory
Commission
Public Information
Office
Chairman
Vice-Chairman
Standing
Commissioner
Securities & Futures
Commission
Non-Standing
Commissioner
Chairman
Standing
Commissioner
Non-Standing
Commissioner
Planning &
Administration Office
Financial Supervision
Policy Bureau 1
Financial Supervision
Policy Bureau 2
Innovation &
Administration
Division
Financial
Supervision Policy
Division
Securities
Supervision Policy
Division
Planning &
Coordination
Division
Banking
Supervision Policy
Division
Insurance
Supervision Policy
Division
International
Cooperation
Division
Market
Monitoring
Division
Non-banking
Financial
Institutions
Supervision Policy
Division
Enforcement
Planning Division
FINANCIAL SUPERVISORY SERVICE
FSS FUNCTIONS AND
ORGANIZATION
The Financial Supervisory Service is Korea’s financial
financial institutions, and (6) examination and
regulator and supervisor with oversight and
enforcement of unfair financial transactions. The
enforcement authority over nearly every financial
Internal Audit Office is responsible for the internal
institution and other major participants in the
auditing of the FSS
financial markets. Under its statutory authority, the
FSS conducts supervision and examination of
financial institutions. The FSS also has the authority
to summon documents and require other actions
from financial institutions in support of its
examinations and inspections.
Currently, the FSS is headed by eleven officers who
serve a three-year term. Under the existing statute,
up to fifteen officers may be appointed and each of
the officers may be reappointed once. There are
three Deputy Governors and five Assistant Governors
presently serving at the FSS. The Chairman of the
FSC concurrently holds the position of the Governor
of the FSS, who may recommend up to four Deputy
Governors and nine Assistant Governors to the FSC.
The Auditor, who is appointed by the President upon
the recommendation of the FSC, heads the Internal
Audit Office. The Chief Accountant, who is
appointed by the Governor of the FSS, directs the
Accounting Supervision Department.
The FSS is organized along twenty-six departments
and four offices. In addition to its headquarters in
Seoul, the FSS maintains three overseas and four
regional offices. The departments and offices are
divided among six principal areas: (1) supervisory
support and general affairs, (2) supervision of
financial institutions, (3) accounting system and audit
review, (4) consumer protection, (5) examination of
ORGANIZATIONAL STRUCTURE OF FSS
Auditor
Governor
Internal Audit
Office
Deputy Governor
Assistant
Governor
Planning &
Coordination
Dept.
General
Affairs
Dept.
Security
Planning
Office
External
Communication
Office
Investigation
Dept. 1
Investigation
Dept. 2
Headquarters
Reconstruction
Center
Assistant
Governor
Research
Dept.
Supervision
Planning &
Coordination
Dept.
Examination
Planning &
Coordination
Dept.
Review &
Enforcement
Dept.
International
Affairs
Dept.
Deputy Governor
Deputy Governor
Assistant
Governor
Assistant
Governor
Assistant
Governor
Chief
Accountant
Insurance
Supervision
Dept.
Bank
Supervision
Dept.
Securities
Supervision
Dept.
Accounting
Supervision
Dept. 1
Insurance
Examination
Dept. 1
Non-Bank
Financial
Institutions
Supervision
Dept.
Disclosure
Supervision
Dept.
Accounting
Supervision
Dept. 2
Insurance
Examination
Dept. 2
Consumer
Protection
Center
Credit
Supervision
Dept.
Asset
Management
Supervision
Dept.
Bank
Examination
Dept. 1
Securities
Examination
Dept. 1
Bank
Examination
Dept. 2
Securities
Examination
Dept. 2
Non-Bank
Financial
Institutions
Examination
Dept. 1
Non-Bank
Financial
Institutions
Examination
Dept. 2
Supervisory Support and General Affairs
To support its supervisory activities and manage its
internal affairs, the FSS has three departments and five
offices. Their primary activities include planning and
Supervision
Supervision
Planning &
Coordination
Department
Securities
Supervision
Department
coordination, internal auditing, budgeting, research on
Disclosure
Supervision
Department
financial supervision policies, public relations and
Bank
Supervision
Department
human resource development.
Asset
Management
Supervision
Department
Suprevisory Support and General Affairs
Planning &
Coordination
Department
Headquarters
Reconstruction
Center
Research
Department
External
Communication
Office
General Affairs
Department
Security
Planning
Office
Supervision of Financial Institutions
Non-Bank Financial
Institutions
Supervision
Department
Insurance
Supervision
Department
Credit
Supervision
Department
International
Affairs Department
Accounting System and Audit Review
The accounting system and audit review function of
the FSS entails financial accounting standards as well as
Ensuring that appropriate risk management by financial
review of the appropriateness of audit opinions on
institutions and overall market stability is an important
financial statements. Matters relating to the
supervisory responsibility of the FSS. For its supervisory
determination of corporate groups and affiliates that
role, the FSS maintains nine departments that establish
are required to submit consolidated and combined
and enforce operating standards for financial
financial statements fall within the purview of
institutions with regard to activities such as business
accounting system and audit review. The Accounting
authorization, mergers, dissolution, and termination of
Supervision Department also conducts research on
business. The supervisory authority of the FSS also
accounting systems and administers the national
encompasses risk management of financial institutions
examination for Certified Public Accountants.
as well as accounting and auditing.
Accounting System and Audit Review
Accounting
Supervision
Department
1&2
Consumer Protection
To protect consumers, the FSS accepts and addresses
For examination of financial institutions in such areas as
public complaints for possible remedial action. It also
risk management and regulatory compliance, the FSS
oversees consumer protection organizations within the
maintains a planning and coordination Department
financial industry. The Consumer Protection Center
and several departments that are divided along
within the FSS handles and mediates disputes between
banking, non-banking, securities, and insurance. An
individuals and financial institutions. The Settlement
integral part of FSS examination involves on and off-site
Committee composed of thirty members from FSS
examinations and investigations for unfair or unsound
personnel and other finance industry professionals
business practices and Prompt Corrective Actions for
handles disputes submitted for arbitration.
failure to comply with the established rules and
regulations.
Consumer Protection
Consumer
Protection
Center
Examination and Enforcement
Financial Transactions
of
Unfair
The examination of and enforcement against unfair
transactions and other illegal activities in the financial
markets are carried out by the FSS to ensure the
Examination
Planning &
Coordination
Department
Bank
Examination
Department
1&2
integrity of the financial markets and protect investors.
Unfair transactions and other illegal activities generally
cover insider trading, price manipulation, and
fraudulent financial reporting. Two departments plan
and coordinate investigations against these activities
Non-Bank Financial
Institutions
Examination
Department
1&2
Insurance
Examination
Department
1&2
Securities
Examination
Department
1&2
Review &
Enforcement
Department
Internal
Audit
Office
and make enforcement recommendations.
Examination and Enforcement of Unfair Financial
Transactions
Investigation
Department 1 & 2
LAWS GOVERNING FSC/SFC/FSS SUPERVISION
The statutory duties and responsibilities of the FSC, the
SFC and the FSS are stipulated in a number of laws
TRUST BUSINESS ACT
--Enacted in 1961 and last amended in 2000; it
governing financial institutions and the securities
regulates investment trust businesses, including
markets. Whereas the Ministry of Finance and
business authorization, management, organization
Economy drafts and submits legislation pertaining to
and operation.
the supervisory authority of the FSC/FSS to the National
Assembly, the FSC/FSS has the statutory authority to
SECURITIES AND EXCHANGE ACT
issue specific rules and regulations pursuant to the laws
passed by the National Assembly. The following is a
governs business authorization of securities
brief summary of the laws currently in effect.
businesses and provides basic rules on securities
transaction and requirements securities issuers
ACT ON ESTABLISHMENT OF FINANCIAL
must comply with when issuing marketable
SUPERVISORY ORGANIZATIONS
securities to the general public.
--Enacted in December 1997 and last amended in
2003; it provides for the basic functions and
responsibilities of the FSC, the SFC and the FSS.
ACT ON EXTERNAL AUDIT OF CORPORATIONS
stipulates accounting and audit-related rules to
ACT ON STRUCTURAL IMPROVEMENT OF
which business enterprises must conform; it also
FINANCIAL INDUSTRIES
provides for the regulatory duties and
responsibilities of the SFC, individual firms and
provides for mergers between financial institutions
auditors in accounting and audit standards,
and entry into and/or exit from financial service
including rules on “combined” (in addition to
businesses, and reorganization of distressed
consolidated) financial statements for large
financial institutions and their bankruptcy and
business groups in Korea.
liquidation.
FUTURES TRADING ACT
BANKING ACT
--Enacted in 1950 and last amended in 2002; it is
contains provisions governing derivatives
the principal law governing banking regulations in
transactions and futures market as well as the
Korea; together with the Act on the Establishment
establishment, membership, and trading system of
of Financial Supervisory Organizations and the
the futures exchange.
Bank of Korea Act, it provides for the basic
framework for Korea’s banking supervisory
system; it also contains provisions for the
INDIRECT INVESTMENT ASSET MANAGEMENT ACT
--Enacted in 2004; it consolidated the provisions of
establishment, operations, supervision and closure
the former Securities Investment Trust Business Act
of banking businesses, including business
and Securities Investment Company Act that
authorization of domestic branches of foreign
pertain to the asset management of indirect
banks.
investment vehicles (e.g., investment trusts, mutual
LAWS GOVERNING FSC/SFC/FSS SUPERVISION
funds, unspecified money trust accounts of banks,
capital companies; it subsumes both the Credit
and variable life insurance).
Card Business Act and the Facilities Leasing
Business Act.
ACT ON ASSET SECURITIZATION
establishes rules for asset securitization and
CREDIT UNION ACT
--Enacted in 1972 and last amended in 2003; it sets
provides for the registration and issuance of asset-
forth rules on business operation and supervision
backed securities (ABS) as well as business activities
of credit unions as well as the supervisory authority
of specialized securitization entities like special-
of the Credit Union Foundation.
purpose vehicles (SPV).
INSURANCE BUSINESS ACT
forth rules and regulations governing insurance
companies, including business licensing, operation
and dissolution of insurance companies.
MERCHANT BANKING CORPORATION ACT
provides for the incorporation and business
operation of merchant banks and their
supervision; it also contains provisions concerning
the establishment and operation of money
brokerage companies for financial transactions
among financial institutions.
MUTUAL SAVINGS BANKS ACT
forth rules on the business operation and
supervision of mutual savings and finance
companies; it also contains specific provisions
concerning the protection of depositors of mutual
savings and finance companies.
CREDIT–SPECIALIZED FINANCIAL BUSINESS ACT
governs credit card companies, leasing companies,
factoring companies and new technology venture
FSC/SFC/FSS OFFICERS
Financial Supervisory Commission
Financial Supervisory Service
Chairman
Jeung-Hyun Yoon
Governor
Jeung-Hyun Yoon
Vice Chairman
Cheon-Sik Yang
Auditor
Young Min Bang
Standing Commissioner
Woo-Cheol Lee
Deputy Governors
Chang-Lok Kim
Jung-Hoe Kim
Kap-Soo Oh
Members of Commission
Gwang-Lim Kim
(Vice Minister, MOFE)
Seong-Tae Lee
(Deputy Governor, BOK)
In-Won Lee
(President, KDIC)
Tae Hoon Lee
(Attorney, Back, Jang & Park Law Office)
Sung-Keun Ha
(Professor, Yonsei University)
Sung-Bin Chun
(Professor, Sogang University)
Securities and Futures Commission
Chairman
Cheon-Sik Yang
Standing Commissioner
Jae-Woo Moon
Members of the Commission
Yong Suk Oh
(Attorney, Bae, Kim & Lee Law Office)
Sang-Bin Lee
(Professor, Hanyang University)
Su-Keun Kwak
(Professor, Seoul National University)
Assistant Governors
Young Ho Lee
Sang-Baek Kang
Yong-Hwa Cheong
Jeong-Moo Je
Hae-Yong Shin
Chief Accountant
In-Tae Hwang
Senior Advisor to the Governor
Ki-Won Kang
FSC/SFC/FSS OFFICERS
Main Office
Overseas Office
FSC/FSS
27, Yoido-Dong Youngdeungpo-Gu
Seoul, Korea 150-743
New York
Tel: +1-212-350-9388
Fax: +1-212-350-9392
Email: [email protected]
FSC
Tel: +82-2-3771-5000
Fax: +82-2-3771-5027
http://www.fsc.go.kr
FSS
Tel: +82-2-3771-5114
Fax: +82-2-785-3475
http://www.fss.or.kr
Washington, DC
Tel: +1-202-689-1210
Fax: +1-202-689-1211
London
Tel: +44-207-621-8490
Fax: +44-207-929-1677
Regional/District Offices
Busan Regional Office
TEL: +82-51-606-1700
Fax: +82-51-606-1755
Daegu Regional Office
Tel: +82-53-760-4000
Fax: +82-53-760-4015
Gwangju Regional Office
Tel: +82-62-606-1610
Fax: +82-62-606-1630
Jeonju District Office
Tel: +82-63-277-7321
Fax: +82-63-277-7324
Daejeon Regional Office
Tel: +82-42-472-7183
Fax: +82-42-472-7191
Frankfurt
Tel: +49-69-7953-9911
Fax: +49-69-7953-9920
Paris
Tel: +33-1-4421-8110
Fax: +33-1-4421-8111
Tokyo
Tel: +81-3-5224-3737
Fax: +81-3-5224-3739
Hong Kong
Tel: +852-2537-6200
Fax: +852-2537-6116
Chuncheon District Office
Tel: +82-33-252-2288
Fax: +82-33-252-7722
Jeju District Office
Tel: +82-64-746-4200
Fax: +82-64-749-4700
Please forward questions or comments regarding Financial Supervision in Korea
2004 to the International Public Relations Team, International
Cooperation Office (Tel: +82-2-3786-7912; Fax: +82-2-3786-7899; e-mail:
[email protected]), Financial Supervisory Service.

Brochure 2004

Transcription

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