Son Byung-du, Vice Chairman of FSC, Attends FSB Steering Committee Meeting: "Low Interest Rate Trend Deepens Non-Bank Sector Risks"

[Asia Economy Reporter Kangwook Cho] Sohn Byung-doo, Vice Chairman of the Financial Services Commission, attended the Financial Stability Board (FSB) Steering Committee meeting to discuss the direction of risk assessment for Non-Bank Financial Intermediation (NBFI) and the regulatory framework for stablecoins. He particularly noted that the prolonged low interest rate environment could further deepen the unique risks inherent in the non-bank sector, such as the preference for high-yield and high-risk assets.

The Financial Services Commission announced that Vice Chairman Sohn made these remarks at the FSB Steering Committee meeting held on the 13th (local time) in Basel, Switzerland.

The FSB decided at its November meeting in Paris last year to conduct additional discussions on non-bank financial intermediation through this Steering Committee meeting. NBFI refers to credit intermediation activities conducted outside the banking system that are not subject to prudential regulations equivalent to those for banks and are not covered by depositor protection or official liquidity support schemes.

The meeting was attended by heads of central banks and financial supervisory authorities from 20 countries, as well as chief executives from 11 international organizations including the International Monetary Fund (IMF) and the European Central Bank (ECB). The Steering Committee reviewed the existing regulatory and supervisory frameworks related to NBFI and discussed future plans, including starting effectiveness evaluations of Money Market Fund (MMF) regulatory reforms and conducting sector-specific assessments.

At the meeting, Vice Chairman Sohn emphasized, "Considering the scale and global interconnectedness of non-bank financial intermediation, it is very timely and important to reassess the regulatory and supervisory directions." He added, "In particular, the prolonged low interest rate environment could further intensify the unique risks inherent in the non-bank sector, such as the preference for high-yield and high-risk assets." He also introduced that "Korea is systematically responding by selecting and analyzing potential systemic risk factors in the non-bank sector by activity and entity."

Furthermore, the Financial Services Commission expressed agreement with the principle that a holistic approach should be taken to comprehensively assess the risks that may arise before integrating stablecoins into the global financial system, and that corresponding regulatory measures should be prioritized. Considering the impact of stablecoins on monetary policy and anti-money laundering, the need to strengthen cooperation with international organizations such as the IMF and the Financial Action Task Force (FATF) was also mentioned.

Vice Chairman Sohn particularly stressed, "To prevent regulatory arbitrage, it is necessary to promote a joint response framework between advanced and developing countries centered on the G20, under the principle of 'one for all, all for one' regarding stablecoin regulation."

Earlier, the G20 requested the FSB in June last year to review regulatory and supervisory directions in light of the potential impact of global stablecoins. Global Stablecoins (GSC) refer to stablecoins operated or promoted by big tech companies with the potential to significantly expand their services based on a large customer base, such as Facebook's Libra.

To understand global financial market trends, Vice Chairman Sohn plans to visit Hong Kong on the 14th to attend the 'International Financial Professionals Night' event, and on the 15th, he will hold meetings with major global investment banks based in Hong Kong and conduct a bilateral meeting with the Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA).

This content was produced with the assistance of AI translation services.