Six Major Corporate Financial Groups to Develop Risk Prevention Plans in Advance

Financial Group Supervision System Seminar Held

Attended by Policy Chief Kim Sang-jo and Others

First Half Year Model Regulations Revision Policy

[Asia Economy Reporter Jo Gang-wook] Six major financial groups including Samsung, Hyundai Motor, Hanwha, and Mirae Asset will also establish risk prevention measures similar to those of bank holding companies. This is a proactive measure to prevent risks such as the possibility of insolvency in one affiliate spreading to other affiliates, instead of the current reactive approach that manages risks through capital regulations. Financial authorities plan to revise the financial group supervision system model guidelines, including these measures, as early as the first half of the year.

According to the financial sector on the 29th, the financial authorities recently completed a research project on improving the financial group supervision system, which began last year, and will hold a seminar this afternoon titled "Future Directions for Financial Group Supervision System" to discuss the results. The seminar will be attended by Min Byung-doo, chairman of the National Assembly’s Political Affairs Committee, Eun Sung-soo, chairman of the Financial Services Commission, and Kim Sang-jo, chief of the Presidential Office’s Policy Office. In particular, Kim’s attendance is interpreted as the government’s intention to strengthen efforts to legislate the financial group supervision system. The financial group supervision system is also one of the 100 national tasks of the Moon Jae-in administration.

At the Korea Capital Market Institute, senior researcher Park Chang-gyun will present on the operation status and implications of financial group supervision systems in major countries, while at the Korea Institute of Finance, senior researcher Lee Jae-yeon will discuss the achievements and challenges of Korea’s financial group supervision system.

Researcher Park said, "Through the global financial crisis, we have learned that when problems occur in two financial companies within one group, the risk can increase to 3 or 4 instead of just 2," adding, "While supervision and regulation of financial holding companies are partially in place, regulation of financial groups is insufficient, so I will present improvements based on cases from Europe, Australia, the United States, and Japan."

Since 2018, financial authorities have introduced and implemented model guidelines for supervising financial groups that have financial assets exceeding 5 trillion won and operate two or more businesses among deposit-taking and lending, insurance, and securities, excluding financial holding companies. The six financial groups subject to this are Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo, and DB. Lotte Group was excluded from the financial group supervision target in December last year after selling its card company and non-life insurance company.

The main points of this research project are understood to be the creation of risk prevention measures within the financial group supervision system in three major areas: resilience of financial affiliates, evaluation of concentration and contagion risks within financial groups, and assessment of system risk originating from financial groups. The proposal also includes overall regulation without distinguishing between concentration risk, where funds within the financial group are excessively concentrated in specific areas, and contagion risk, where insolvency in one affiliate spreads to others.

Researcher Lee Jae-yeon explained, "The currently implemented model guidelines focus on a reactive regulatory approach that annually evaluates the risk management status and capital adequacy of the relevant groups," adding, "The biggest issue is contagion risk, which can cause simultaneous insolvency depending on investment relationships with non-financial affiliates, and there is a need to emphasize more proactive measures against this."

Meanwhile, the Financial Group Integrated Supervision Act bill was submitted to the National Assembly’s Political Affairs Committee’s bill review subcommittee but has never been deliberated. If it is not passed by May 29, when the 20th National Assembly ends, it will be automatically discarded.

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