Risk Prevention Plans for Six Major Financial Groups Including Samsung and Hyundai Motor to Be Released (Comprehensive)

Financial Group Supervision System Seminar Held
Attended by Policy Chief Kim Sang-jo and Others
First Half Model Regulations Revision Plan

[Asia Economy Reporter Kangwook Cho] Risk prevention measures are being developed for six major financial groups including Samsung, Hyundai Motor, Hanwha, and Mirae Asset. Instead of the current ex-post risk management through capital regulation, these measures aim to prevent risks such as the possibility of insolvency in one affiliate spreading to other affiliates in advance. Financial authorities plan to revise the Financial Group Supervision System Model Code, 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 the 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. Kim’s attendance is interpreted as the government’s intention to strengthen efforts to legislate the Financial Group Supervision System. The system is also one of the Moon Jae-in administration’s 100 national tasks.

At the Korea Capital Market Institute, Senior Research Fellow Park Chang-gyun will present on the operation status and implications of financial group supervision systems in major countries, while Senior Research Fellow Lee Jae-yeon from the Korea Institute of Finance will discuss the achievements and challenges of Korea’s Financial Group Supervision System. The seminar will be chaired by Professor Lee In-ho of Seoul National University’s Department of Economics (Chairman of the Financial Development Review Committee), with panelists including Professor Lee Chang-min of Hanyang University’s Business School, Professor Min Se-jin of Dongguk University’s Department of Economics, Kim Byung-ho, Executive Director and Chief Risk Officer (CRO) at Hanwha Life Insurance, Research Fellow Lee Si-yeon of the Korea Institute of Finance, Research Fellow Lee Sung-bok of the Korea Capital Market Institute, Shin Jin-chang, Head of the Financial Group Supervision Innovation Team at the Financial Services Commission, and Choi Sung-il, Deputy Director at the Financial Supervisory Service. They will discuss the need for improvements to the Financial Group Supervision System and future directions.

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

Since 2018, financial authorities have introduced and implemented the Financial Group Supervision System Model Code for financial groups (excluding financial holding companies) with financial assets exceeding 5 trillion won and operating in two or more sectors among deposit-taking and lending, insurance, and securities businesses. The six financial groups subject to this are Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo, and DB. Lotte Group was excluded from the supervision target in December last year after selling its credit card and non-life insurance companies.

The key points of the research project results are understood to be the creation of risk prevention measures within the Financial Group Supervision System focusing on three main areas: resilience of financial affiliates, evaluation of concentration and contagion risks within financial groups, and assessment of system risk originating from financial groups. The plan also includes a comprehensive regulation approach without distinguishing between concentration risk, where funds within a financial group are excessively concentrated in a specific area, and contagion risk, where insolvency in one affiliate spreads to others.

Research Fellow Lee Jae-yeon explained, "The currently implemented model code focuses on an ex-post regulatory approach that annually evaluates the risk management status and capital adequacy of the respective groups. The biggest issue is contagion risk, which can cause simultaneous insolvency due to 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 Subcommittee on Bill Examination but has never been reviewed. 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.