"Financial Group Supervision Needs Legislative Support," Authorities and Academia Speak with One Voice

[Asia Economy Reporter Kangwook Cho] There is growing demand for the prompt legislation of the supervisory system for six major financial groups, including Samsung, Hyundai Motor, Hanwha, and Mirae Asset.

On the 29th, the Korea Institute of Finance (hereinafter referred to as KIF) and the Korea Capital Market Institute (hereinafter referred to as KCMI) held a seminar on the theme of 'Future Directions for the Financial Group Supervisory System,' where participants unanimously emphasized the necessity of legislating the financial group supervisory system.

Min Byung-doo, Chairman of the National Assembly's Political Affairs Committee, said in his congratulatory remarks, "Financial group supervision is a system for the stability of the financial system and the protection of financial consumers. I hope this seminar will serve as an opportunity to present rational proposals for the system's implementation direction and to spread social consensus on this matter." He added, "The National Assembly will also strive to ensure that the legislation of financial group supervision is enacted promptly."

Eun Sung-soo, Chairman of the Financial Services Commission, stated, "With the introduction of the financial group supervisory system, a risk management system centered on the representative company is taking root relatively quickly." He evaluated, "Although risk management for financial groups may initially be perceived as a burden, it will ultimately enhance the crisis response capability of financial companies and lead to a positive market evaluation of financial groups."

Chairman Eun further emphasized, "The supervisory authorities will also work together to refine group risk assessment methods, strengthen management of group risks arising from non-financial factors such as governance, and expedite legislation, reflecting the discussions to enable financial groups to manage group risks on a more stable institutional basis."

KCMI introduced the operational status of financial group supervisory systems in major countries such as the EU and Australia through its keynote presentation and suggested implications for the domestic financial group supervisory system.

Senior Researcher Park Chang-gyun of KCMI stated, "The capital adequacy of financial groups needs to comprehensively and holistically reflect risk factors at the group level." He added, "It is necessary to induce the establishment of management systems such as conducting financial group stress tests that allow groups to monitor risk factors themselves, setting group limits by risk factor, and allocating limits by affiliates."

Senior Researcher Park also explained, "When determining the scope of financial group supervision, practical impacts such as systemic risk should be considered, but the regulatory intensity should be set considering market conditions and supervisory capabilities." He further noted, "Since many domestic financial groups consist of financial and general companies in financial-industrial conglomerates, additional soundness standards need to be applied considering these structural characteristics and the necessity of ensuring financial stability."

KIF evaluated the pilot operation over the past two years under the theme 'Achievements and Challenges of Korea's Financial Group Supervisory System' and presented tasks that need to be newly pursued.

Senior Researcher Lee Jae-yeon of KIF emphasized, "Instead of evaluating financial group risks by type, a group risk assessment method that comprehensively reflects various group risks should be prepared." He also stressed, "Through disclosure of major risk factors at the financial group level, a voluntary monitoring system by the market and investors should be established."

Senior Researcher Lee further stated, "In the mid to long term, financial groups should establish systems to measure and manage risks themselves, and supervisory authorities should consider applying the so-called Pillar II system to inspect those systems." However, he pointed out that legislation must support the system to ensure its effectiveness.

Pillar II is one of the Basel regulatory standards (Pillars I to III) set by the Basel Committee, composed of representatives from central banks and banking supervisory authorities of major countries. It requires banks to have systems to recognize, measure, and manage risks themselves, after which supervisory authorities inspect the adequacy of those systems and take appropriate supervisory actions, such as imposing additional capital if necessary.

The financial authorities plan to prepare improvement measures for the financial group supervisory system in the first quarter based on the tasks and discussions presented at this seminar, and after collecting opinions from stakeholders, revise and extend the model regulations within the first half of the year.

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