Financial Groups' Non-Financial Information Also 'Yurial Disclosure'... "Even COVID-19 Is Overwhelming" (Comprehensive)

Disclosure of Executive Appointment Background and Work History Including Non-Financial Factors
Concerns Raised Over Excessive Control of Non-Financial Affiliates and Increased Corporate Burden

[Asia Economy Reporter Haeyoung Kwon] The 'transparent disclosure' items that six financial groups including Samsung, Hanwha, and Mirae Asset must mandatorily disclose on their websites starting this June for comprehensive risk management at the group level have been finalized. Financial authorities have mandated detailed disclosures not only of financial factors but also non-financial factors such as the background of financial company executive appointments and work history at non-financial affiliates. The intention is to prevent risks from some affiliates from spreading to financial affiliates and the entire group, but there are criticisms that this excessively strengthens control over non-financial affiliates and increases the burden on companies struggling due to the impact of the novel coronavirus disease (COVID-19).

According to financial authorities on the 3rd, the Financial Supervisory Service is preparing detailed disclosure items that financial groups must disclose following the revision of the Financial Group Supervision Best Practices and is gathering industry opinions. This is a follow-up measure to implement the financial group supervision system improvement plan announced by the Financial Services Commission in February.

A financial industry official said, "The main point is for financial groups to collect and disclose scattered disclosure details of each affiliate to show group-level risks at a glance and strengthen market evaluation and monitoring functions," adding, "Such status is not visible even under the Fair Trade Act, so it will be considerable pressure from the financial groups' perspective."

The financial group supervision system was introduced to comprehensively manage risks of financial groups engaged in two or more business sectors such as deposit-taking and lending, insurance, and financial investment businesses. Six financial groups with financial assets exceeding 5 trillion won?Samsung, Hanwha, Mirae Asset, Kyobo, Hyundai Motor, and DB?are subject to this. Since its introduction in July 2018 in the form of best practices, financial authorities have been pursuing system improvements and legislation.

The introduction of financial group disclosures is one of the improvements. Reviewing the disclosure forms, as previously announced by the Financial Services Commission, detailed information such as overall shareholding structure, financial affiliate shareholdings and management status, internal transactions, investment, and credit provision status are included. For example, Samsung Life Insurance’s investment status in Samsung Electronics and the proportion of Samsung Electronics shares in Samsung Life Insurance’s assets are disclosed. The product and service sales of Samsung Electronics and Samsung SDS, as well as the sales proportion of Samsung Asset Management funds and retirement pensions by Samsung Securities, are also revealed. Financial groups must also form an internal control consultative body and disclose it.

Disclosure items also include major shareholders’ stockholding status and transactions that may affect changes in the largest shareholder. This includes stock-backed loans by the largest shareholder, third-party collateral provision of the company’s shares, and contracts between the largest shareholder and financial investors (FIs).

Items requiring detailed quarterly disclosure of financial company executives are also notable. In particular, details of transfers from non-financial affiliates, concurrent positions at non-financial affiliates, and reasons for executive appointments are disclosed in detail by expertise, field, and practical experience. If an executive has worked or transferred as an executive at a non-financial affiliate within five years from the previous quarter-end, it is a mandatory disclosure item. This reflects the intention to monitor whether executives from non-financial affiliates move to financial affiliates to provide support. Additionally, the status of sanctions and lawsuits against financial company executives, as well as counterparties and amounts in case of non-performing loans, must be disclosed.

Although this disclosure is an administrative guidance without legal binding force, financial groups regard it as a mandatory compliance matter. Integrated supervision of financial groups was created as one of the Moon Jae-in administration’s 100 national tasks, premised on controlling large business groups, so the pressure felt by financial groups is considerable.

A financial group official lamented, "Authorities are requiring detailed disclosure of non-financial elements and are increasing control and management intervention over non-financial affiliates," adding, "With all affiliates focused on responding to COVID-19, the increased level of control by authorities is a heavy burden."

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