Countdown to Forced Passage of Financial Group Supervision Act... Financial Firms Shaking at 'Super Regulation'

Already Subject to Soundness Regulations
Ambiguous Evaluation Criteria Also Criticized

[Asia Economy Reporter Kangwook Cho] Concerns are growing in the related industry as the passage of the 'Financial Group Supervision Act' bill, which manages financial companies belonging to large business groups such as Samsung, Hyundai Motor, and Mirae Asset as financial groups, is being pushed through. If the bill passes, financial authorities will regularly inspect and evaluate the risk status and management practices of these financial groups. However, there are criticisms that it could become a 'super regulation' that ultimately tightens control over financial companies and their representative enterprises due to essentially being a form of double regulation and ambiguous evaluation criteria.

According to political and financial circles on the 8th, the passage of the controversial Financial Group Supervision Act bill, which was the core issue, is imminent following the ruling party's push yesterday. The bill's main point is to designate a group consisting of financial companies belonging to a corporate group with two or more financial companies as a financial group, allowing financial authorities to supervise and inspect them. A financial group refers to large business groups with assets of 5 trillion won or more that operate two or more financial companies such as securities, insurance, and cards, but are not bank-based financial holding companies composed solely of financial companies. Six groups are subject to this: Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo, and DB.

Once the bill is enacted, financial authorities will regularly evaluate the risk status and management practices of these financial groups. They may order the representative financial company of the financial group to submit a management improvement plan at the financial group level. If the representative financial company fails to submit or implement the management improvement plan, the authorities can take compulsory measures such as suspending the use of the financial group name.

There is ongoing controversy over the enactment of this bill not only in the related industry but also in academia, with claims that it constitutes double regulation. Currently, soundness regulations are already applied by sector, such as insurance, banking, and cards, so adding group-level regulations is seen as excessive. In particular, it is argued that this is a case of 'ok-sang-ok (屋上屋)' regulation, meaning a regulation on top of another regulation, since the Fair Trade Act already applies at the group level.

Professor Sunjung Kim, Chair Professor of Law at Dongguk University, pointed out, "Currently, sector-specific supervision is being implemented for financial companies, and the Fair Trade Act is applied at the group level. In this situation, additionally regulating financial affiliates within the group is excessive duplication and overregulation."

Criticism has also been raised against the government's claim that integrated supervision of financial groups is a 'global standard.' The government initially explained that the International Monetary Fund (IMF) continuously recommends managing risks at the financial group level, but the IMF has not recommended supervision or capital adequacy regulation for complex financial groups that include industries other than banking.

There are also concerns that the capital adequacy ratio, presented as an indicator to measure the soundness of financial groups, could be subjectively evaluated. Although the government included group risk in the denominator of the capital adequacy ratio, it has not yet determined how to specifically calculate group risk. The Financial Services Commission plans to reflect this through enforcement ordinances and regulations after conducting research if the bill passes.

A financial industry insider lamented, "Not only are the criteria for selecting supervision targets ambiguous, but there is also controversy over reverse discrimination as big tech companies like Naver and Kakao are excluded. In the emergency situation caused by the COVID-19 pandemic, the tightening of the financial industry through excessive regulatory bills such as the integrated supervision law, class action system, and punitive damages system is excessive."

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