Samsung, Hyundai Motor, and Others to Be Designated as Financial Holding Companies This Month... Strengthened Soundness Supervision

Enforcement of the Act on the Supervision of Financial Conglomerates from the Second Half of the Year

[Asia Economy Reporter Kim Jin-ho] Financial authorities will designate six groups, including Samsung and Hyundai Motor, as financial conglomerates this month and strengthen management and supervision.

According to the financial sector on the 1st, the "Act on the Supervision of Financial Conglomerates" aimed at ensuring the soundness and risk management of financial conglomerates will be enforced from the second half of the year.

Financial conglomerates are designated when their total assets exceed 5 trillion won and they operate two or more financial businesses (lending and deposit business, securities business, insurance business). Currently, the groups meeting these requirements are Kyobo, Mirae Asset, Samsung, Hanwha, Hyundai Motor, and DB, totaling six groups.

The financial authorities plan to designate financial conglomerates every July. Even if the total assets temporarily fall below the designation standard (5 trillion won), the designation will not be lifted for up to one year if the group maintains at least 80% of the asset standard (4 trillion won) to ensure legal stability. However, if the total assets of non-core businesses are less than 5 trillion won or if the assets of insolvent financial companies exceed 50% of the total assets of the financial conglomerate, the group will be excluded from designation as a financial conglomerate.

Once designated as a financial conglomerate, the group must strengthen risk management according to regulatory guidelines. First, they must establish internal control and risk management policies and standards and meet capital adequacy requirements. Internal transactions exceeding 5 billion won (or 5% of equity capital, whichever is smaller) require board approval.

From the perspective of protecting financial consumers, matters related to ▲ownership and governance ▲internal control and risk management ▲capital adequacy must be reported and disclosed. Additionally, the financial authorities will conduct a risk management evaluation every three years to assess the risk status and management practices of financial conglomerates. If the capital adequacy ratio is below 100% or the risk management evaluation results in a grade of 4 or lower, a "management improvement plan" to enhance financial soundness must be submitted.

A Financial Services Commission official explained, "We are thoroughly preparing to avoid confusion by conducting employee training ahead of the law's enforcement," and added, "We will continue communication after the law is enforced to ensure the financial conglomerate supervision system is firmly established."

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