Financial Authorities' Consecutive Conciliatory Gestures in the Market... What Is the Background?

Financial Supervisory Service Hints at Possible Abolition of Comprehensive Inspections
Financial Services Commission Announces Major Expansion of Concurrent and Ancillary Businesses
Interpreted as Efforts to Restore Collapsed Market Trust

The heads of financial authorities met at the Government Seoul Office Building on September 2. (From left) Jung Eun-bo, Governor of the Financial Supervisory Service, Ko Seung-beom, Chairman of the Financial Services Commission.

"To innovate banks' business models, we will actively expand concurrent and incidental businesses such as improving the trust system and allowing investment advisory services." (October 28 · Ko Seung-beom, Chairman of the Financial Services Commission ? Meeting with Commercial Bank CEOs)

"We will reform the inspection system for financial companies to respond flexibly to changes in the financial environment and to utilize inspection resources efficiently." (November 3 · Jeong Eun-bo, Governor of the Financial Supervisory Service ? Meeting with Financial Holding Company Chairpersons)

As financial authorities send successive conciliatory gestures to the market, attention is focused on the background. They are accommodating the banking sector’s long-standing wish to expand non-interest income while also pledging to reform the inspection system, which financial companies find most burdensome. This is seen as part of efforts to restore market trust in financial authorities.

According to financial authorities on the 4th, the Financial Supervisory Service plans to announce the results of the task force (TF) review on financial company inspections and sanctions within the year. The core is to reform the FSS inspection system from a retrospective approach to proactive risk identification and prevention.

After the meeting with financial holding company chairpersons the day before, Governor Jeong told reporters, "We aim for a sophisticated and balanced inspection system," adding, "We will expand communication with financial companies during inspections and sanction deliberations, and flexibly adjust inspection cycles for small financial companies such as savings banks within holding companies."

This is interpreted as a sign that comprehensive inspections of financial companies may be effectively abolished. The comprehensive inspections, revived during former FSS Governor Yoon Seok-heon’s tenure with an emphasis on consumer protection, have been strongly criticized by the financial sector over the past three years as a ‘sweeping’ approach aimed at detection and punishment. The current move is seen as an improvement to quell such dissatisfaction.

The FSS also announced plans to eliminate regulations restricting information sharing within financial groups. This means allowing information sharing within groups for business purposes to enhance group synergy. It also indicated a proactive improvement in the calculation of banks’ Liquidity Coverage Ratio.

The Financial Services Commission recently announced market-friendly policies as well. The main points are opening the door for banks to enter the investment advisory business, which had been limited to real estate, and expanding the scope of trust assets that customers can entrust. This has been regarded as a long-standing wish of the banking sector to increase non-interest income.

Regarding platform businesses operating as innovative financial services, the authorities plan to increase banks’ incidental businesses to a reasonable level by reviewing business performance and environmental changes. This means allowing Kookmin Bank’s temporarily operated budget phone service, designated as an innovative financial service, and Shinhan Bank’s soon-to-launch food delivery platform to continue operating.

The background behind the two heads of financial authorities proposing successive regulatory relaxations is widely interpreted as an intention to restore trust in the broken financial market. It reflects efforts to actively resolve various controversies such as the continuous disciplinary actions against financial companies over the past few years and the Derivative Linked Fund (DLF) incident. Considering the infringement on financial companies’ autonomy due to continued tightening of loan regulations, the move to actively allow entry into other businesses to improve profitability is also cited as a reason.

A banking sector official said, "We understand that consumer protection is the most important responsibility of financial authorities, but comprehensive inspections as a sweeping approach are problematic," and added, "We view the authorities’ efforts to improve this positively." Another banking official said, "We were surprised that the authorities announced the approval of issues that have been steadily requested over the past few years, such as expanding trust products, all at once," adding, "From the perspective of financial companies seeking change amid a rapidly changing environment, this is a welcome development."

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