When Bank Operations Close, Financial Services Commission Approval Criteria Specified

Clear Reporting of Bank's Regular General Shareholders' Meeting
Revision of Penalty Criteria for Violation of Bank's Regular General Shareholders' Meeting Reporting Obligation
Legislative Notice on Amendment to Enforcement Decree of Bank Act Announced

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where financial authorities decided to promote a plan to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. Financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@

The Financial Services Commission (FSC) has decided to specify the criteria for obtaining approval when partially closing bank operations or transferring and acquiring them. It will also clarify the contents that banks must report at their regular shareholders' meetings and revise the standards for imposing fines when banks violate their reporting obligations at these meetings. On the 9th, the FSC announced the legislative notice for the amendment of the Enforcement Decree of the Banking Act.

First, specific criteria must be established for when banks close an important part of their business or transfer/acquire operations, requiring approval from the FSC.

When Korea Citibank closed its retail banking operations in 2021, the FSC noted that the current Banking Act only requires approval for the complete closure of banking business. However, since partial closures were not clearly defined as requiring approval, the FSC could not proceed with the approval process for the retail banking closure.

Considering that approval from the FSC is necessary even for partial closures of banking business, the Banking Act was amended in March this year to require FSC approval for the closure of an "important part" as defined by Presidential Decree. The criteria for "important part" are delegated to be specified in the Enforcement Decree of the Banking Act.

Regarding the transfer and acquisition of business, the current Banking Act requires FSC approval for the "important part" as defined by Presidential Decree. The Enforcement Decree of the Banking Act defines "important part" as some of the core and concurrent businesses, and institutional improvements will be pursued in this area as well.

In other words, the aim is to address the lack of specificity in the current Enforcement Decree's criteria for "important part" related to transfer and acquisition, and the fact that the transfer and acquisition of some ancillary businesses are not subject to FSC approval.

This partial amendment to the Enforcement Decree of the Banking Act specifies that when partially closing operations, the "important part" as defined by Presidential Decree refers to business sectors accounting for 10% or more of total assets or total profits.

Also, considering that partial closure and partial transfer of operations are essentially the same, the system will be revised so that when transferring operations, FSC approval is required if the business sector accounts for 10% or more of total assets or total profits.

Meanwhile, for business acquisitions, in addition to the asset and profit criteria, if the liabilities to be assumed account for 10% or more of total liabilities, FSC approval will also be required.

Second, the contents that banks must report at their regular shareholders' meetings will be specified. The current Banking Business Supervision Regulations require banks to report at their regular shareholders' meetings on certain matters, such as the status of companies with loans and payment guarantees exceeding 10 billion KRW and the details of debt restructuring newly occurring during the fiscal year.

In March, the reporting obligations for banks at regular shareholders' meetings, stipulated in Article 41 of the Banking Business Supervision Regulations, were elevated to statutory law through amendments to the Banking Act. Accordingly, banks are required to report certain matters at regular shareholders' meetings, such as the status of debt restructuring newly occurring during the fiscal year for loan and payment guarantee users exceeding the amount specified by Presidential Decree.

Accordingly, the partial amendment to the Enforcement Decree of the Banking Act specifies the "amount specified by Presidential Decree" as 10 billion KRW, consistent with the current Banking Business Supervision Regulations.

Third, the standards for imposing fines when banks violate their reporting obligations at regular shareholders' meetings will be specified. The amended Banking Act stipulates that banks violating the reporting obligations at regular shareholders' meetings may be fined up to 50 million KRW. The amendment to the Enforcement Decree of the Banking Act specifies the fine limit as up to 30 million KRW.

This takes into account that the current Banking Act sets the maximum fine for violations of FSC reporting obligations and internet homepage disclosure obligations related to financial accidents that may significantly affect management at 50 million KRW, while the Enforcement Decree specifies a fine of up to 30 million KRW.

The amendment to the Enforcement Decree of the Banking Act will be open for legislative notice from the 10th of this month until the 22nd of next month. After review by the Ministry of Government Legislation and approval by the Cabinet and Vice-Ministerial meetings, it is scheduled to take effect on September 22 of this year.

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