Introduction of Stress Buffer Capital Regulation Postponed to Second Half of Next Year

Financial Authorities Announce Preemptive Measures to Strengthen Financial Stability and Real Economy Support Capabilities

The financial authorities have decided to ease the soundness and liquidity regulations on financial companies, including postponing the introduction of the stress buffer capital regulation to the second half of 2025 or later.

On the 19th, the Financial Services Commission and the Financial Supervisory Service announced preemptive measures to strengthen financial stability and support capabilities for the real economy in preparation for the possibility of increased market volatility due to domestic and international uncertainties.

These measures reflect the requests made by financial companies during the recently held financial situation review meetings and CFO financial situation review meetings of the financial industry. They include strengthening the soundness, liquidity, and financial stability capacity of financial companies within the scope permitted by global standards such as Basel III.

First, the introduction of the stress buffer capital regulation, which was scheduled to be implemented this year, will be postponed to the second half of next year, and the timing and method of introduction will be reconsidered in the first half of the year for phased implementation.

Additionally, while market risk was previously calculated for banks' non-hedged overseas subsidiary equity investments, under this measure, non-transactional foreign exchange positions such as equity investments in overseas subsidiaries within banks' foreign exchange positions will be excluded from the calculation of market risk in risk-weighted assets due to exchange rate fluctuations.

For insurance companies, the current 35% risk charge is applied to the entire unused amount of the remaining purchase commitment amount of the Securities Market Stabilization Fund, but going forward, only half of the unused amount will be subject to the 35% risk charge, easing the requirement.

Furthermore, funds established under laws other than the Capital Markets Act were previously treated entirely as equities and applied a high risk weight of 400%. Now, for investment associations such as new technology funds and venture funds investing in venture companies, risk weights will be applied based on the actual invested assets (bonds 20%~150%, equities 100%~400%, real estate 20%~150%).

In addition, domestic companies will be allowed to use evaluation grades assessed by overseas External Credit Assessment Institutions (ECAI) in calculating risk weights, and for non-financial holding companies, risk weights will be applied considering the substance such as main sources of income, financial characteristics, and the industries of subsidiaries. Currently, credit spread risk is added based on the Korean Standard Industrial Classification, with the financial industry (5%) applying a higher credit spread risk than manufacturing and service industries (3%) and other sectors.

The financial authorities stated that these measures will be implemented immediately, but items requiring the establishment and revision of standards will be completed by the first quarter of next year. They also plan to monitor market conditions going forward and consider additional measures if necessary.

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