FSS Holds Meeting with Real Estate Trust Company Executives: "Increase Provisions and Strengthen Internal Controls"

The Financial Supervisory Service (FSS) urged real estate trust companies to manage soundness and liquidity and to prevent unsound business practices.

On the 13th, the FSS announced that it held a meeting with executives in charge of overall operations and internal controls from 13 real estate trust companies.

The meeting was attended by Seo Jae-wan, Deputy Director of Financial Investment, along with the Director of the Asset Management Supervision Bureau and the Director of the Financial Investment Inspection Division 3. Also present were the heads of Asset Management and Real Estate divisions from the Korea Financial Investment Association, as well as executives from the 13 real estate trust companies.

First, the FSS emphasized that deterioration in the soundness of real estate trust companies could spread to major creditors and other business sites, leading to a tightening of the overall real estate market, thus strict inspections by business site are necessary. They also requested thorough management of projects where trust companies’ losses are expected to increase due to low pre-sale rates or where the contractor’s responsibility for completion deadlines has passed. Regarding loan-type land trusts, the FSS asked for conservative management, appropriately reflecting the possibility of insolvency due to poor sales when provisioning for bad debt reserves. They also urged efforts to manage progress by project and to secure sufficient response capacity by assuming the worst-case scenarios.

They also requested preparation for institutional reforms to strengthen land trusts. The financial authorities are continuously promoting institutional improvements to manage the soundness of real estate trust companies. This includes establishing model guidelines for land trust operations with responsibility for completion, which cover standard project feasibility review criteria and procedures, the principle of securing 100% of essential project costs in advance, and clarifying the scope and timing of compensation liability in case of failure to fulfill completion obligations. Additionally, revisions to the Net Capital Ratio (NCR) calculation method and the land trust limit system are scheduled to be implemented starting July this year.

The FSS also stressed the need to strengthen internal controls to block unsound business practices. Deputy Director Seo Jae-wan stated, "The thematic inspection results last year on the soundness management and unsound business practices of real estate trust companies revealed many deficiencies in internal controls," and emphasized, "Active self-cleansing efforts are needed, such as preparing model guidelines for internal controls centered on the Korea Financial Investment Association."

The FSS plans to closely monitor market conditions and maintain continuous communication with the industry to manage risks following the implementation of the revised system. Furthermore, they will consider supervisory and inspection measures commensurate with companies that maintain sound internal controls and comply with healthy business order.

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