[Q&A] Lee Eokwon: "Easing Network Separation for 'Security AI' in Financial Institutions"... 59,000 Jeonse Loans to Non-Resident Single-Home Owners Under Regulatory Review

Vice Chairman Kim Eo-kwon's Press Conference

Kim Eo-kwon, Vice Chairman of the Financial Services Commission, announced that the government will significantly relax network separation regulations to facilitate the use of security AI in the financial sector, amid growing concerns about AI-based cyberattacks following the launch of Anthropic's high-performance security AI model, 'Mythos' in the United States.

At a press conference held at the Seoul Government Complex on May 21, Vice Chairman Kim said, "With the release of high-performance AI models such as Mythos, it is urgent to establish a security framework, so we plan to urgently ease network separation regulations when using AI for security purposes." He explained, "If a financial institution with security capabilities wishes to use AI, we will temporarily relax network separation regulations after expert review, starting in June. We are also considering further easing these regulations for financial institutions with advanced security capabilities."

He also hinted at the possibility of regulating jeonse loans for non-resident single-home owners who borrow for speculative purposes. Vice Chairman Kim stated that the amount of jeonse loans held by banks for non-resident single-home owners in regulated areas of the Seoul metropolitan region is estimated to be about 920 billion won (59,000 cases), and real demanders will be exempt from the regulations. He added, "The key issue is how to define and filter out speculative purposes," noting that both positive and negative regulatory methods are being discussed.

Regarding the decision to return the Hong Kong H-Index equity-linked securities (ELS) penalty proposal to the Financial Supervisory Service (FSS), Kim said, "It is not premised on additional reductions," adding, "As this is the first large-scale sanction case since the implementation of the Financial Consumer Protection Act, we believe it is necessary to conduct a more precise and rigorous review of the facts and legal application." Previously, the FSS imposed a penalty of 1.4 trillion won in February for the misselling of Hong Kong H-Index ELS by banks, but the FSC unusually requested a re-examination by the FSS.

The following is a Q&A with Vice Chairman Kim.

- What is the current status of reviewing regulations on loans for non-resident single-home owners?

▲ We are reviewing regulatory measures on loans for non-resident single-home owners taken out for speculative purposes. The key issue is how to distinguish speculative purposes. Both positive and negative approaches are under consideration, and we are listening to a variety of opinions to ensure that the measures are effective in the market.

- Was the reason for returning the ELS sanction proposal to the FSS to reduce the penalties further?

▲ This is the first large-scale sanction case since the implementation of the Financial Consumer Protection Act, involving several financial companies. We judged it necessary to apply the facts and legal principles more precisely and rigorously. The intention is to enhance the acceptability, legitimacy, and completeness of the sanctions. The FSS shares this view. Once the FSS handles the matter quickly and forwards it to us, we will review and make a decision.

- There is speculation about the possibility of relaxing the separation of finance and industry regulations after Hana Financial Group's acquisition of a stake in Dunamu.

▲ The virtual asset market environment has changed significantly since 2017. We plan to comprehensively review global market changes, the trend toward institutionalization, discussions on stablecoins, and the issue of financial companies participating in virtual assets, with a focus on user protection.

- What is the status of the legislative push to limit three consecutive terms for financial holding company CEOs?

▲ We agree on the need to improve governance. It is important to design systems so that the fairness of the CEO selection process, the independence of the board of directors, and the issue of inner circles can be effectively implemented in practice.

- Is there a possibility of further easing the risk weight (RW) regulations related to productive finance? There are concerns that this could further concentrate loans to large corporations.

▲ We have already eased RW regulations twice. We have relaxed measures for policy funds and also accommodated foreign exchange risks and structural foreign exchange positions. We will continue to listen to industry opinions. We raised the RW for mortgage loans from 15% to 20%, and we will actively improve it in line with market conditions and policy direction.

Productive finance should not only follow government policy but also guide financial institutions in nurturing future industries. With household loans decreasing, financial institutions need to find new areas for growth and enhance their foresight. The core competitiveness of finance lies in identifying good companies among large, medium, and small enterprises, and their ability to discern will be tested.

- Will alternative credit assessment models be applied to banks?

▲ Conventional credit assessment has focused on financial history and delinquency records. Going forward, it is necessary to evaluate future repayment ability more precisely using AI and alternative data. Credit assessment models tailored for small business owners will be piloted at seven banks in the second half of the year.

- There are concerns that inclusive finance may conflict with bank profitability.

▲ Profitability and public interest do not necessarily conflict. Early debt restructuring and active management of bad debts can, in the long run, be highly effective for both financial institutions and society.

- What are the plans for expanding support for long-term delinquent bonds in the five- to seven-year range?

▲ This has been considered since the design stage of the New Leap Fund. Currently, bonds overdue for more than seven years are eligible, and we have been deliberating on how to address those overdue for five or six years. For debts overdue five to seven years, the special debt adjustment program has increased the maximum reduction of debt principal from 70% to 80%. While the cancellation of delinquent bonds is not possible, the New Leap Fund's debt adjustment is being carried out in tandem.

- Are there plans to expand single-stock leveraged exchange-traded funds (ETFs), given the increased volatility in the domestic stock market?

▲ The intention was to address regulatory differences, as such products are allowed overseas but blocked domestically. Rather than focusing on further expansion, we will closely monitor the effects and risks after introduction to the market. The capital market should be viewed over the long term, not just in the short term. Market structure, macroeconomic variables, and corporate profitability all play a role in outcomes.

- What are the reform plans for the KOSDAQ market?

▲ Currently, KOSDAQ contains a mix of various companies, and lacks differentiation. I believe it is necessary to introduce a tiered structure within the market, similar to NASDAQ, to enhance trust. We will consider distinguishing between premium and standard markets.

- What is the status of the Digital Asset Basic Act, the second-stage legislation for virtual assets?

▲ As there are differing opinions between innovation and stability, we will continue to gather feedback from related agencies and the National Assembly.

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