|
|
|
|
|
Newsletter | February 2016, Issue 1
|
|
|
|
|
|
|
BANKING
|
|
|
|
Korea’s Financial Stability Measures Focus on Global Standards and Relaxing Certain Requirements
|
|
|
|
On October 29, 2015, the Financial Services Commission (the “FSC”), Korea’s top financial watchdog, and its enforcement arm, the Financial Supervisory Service (the “FSS”), announced their “Prudential Regulation Reform” (the “Reform”) for the financial industry.
|
|
|
|
Financial regulators appear to now focus on improving their prudential regulation to reduce systemic risk in the industry.
|
|
|
|
The Reform aims to amend the financial regulatory regime by adopting global standards provided by intergovernmental financial supervisory organizations. At the same time, the Reform measures relax certain requirements that have been viewed as excessive (compared to global standards).
|
|
|
|
The Reform includes the following changes for the banking industry:
|
|
|
|
Specific Timetable for Phased Introduction of Global Prudential Standards
|
|
|
|
The Reform specifies the year in which the remaining measures of the Basel III framework will become effective in Korea.
|
|
|
|
|
|
Beginning this year, the FSC/FSS will implement the additional loss absorbency requirement for domestic systemically important banks, as well as the capital conservation buffer, and countercyclical buffers.
|
|
|
Starting in 2018, the FSC/FSS will begin applying the net stable funding ratio and leverage ratio requirements.
|
|
|
Financial regulators will reflect these matters in the “Regulation on Supervision of Bank Business.”
|
|
|
|
|
|
In addition, the FSC/FSS are jointly preparing a regulatory framework for the recovery and resolution plan, which has been proposed by the Financial Stability Board. After finalizing the details, the regulators plan to introduce the new plan in 2017. In order to do so, they are expected to seek amendments to the relevant laws and regulations.
|
|
|
|
Relaxation of Excessive Regulatory Requirements
|
|
|
|
The FSC is evaluating its existing regulations in light of the global standards, and where appropriate, relax those that are overly burdensome for the industry.
|
|
|
|
For example, after the net stable funding ratio requirement becomes effective, the KRW loan-to-deposit ratio, which most major countries do not regulate for their financial institutions, may be abolished in 2018.
|
|
|
|
Until then, local branches of foreign banks18 will be allowed to include long-term loans they receive from their head office (as deposits for calculating their KRW loan-to-deposit ratio).
|
|
|
|
Additionally, following the introduction of the Basel III capital requirements, banks will no longer be required to retain additional earned surplus reserves.
|
|
|
|
|
|
|
|
|
| 18 |
|
They do not fund their loans from local deposits.
|
|
|
|
|
|
Back to Main Page
|
|
|
|
|
|
If you have any questions regarding this article, please contact below:
|
|
|
|
|
|
|
|
For more information, please visit our website:
|
|
|
|
|
|
|
|