①

Financial stability built on sound foundations

②

Compassionate policies focused on the economic well-being of ordinary people

③

Restoring trust in the financial system

④

Facilitating dynamic growth of the economy
 

1.

Strategic Category 1: Financial Stability Built on Sound Foundations
 

(1)

The FSS would like to see a strengthening of the capacity for risk management of household debt as well as corporate debt. A key component in achieving this target, as pronounced by the FSS, is to engender accountability of the defaulting debtor by shunning government-funded bailouts. This policy would be coupled with polices to reduce the rate of increase of household debt, to gradually expand the application of debt service ratio (“DSR”) coverage, and to seek structural improvements to the quality of credit extended to households.
 

(2)

The FSS would like to enhance the ability of the government as well as the private financial sector to better anticipate events that disrupt the financial markets. This implementation target appears to be a response to recent market disruptions that caught some market participants as well as the regulators unawares, such as rapid deterioration in the quality of domestic real estate project finance loans as well as overseas real estate developments and investments. The FSS says that, in order to achieve this target, it will seek a comprehensive reform of contingency planning processes and will fortify monitoring and risk management measures to better equip interested parties to anticipate rapid shifts in market conditions. One example of such a sudden, unforeseen shift given by the FSS was the reversal of funds flow direction in a rapidly rising interest rate environment - from the so-called money move (movement of investor funds from low-interest bearing deposits to higher-yielding fixed income products) to the reverse money move when banks began paying higher interest rates on deposits.
 

(3)

The FSS encourages the financial services sector to enhance systems to manage crises and to deal with threats. This implementation goal targets all segments of the sector. Banks may face increased regulatory capital requirements in the form of countercyclical capital buffers and supplemental capital, with the extent of such requirements to be differentiated from bank to bank on the basis of their scores on stress tests. Insurance companies may see the introduction of a self-regulatory organization tasked with monitoring their reporting under the complex accounting change introduced by IFRS 17. Savings banks could become subject to tighter capital requirements, with a heightened scrutiny when seeking to recognize certain balance sheet items as supplementary capital. Credit card companies may now become subject to risk-based capital requirements. Securities firms may find themselves in a regulatory regime where their net capital ratio (“NCR”) risk measures are differentiated in accordance with their exposure to the real estate sector. Suffice it to say, regulatory monitoring and compliance will become an even higher management priority for financial services firms operating in Korea.
 

2.

Strategic Category 2: Compassionate Policies Focused on the Economic Well-Being of Ordinary Citizens
 

(1)

The FSS is redoubling its efforts to eliminate financial crimes that victimize households and consumers. The FSS lists a wide assortment of initiatives that are meant to address this issue. They include the establishment of a consultative body to fight these crimes by way of prevention, deterrence, enforcement, punishment, damage relief, and education. The FSS will scrutinize loan sharking, insurance fraud, and market manipulation schemes known as “leading” and also will introduce a monitoring system that aims at unlawful advertisement schemes deploying artificial intelligence (“AI”), as well as voice phishing alerts to protect those who are less well-versed in online financial transactions. Perhaps most significantly for financial services firms, the FSS is on the record indicating that it expects them to establish a transaction monitoring system to screen these financial crimes and that it will impose sanctions on those firms that are found to have inadequate guardrails - for instance, by way of a mandated restitution to their customers who suffer losses on certain types of online transactions.
 

(2)

The FSS would like to enhance rights of the consumer. There is a range of regulatory measures that aim at this goal as well, including the establishment of a fair finance promotion committee and a crackdown on unfair financial practices.
 

(3)

The FSS would like to alleviate root causes that exacerbate financial hardships for the working class and other vulnerable members of the society. From a corporate compliance perspective, the most noteworthy goal included in this particular implementation item may be the FSS’s stated desire to review how a financial services firm’s ESG-related activities are reported to the firm’s board of directors in a way that would help them achieve results.
 

3.

Strategic Category 3: Restoring Trust in the Financial System
 

(1)

The FSS would like to fortify regulatory means to prevent acts that disrupt financial markets, such as unlawful short sales of stock. This implementation item is a litany of high-priority enforcement goals that the FSS has been pursuing. Firstly, the FSS wishes to overhaul the short sale regulatory regime by equalizing the permissible extent of short sales without regard to the status of the investor (e.g., foreign vs. domestic), and by imposing tougher penalties on wrongdoers. The FSS will conduct a comprehensive industry-wide investigation on unlawful short sale practices by global investment banks. The agency will also review Korean securities firms’ policies and procedures when acting as local agents for global investment banks, with the goal of identifying instances where they may have been aware of the unlawful nature of particular short sale orders. The FSS will conduct targeted investigations of unfair trade practices such as promotion of politically-themed stocks, and gun-jumping or insider trading in advance of a public announcement of new government-led business or development projects. The FSS will also take aim at unlawful market manipulation practices.
 

(2)

The FSS would like to eradicate unlawful and unsound business practices. This is yet another laundry list of the FSS’s enforcement priorities. The agency says it will continue to impose strict sanctions on firms that are found to have used improper practices in the marketing and selling of Hong Kong H-Index Equity-Linked Securities (“ELS”) and will implement a system to compensate perceived victims of such practices. The FSS also aims to intensify its examination of unsound business practices such as discriminatory commissions and coercive transaction terms in retail transactions. It will examine the questionable and potentially illegal practice by some real estate trusts who provide completion guarantees and favorable funding arrangements to their major equity holders and other affiliates.
 

(3)

The FSS would like to establish a more sound structure for corporate governance and internal control. This is part of an ongoing initiative by the FSS to ensure compliance with corporate governance guidelines. Following a recent series of financial incidents, questions have arisen about the effectiveness of the existing system of internal controls under the Act on Corporate Governance of Financial Companies (“Corporate Governance Act”). An amendment to the Corporate Governance Act was promulgated on January 2, 2024 and will become effective on July 3, 2024. The amended Act will impose obligations on senior management and the board of directors of covered financial institutions to prepare a responsibilities map allocating responsibilities for internal control by business area to officers, without redundancy or omission. The new regime will aim to ensure that the person actually exercising authority over certain responsibilities corresponds with the officer identified as being responsible on the map.
 

4.

Strategic Category 4: Facilitating Dynamic Growth of the Economy
 

(1)

The FSS supports the continuing growth of the digital finance sector.
 

(2)

The FSS would like to help the financial services industry strengthen its competitiveness with an eye to the future.
 

(3)

The FSS intends to introduce more innovative measures in supervising and regulating the financial services firms.