On January 15, 2018, the Financial Services Commission (“FSC”) announced that it has established the “Initiative for Financial Reform” (the “Initiative”), which is designed to restore trust in the financial sector, and to actively facilitate a “human-centered sustainable economic growth.”

Details – Key Aspects of the Initiative:

In announcing the Initiative, the FSC stated that this financial sector reform will be its top priority. The FSC further explained that it will focus on rectifying unreasonable practices in the financial industry, and on establishing a fair financial market. To this end, the FSC plans to take the following measures:

• Actively inspect hiring practices in the banking sector, and impose severe punishments on banking institutions for hiring irregularities.
• The FSC will strengthen its remuneration disclosure regulations for high performance incentives in financial institutions. Also, the FSC will work to improve governance structures at financial institutions by strengthening the roles of outside directors, and by expanding minority shareholders′ involvement. These changes have been reflected in the amended Act on Corporate Governance of Financial Companies, which the FSC pre-announced for legislation on March 15, 2018.
• The sale of unfair financial instruments, including unfair terms and conditions for financial instruments, will be more strictly monitored.
• To monitor and supervise risks associated with financial group companies, the FSC will introduce integrated supervision systems for financial group companies.
• The FSC plans to recommend institutional investors to adopt the Stewardship Code, a model code established by the Corporate Governance Service for Institutional Investors. This Code sets forth principles designed to promote mid to long-term interests of their clients through mid to long-term value enhancement and sustainable growth of the companies in which they invest.

Further, the financial system will be reorganized so that financing for productive areas, such as start-ups and venture businesses, will take priority over household and real estate loans. Accordingly, if exposure to household debt continues to increase, the FSC plans to take appropriate measures (such as requiring further reserves as a buffer).

Also, the FSC will address the issue of financial burden on the low-income class and financing difficulties. It will also strongly promote social responsibility of financial institutions, such as reinforcing protective measures for financial consumers and promoting social financing. Specifically, in terms of consumer protection, the FSC plans to push forward with the enactment of the Financial Consumer Protection Act to strengthen the obligation for financial institutions to provide information on financial instruments prior to purchase, and to prevent misselling of financial instruments. Also, the FSC will continue to proceed with “consumer-centered financial reform” by inspecting the adequacy and enhancement of banks’ fee imposition system centered – among others – on ATM and foreign currency exchange fees.

Lastly, to promote competition, the FSC is reviewing measures to induce establishment of various types of banks by subdividing units of license by business type. For innovative financial services companies, in March, the FSC established a “FinTech Roadmap” to introduce insurance products for self-driving technology and to more widely distribute blockchain technology. In particular, the FSC plans to take measures to secure consumers′ rights to control their personal information and how companies can utilize consumer information for big data.

In addition, the FSC plans to continuously activate a test bed for financial regulation, and establish a legal basis to grant provisional approval and exempt services that pursue innovation and provide significant benefits to consumers under certain regulations.

Significance:

The FSC stated that for initiatives that do not require an amendment to any existing laws, the FSC intends to promptly establish and implement detailed plans. For initiatives that require amendments to laws, the FSC will work with the National Assembly to pass the necessary amendments to implement the initiatives as soon as possible.