News Regulations11 May 2018

South Korea:Regulators to tighten supervision over financial affiliates of chaebol

11 May 2018
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The South Korean financial authorities will swiftly implement tougher supervision rules on financial affiliates of the five major family-run business conglomerates, or chaebol, and two other financial heavyweights, the nation's top financial regulator has said.

Starting in July, the Financial Services Commission (FSC) will apply tighter regulations on the chaebol's financial affiliates, requiring them to sell some of their shares in non-financial affiliates if such business practices are found to cause risks in the financial system, reports Yonhap News Agency.

The new rules will affect 97 financial affiliates of the five chaebol -- Samsung, Hyundai Motor, Hanwha, Lotte and DB -- as well as Kyobo Life Insurance and Mirae Asset Daewoo.

Samsung Fire & Marine Insurance and Samsung Life, part of the Samsung group, are the largest insurers in their respective sectors in South Korea.

Mr Choi Jong-ku, FSC chairman, told reporters that chaebol financial affiliates have been a supervisory blind spot, although they are vulnerable to risks if they are being used to prop up failing units.

He described the tougher supervision of the financial units of chaebol as an "inevitable task to improve the soundness and confidence of our financial system."

The tightened regulations will also allow financial authorities to beef up their monitoring of the capital adequacy of the financial affiliates, FSC officials said.

In South Korea, a typical conglomerate controls dozens of subsidiaries through a complex web of cross-shareholdings. This shareholding system sometimes leaves many chaebol units vulnerable to problems affecting other affiliates.

Mr Choi has met Mr Yoon Suk-heun, the new governor of the Financial Supervisory Services (FSS), and they pledged to step up cooperation. The FSC consists of government officials tasked with making financial regulatory policies and taking reform measures. The FSS, which has many civilian investigators, conducts on-site inspections of local financial services companies and plays a supervisory role as a watchdog.

Samsung

Samsung Life Insurance, which holds an 8.27% stake in Samsung Electronics, has been under pressure to sell a part of the stake as lawmakers have proposed a Bill that bans insurers from holding stakes of more than 3% in non-financial affiliates.

Mr Choi voiced worries that Samsung Life's stock investment is concentrated on Samsung Electronics. If shares of Samsung Electronics plunge, it would pose a risk to the life insurer's financial soundness.

Meanwhile, South Korea's antitrust chief said yesterday that South Korea's No. 1 conglomerate Samsung Group's current ownership structure is not sustainable, reports Reuters.

Korea Fair Trade Commission chief Kim Sang-jo told reporters that Samsung's current ownership structure, resting on circular shareholding between companies such as Samsung C&T, Samsung Life Insurance, and Samsung Electronics, was not sustainable.

Mr Kim said that he had called on Samsung Group heir and Samsung Electronics Vice Chairman Jay Y Lee to make a decision concerning the ownership structure, adding that Mr Lee had told him that he will think about it.


 

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