Top regulator urges stronger risk management

Korean brokerage houses and other financial investment companies should beef up risk management as uncertainties surrounding the euro zone crisis and the global economic slump are expected to last for some time, the top financial regulator said yesterday.

“Financial firms need to step up efforts to manage risks as their internal control stands vulnerable to external shocks,” said Kwon Hyouk-se, head of the Financial Supervisory Service.

In a meeting with the chief executives of local financial firms, he said they should carry out stress tests on market risks including stocks and rates in case the euro zone crisis escalates and further weighs on the economy.

Kwon, in particular, called on securities companies to reduce their heavy reliance on brokerage commissions for revenue and seek to find other sources of earnings as industry-wide competition gets fierce.

Local brokerages have recently been suffering from worsening profitability due to a bearish stock market stemming mainly from the global economic slowdown.

According to industry data, commission income accounted for 44.2 percent of their operating profit last year. The daily average turnover of Korea’s main bourse shrank as low as 3.1 trillion won ($2.72 billion) as of June 28, far lower than the minimum profitable level of 6.5 trillion won.

Kwon’s call comes as the fiscal crisis in some European countries persist and the Korean economy has started to lose steam in the face of dwindling demand for its goods from Europe, the United States and China.

Yonhap