FSC tries to clear up concerns

The Financial Services Commission on Friday unveiled a detailed explanation of a new financial regulation that governs corporate governance of financial companies.

The regulation, named the Act on Corporate Governance of Financial Companies, was introduced in August and will go into effect in November after three months of legal delay to consider alternate views.

The law was intended to strengthen the process of choosing outside directors of financial companies and enhance risk management of the players in the financial circle.

Financial institutions were most concerned about the rule that limits terms of outside directors to six years if the directors serve at both a financial company and its subsidiary.

The institutions asked how the regulator measures the period if a director served the role in the two related companies during the same period.

“If a person doubled as an outside director in a financial company and an affiliate at the same time for three years,” the FSC said, “the term is calculated as three years, not six years.”

The new law also requires large financial companies to appoint a chief of the board among outside directors while the outside directors should account for the majority of the board.

The FSC made clear that smaller companies are not required to follow the rule.

There were also concerns about the requirements for setting up divisions responsible for internal control and risk management. The FSC said it is not mandatory for companies to build two separate divisions to handle the tasks.

“The task of internal control and risk management isn’t necessarily managed through two separate divisions,” the regulator said. “It only needs to dispatch sufficient staff in charge of the task.”

The new rules also bolster the FSC’s involvement in overseeing the qualifications of controlling shareholders.

The financial authorities will regularly review the criteria of the individual controlling shareholders.

If the qualification is not met, the FSC will take measures or may limit the voting rights of the shareholders.

The law came as the financial industry is under fire for its lack of transparency at the top.

The new law also expands to the nonbanking financial companies including insurance and savings banks that also had transparency issues.

Since the regulator first introduced the law, it has received 217 requests for legal interpretations.

The FSC has answered 212 questions and said the rest will be answered within the month.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]