FSS targets financial affiliates of chaebol

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FSS targets financial affiliates of chaebol

Korea’s financial watchdog announced an organizational shake-up on Thursday to strengthen its oversight of financial companies, especially those controlled by large family-run conglomerates, so-called chaebol, and enhance consumer protection.

In the most significant change, the Financial Supervisory Service will task a new department with regulating corporate governance and leadership transitions at financial companies.

The move came after financial authorities perceived current executive promotion procedures at financial companies to be opaque and unfair.

“So far, the Financial Supervisory Service has focused on detecting irregularities in businesses,” Kim Dong-seong, a director at the agency, said, “but the new unit will be devoted to supervising the appointments of CEOs and board members.”

The chairmen of both the Financial Supervisory Service and Financial Services Commission, the financial regulator, have openly accused chief executives at financial companies of unfairly gaining reappointment.

The major targets of the new department will be financial affiliates of conglomerates as well as major financial groups like KB and Shinhan.

The Moon Jae-in administration has pledged to subject conglomerates to the same safety and soundness standards applied to financial groups if a conglomerate has financial affiliates.

The Financial Supervisory Service has yet to specify which affiliates will come under scrutiny, but industry observers expect Samsung, Hanwha, Dongbu, Lotte and Hyundai Motor to come under tougher scrutiny.

“The main subject of regulation used to be banks and securities companies controlled by financial groups,” Kim said, “but we are expanding the target of supervision to any group with more than two financial affiliates.”

The proposal will likely raise eyebrows among some industry players since the tougher regulations add to what they see as already strict financial restrictions against their affiliates.

Another important pillar of the shake-up is bolstering consumer protection. The Financial Supervisory Service has granted a consumer protection division the authority to conduct on-site investigations to address consumer complaints. The division will merge a team designed to detect insurance fraud with teams tracking other financial scams to increase efficiency.

The Financial Supervisory Service has also established a division to support so-called fintech companies as the emergence of such start-ups has demanded a new regulatory framework.

So far, discussion of fintech took place at different divisions, delaying the launch of new services.

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