First Meeting of the Committee for Financial Innovation

For the last one year and so, the government has been concentrating its efforts in setting the financial industry’s vision and establishing related system to coop with the changing economic structure and conditions. Moreover, the FSC devised and announced comprehensive plan to overhaul financial regulatory system.

However, the financial industry still has long way to go to completely abolish its old and outdated practices. Necessary funds are still not effectively channeled to those in need such as startup entrepreneurs and CEOs of SMEs.

In order to narrow the gap between the real economy and the current conditions of the financial industry, the government and financial sector must work together to come up with tangible outcomes that can be actually be felt by those at the frontline of the economy.

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The first meeting of the Committee for Financial Innovation was held on September 16, to discuss ways to improve unreasonable financial practices, thereby achieve sustainable growth of the financial industry.

During his opening speech, FSC Chairman Shin Je-Yoon mentioned that technology finance must take deep root in the financial system as soon as possible. To such backdrop, according to Chairman Shin, the government will start reviewing each bank’s efforts to promote technology finance in October. Various incentives will be granted to those contributing in the realization of creative finance, said Mr. Shin.

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“Second, venture capital should be further facilitated in order to encourage active investment in creative ideas. We must create a healthy cycle of investing and reinvesting in innovative ideas” Chairman Shin added.

“Third, we must abolish outdated financial practices. Unreasonable inspections and sanctions are the main culprits of hampering financial innovation. Therefore, our priority is to improve the current supervisory system. We will ban financial regulators from imposing excessive sanctions on the employees of financial institutions. We will encourage financial firms to improve unfair internal practices.”

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Chairman Shin said that he believes that the government should open its ears wider to the voices of financial consumers.

Based on firm belief that the answer to the government’s tasks lie in the actual business fields, Chairman Shin will visit local employment center in Seosan and venture companies located in Gyeonggi Province to share opinions with financial consumers about what financial regulations need to be improved.

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“I am confident that the financial sector will push our economy to the next level. I would like to ask for the commissioners of the Committee for Financial Innovation gathered today to actively back the government to realize our goal,” Chairman Shin said in closing.

Weekly Global Financial News (Sep 8-Sep 14)

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Russia and China discussing 32 joint projects: Russian deputy PM, By Reuters, Published: Sep 13

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Russia and China are discussing more than 30 joint economic projects in a variety of areas from petrochemicals to banking. After Russia was hit sanctions by the United States and the European Union over its involvement in Ukraine, China was keen to cooperate with Russia.

IMF says Ebola hits economic growth in West Africa, By Reuters, Published: Sep 11

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Economic growth in Liberia and Sierra Leone could decline by almost 3.5 percentage points as the world’s worst outbreak of Eblola has crippled mining, agriculture and services sectors.

After default, Argentina economy falling into deeper hole, By Reuters, Published: Sep 11

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Argentina’s government is ramping up state intervention in the economy to try to prevent a new default from triggering a balance of payment crisis but its policies are also battering business confidence and may deepen recession.

Exclusive: Brazil assessing whether to cut key fiscal goal in 2014, By Reuters, Published: Sep 12

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The Brazilian government is assessing whether to cut its primary budget surplus target in 2014.

Abe says ‘neutral’ on whether to raise Japan sales tax to 10 percent, Published: Sep 13

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Japanese Prime Minister Shinzo Abe said he remained neutral on whether to proceed with a hike in Japan’s sales tax to 10 percent, adding that decision would hinge on the strength of economic indicators for the current quarter.

Show us the money: EU seeks billions of euros to revive economy, By Reuters, Published: Sep 13

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The European Union sought ways to marshal billions of euros into its sluggish economy without getting deeper into debt.

No more phone calls from money lenders

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The National Assembly approved Revisions to the Enforcement Decree of the Act on Registration of Credit Business, etc. and Protection of Financial Users and the revised act will be put into force from September 19, 2014.

Upon revision of the act, provincial governors, city mayors, prosecutor general, national police chief, and FSS governor are authorized to request the Ministry of Science, ICT & Future Planning for suspension of phone numbers used for exaggerated or false advertisement of credit business and impose fines against them.

The revised act is expected to resolve financial consumer’s inconvenience of receiving and answering unwanted phone calls from credit businesses.

Financial Education for Students

In February, the FSC and OECD co-hosted an international symposium on financial education to share opinions and experiences of member countries on the issue. Domestic financial experts gathered once again at Symposium to Facilitate Financial Education on September 2 to discuss how to strengthen financial education for students.

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“What struck me most,” said FSC Chairman Shin Je-Yoon in his congratulatory speech during the event, “was that other countries are educating students about financial issues since they were small. It is time for Korea to do the same.”

Finance is very closely linked with our everyday life. We are faced with making financial decisions in every important moments in our life; from making loans to buy home, to buying insurance policy to prepare for unexpected accidents and pension products for post retirement life. Since such decisions inflict crucial impact on our life, to be equipped with profound financial knowledge is very important.

Moreover, as the structure of financial products are getting more and more complex, investing in those instruments without perfect understanding may lead to massive loss and make one prone to financial frauds. One might end up in losing everything he or she earned.

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Despite the government’s committed efforts to raise financial awareness, it is true that our financial education system falls behind compared to that of the advanced economies such as the UK and US.

UK, will mandate students from 11 to 16 to complete financial education courses starting from this month. In the US, the government has set “Early Starts for Financial Success” as 2013 and 2014 financial education goal. Korea added financial issues in high school economics but the financial education still doesn’t reach out to elementary and middle school students.

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“I believe it is necessary to add financial subjects in curriculums of elementary, middle and high school,” mentioned Mr. Shin.
“We need to teach young students not only financial knowledges but also healthy attitude and habits related to finance.”

Financial education will enable students to make reasonable and wise financial decisions when they grow up. Moreover, reasonable financial practices of each individual will contribute to stabilizing national economy and financial system.

Block unwanted phone calls and emails from financial companies

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Do-Not-Call service is available for financial consumers from September 1. You can register phone numbers which you want to be automatically blocked or denied on www.donotcall.or.kr. Once registered, phone calls and emails sent from the respective financial companies will be blocked for 2 years. The service is only available for cell phones and smart phones. You have to call the respective financial company to block phone call, SMS, or email services for landline telephone.

Weekly Global Financial News (Aug 26-Sep 01)

India Economic Summit 2008

India’s growth speeds up in after-glow of Modi’s triumph, By Reuters, Published: Aug 29

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Narendra Modi’s election victory helped India’s lumbering economy register its fastest growth in two-and-a-half years for the quarter ending in June.

China foreign investment pattern changes as challenges grow, By Reuters, Published: Aug 26

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China’s foreign investment mix is changing, with portfolio investors buying more stocks but foreign direct investment falling to a two-year low on a slowing economy, rising business costs and anti-monopoly probes and crackdowns on foreign firms.

Modi to launch plan for every Indian household to have bank account, By Reuters, Published: Aug 27

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Prime Minister Narendra Modi will promise to provide a bank account for every Indian household when he launches a major initiative that could save billions of dollars in welfare spending and help mend strained state finances. In India, nearly two-fifths of its 1.27 billion people do not have a bank account, leaving them dependent on informal financing routes.

Japan’s Abe faces another bruising debate over raising sales tax, By Reuters, Published: Aug 28

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Prime Minister Shinzo Abe faces hard choices in coming months: whether to hike Japan’s sales tax again, raising the risks of damaging a fragile recovery, or to back off and shakes markets’ confidence in his commitment to curbing runaway government debt.

Brazil enters recession in election blow to Rousseff, By Reuters, Published: Aug 29

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Brazil fell into a recession in the first half of the year as investment dropped sharply and the country’s hosting of the World Cup suffocated economic activity, a major blow to President Dilma Rousseff’s already fading hopes for re-election in October.

China banks seek new lending horizons as bad debts rise, By Reuters, Published: Aug 31

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Grappling with a slowing economy, China’s biggest banks are turning their back on mainstay borrowers like manufacturers and courting high growth industries such as healthcare, food and IT in a bid to boost revenue.

The insurance reform is a win-win for both consumer and insurer

1Mr. John Doe dropped his Smartphone. It got a huge crack on its screen. He rushed to the customer service center and they charged him 170 dollars. However, due to the Smartphone insurance for which he pays 2 dollars a month, it cost 10 dollars!

Ms. Jane Doe is paying a fixed monthly fee on her pension insurance. Her daughter was accepted to well-known university and Ms. Jane needs to pay big money for her daughter’s tuition. However, she has no money at the moment. She decides to cancel her insurance prior to the maturity date although she is charged substantial penalties.

The FSC announced that it will reform the current insurance policies to provide sound insurance services. Such move came as there are still concerns that insurance policies are difficult and complicated. Also, there has been little development in insurance policies compared to the speed of change in economy and demography. The FSC set forth “better regulations” and came up with three goals: building credibility, preparing for the future, and innovating insurance industry.

1. Build credibility by promoting public interest.

Insurance is too complicated which makes customers find it hard to compare different insurance products. In addition to that, insurance brochures which explain the coverage usually run to more than 15 pages. The FSC will simplify the contents to help customers enhance their understanding. In this way, customers can choose what is best for them from diverse options.

Moreover, the FSC will introduce a new system to manage insurance planners. Insurance companies should report their sales records to financial authorities and check past sales records when they hire new insurance planners. If there are enough data, incentives can be given to insurance planners who show excellent performances.

Smartphone insurances prevent customers from paying a huge amount of money when their phone is damaged or lost already exist. As such, the FSC is to allow insurance agencies to sell specific insurance products. For instance, you can purchase insurance for a laptop in electronics department or for an animal in veterinary clinic.

2. Prepare for the future with innovative insurance products

As mentioned above, when there is an unexpected expense such as medical or tuition fee, individuals can withdraw money within certain amount of rate, say 25%, from their pension plan before maturity date. This will help people maintain their pension insurance rather than cancelling it when they need big money.

Also, the FSC is considering the introduction of natural disaster bonds and weather insurances. Weather insurance is a type of insurance product which aims to help control the financial risk associated with exposure to weather conditions. For example, temperature insurances can be designed to protect people from damage due to either below or above normal temperatures. (i.e., ice-cream companies, agricultural industries)

3. Innovate insurance industry

It is hard to find insurance for elderly and disabled individuals. This is because they have higher risks which indicate the possibility of receiving insurance money. The FSC will discuss ways to vitalize insurance designed for them. The FSC is considering a way to allow extra charges to those people and pay the difference if they have shown low risks in a certain period of time.

 

New policies are receiving positive response from related organizations. Insurance companies are especially showing interests in weather insurances and natural disaster bonds. They said that they are ready to introduce weather insurances as soon as financial institutions set guidelines for them. The FSC and related organizations believe that these policies will improve customer satisfaction and boost the insurance industry at the same time.