Hello FSC blog readers! When you have extra money to save, do you deposit it at a bank or a savings bank? For some of you, the difference between the two might be blurry, so I will make it clear for you! Well, financial institutions are divided into two parts: banking sector and non-banking sector. Banks are included in the banking sector which is strictly regulated by the Banking Act. Non-banking sector includes savings banks, credit card companies and consumer financing companies that are not categorized within the banking sector. Not being regulated by the Banking Act, savings banks are freer from government regulations compared to banking sectors. This, in turn, led to some poor management problems, such as bribery issues, illegal loans and solvency risks. To deal with those issues of savings banks, Financial Services Commission (FSC) has introduced additional measures for a sound management of savings banks. Now, let’s look into the details of what has been discussed so far! There are four main points to be explained.
First, the qualification standards for majority shareholders and executives will be stricter, changing from quantitative standard to qualitative standard. This is because there were many problems of savings banks caused by majority shareholders and executives’ illegal activities and moral hazards. FSC seeks to strengthen the qualification measure comparable to that of the Banking Act so as to increase transparency in the management of savings banks.
Second, eligibility of majority shareholders is to be screened periodically (once a year, or twice a year). Such a screening procedure will take place when FSC considers that there is a clear breach of the eligibility criteria. If majority shareholders violate the eligibility criteria, an order of disposal of stocks can be enforced within the maximum period of six months.
Third, executives are asked to take a greater extent of responsibilities, as the definition of executives will be extended from ‘registered executives’ to ‘managing directors’ of the business. Under the current administrative measure, misbehaving executives are merely ‘requested’ for suspension, or ‘recommended’ for dismissal. These weak enforcement measures have not been able to penalize the executives. Thus, a new enforcement measure will be introduced to take a stricter punishment to reduce any possible losses to the financial consumers.
Lastly, whistle blowing system will be improved as well. Currently, an internal reporting is not mandatory, but just recommended. For more active reporting system, reward will be given up to KRW 50 million. Also, the regulation will make it an obligation to report any kinds of illegal activities by executives and compliance officers, and the maximum KRW 300 million will be given as a reward for reporting.
Through additional measures for a sound management of savings banks, operational structure of savings banks will be strengthened, which will let the transactions with the savings banks safer and more reliable!