By Cho Young-je

The intensifying European debt crisis and mounting concerns on the global economic slowdown are weighing heavily on financial markets around the world. Domestically, the general business conditions have deteriorated for many small- and medium-sized enterprises and industries especially vulnerable in a downward economic cycle such as construction, shipbuilding and shipping. The soundness of household debt is coming under growing pressure as well.

Given the difficult market conditions that will likely prevail in 2012 for businesses and financial firms, the top priority for the Financial Supervisory Service (FSS) will be ensuring the safety and soundness of the key financial institutions and preserving the stability of the financial system. To this end, the FSS intends to step up its monitoring of capital flows and encourage domestic banks to secure more foreign currency liquidity as an additional buffer against external contagion risks. The FSS will also continue to keep a close watch on credit flows to small businesses and on the growth of household debt.

As rising inflation and interest rates impose an added burden to the economic hardship of many households, there is a growing need to pay particular attention to the economically disadvantaged and vulnerable segments of our society. For its part, the FSS will continue to take strong supervision and enforcement actions against abuses and conduct that harm consumers. Monitoring and supervision will be strengthened as well on private money lenders and consumer credit providers that prey on low-income borrowers who are often excluded from mainstream banking.

Efforts to improve consumer finance literacy and education will also continue in 2012. One is the “Citizen Bus Tour,” which will travel around the country and offer financial advisory and education services to small shop owners and merchants who primarily operate in traditional marketplaces and rural commercial centers. The educational program called “Campus Finance Talk” that the FSS recently initiated to help college students better understand and manage personal finance will be expanded as well. Together with these efforts, more responsible corporate citizenship will be encouraged across the financial services industry.

Improving the efficacy of supervisory examination of financial institutions is another key objective for 2012 as the FSS steps up its supervision efforts to ensure the full compliance of financial institutions with laws, rules, and regulations for safety and soundness, upon which consumer protection depends.

Among others, the FSS intends to build up its examination resources and the intensity proportionate to the level of perceived risk as well as its highly focused thematic examination of large-size, high-risk mutual savings banks and problematic small consumer lenders.
Our supervisory examination will also focus on usurious interest rates, exorbitantly high service fees and financial product sales that fail to be fully disclosed. We will also monitor the practice of demanding deposits in return for a loan and other unlawful tie-in practices, from which consumers and small businesses often suffer. Financial firms’ non-arm’s length transactions with high ranked officials and businessmen, and anti-money laundering controls will be closely scrutinized as well.

With regard to examiners, the highest professional and ethical standards will be expected, and the IT and accounting specialists from outside will be involved in supervisory examinations to ensure a high level of quality. In addition, protection of private information and the security of electronic banking will be key areas of concern for the FSS in 2012.

Cho Young-je is deputy governor of the Financial Supervisory Service.