FSS to tighten grip on holding firms

By Kang Seung-woo

Staff reporter

The nation's financial watchdog is moving to tighten its grip on local financial holding companies in a bid to ensure that the groups will manage their subsidiaries in a more transparent and effective manner.

The Financial Supervisory Service (FSS) said Tuesday that it will overhaul rules regarding the operation of financial holding companies next month in order to impose penalties on those poorly managed subsidiaries from its RFI (risk management, financial condition and impact) inspection.

RFI is an evaluation system designed to establish a responsible management by assessing a financial holding firm based on three key categories ― risk management, financial conditions and potential impact.

Under the revision, the FSS will increase the weighting of "potential impact" to 30 percent from the current 20 percent, while lowering that of the other two sectors by 5 percentage points to 35 percent apiece.

It said that the change is aimed at strengthening the appraisal of the financial groups' supervisory role on their subsidiaries.

"It is a follow-up measure after last July's financial holding company law revision expanded the scope of financial groups, which enhanced their internal control," an FSS official said.

The revision stipulates that all consignment tasks, including data processing, accounting and judicial affairs belong to the holding companies and both sides set up commanding and reporting systems.

The FSS expects to see a more efficient management of financial holding companies through the revised regulations as poor superintendence will lead to a low grade on an evaluation sheet.

RFI grades range from one to five. Those rated with four or five will be obliged to take corrective measures. In addition, if a holding company plans to include a subsidiary, it needs to receive a mark of one or two.

Currently, there are seven financial holding companies in Korea - Woori, Shinhan, Hana, KB, KDB, Standard and Charted (SC) and Korea Investment - and other than Korea Investment, they are focused on the banking business.

The regulator's move comes as more companies are trying to transform themselves into holding companies.

Most recently, Meritz Fire & Marine Insurance plans to establish South Korea's first insurance-focused holding company in November, while Citibank Korea is on the brink of becoming a financial group next month.