FSS shares tips with foreign firms

By Ban Young-hee

Director of Financial Supervisory Service

A channel of communication between Korea's financial supervisory authority and foreign financial companies in Korea.

A great soccer game requires a combination of good players, a stadium, spectators and referees. A good game is ensured not by the number of whistles blown but how well referees implement the rules of the game.

When players believe that the game's officiating is fair, they can concentrate wholly on the game itself without resorting to unnecessary confrontation.

The financial market works in much the same way. Trust between market participants and regulatory authorities ensures a thriving market for the benefit of financial consumers.

The negative ripple effects of the 2008 global financial crisis on Korea's financial market might have been a revelation of the inherent weaknesses of the domestic financial system. However, the real culprit was higher volatility caused by an asymmetry of information both in and outside the market.

Certain media outlets said Korea was more likely to experience a financial crisis than Pakistan, while international credit-rating agencies expressed concerns using overblown statistics on Korea's financial and economic conditions.

Amid rising negative sentiments toward and suspicions about the market, the Financial Supervisory Service prioritized the presentation of an accurate assessment of the market and resolving the lack of information on the Korean supervisory and regulatory system.

In response to changing market needs, Fn Hub Korea launched the FSS SPEAKS conference in 2009. The annual event is a forum where foreign financial companies and foreign media in Korea can hear from the FSS governor and senior executives about the financial watchdog's initiatives and priorities in supervision.

The conference has benchmarked SEC SPEAKS, which is jointly hosted by the U.S. Securities and Exchange Commission and the Practicing Law Institute to establish market-friendly policies and minimize enforcement errors.

The third edition of FSS Speaks held on April 12, 2011 was attended by approximately 300 participants, including CEOs and senior managers from foreign financial companies in Korea and senior executives from their Asia-Pacific headquarters, foreign correspondents, and representatives of international credit-rating companies.

This year, the FSS made presentations on key enforcement policies, the latest updates on the Korean economy and financial market, and major supervisory issues by sector. The FSS staff also listened to difficulties and recommendations from market participants.

For example, foreign banks asked about how they can strengthen their compliance and internal control as some had been found by the FSS to have issues in these areas. Instead of just using the regulations of their head office in English, the FSS asked companies to complement their compliance monitoring manuals and internal control standards with Korean regulations and make them available in Korean for reference by all staff and to strengthen internal control of dealing rooms.

In the insurance sector, questions were raised about how the move from “file & use/use & file” to “file & use/no-file” under the revised Insurance Business Act would affect FSS inspection of insurance products.

FSS explained that file & use products would be screened for any violation of the Principles for Preparing and Changing Basic Documents (Article 128-3 of the Insurance Business Act) and the Principles for Calculating Premium Rates (Article 129 of the Act) before they go on sale. As for no-file products, which are more prone to questionable selling, FSS explained that some products will be selected for intensive review every quarter to prevent customer losses.

Participants lauded the event as being very helpful in discussing key topics of interest for foreign financial institutions, such as issues raised during inspections, while enhancing their understanding of the direction of FSS supervision. Based on this success, FSS SPEAKS is growing into an important channel of communication between financial players and supervisory authorities.

Fn Hub Korea systematically keeps track of the difficulties and recommendations raised by foreign financial companies on its database and communicates with FSS departments in charge to offer prompt feedback to companies. To foster Korea as a global financial hub of Asia, the center will adjust market regulations deemed irrational or inconvenient and maintain close dialogue with CEOs and business organizations like the European Union Chamber of Commerce in Korea and the American Chamber of Commerce in Korea.

American automotive pioneer Henry Ford once said "Coming together is a beginning. Keeping together is progress. Working together is success." Fn Hub Korea is hoping that FSS SPEAKS will further develop and expand into a venue for all financial market participants to gather and maintain a relationship of mutual cooperation, and actively engage the Korean financial market for everyone's success.

“We also ask foreign financial companies to participate not as mere guests but as key members and constituents of the Korean market and share their experience and wisdom for the benefit of the Korean financial sector,” one organizing official said.