The Financial Supervisory Service called in comprehensive financial investment companies (broker-dealers with comprehensive licenses) and stressed that they must enhance liquidity management for maturity mismatches between funding and investment in commercial paper and in integrated investment accounts (IMA). It also urged investor protection measures to prepare for the recent rise in Middle East risk, including overhauling internal control systems.
On the 17th, the Financial Supervisory Service (FSS) said it held a meeting with the chief financial officers (CFO) and chief risk officers (CRO) of 10 comprehensive financial investment companies. The meeting was arranged to discuss the companies' risk issues and to hear the industry's situation and views.
Seo Jae-wan, an assistant governor at the Financial Supervisory Service (FSS), said, "As market indicators such as oil prices are changing rapidly due to the recent situation in the Middle East, there must be no neglect of risk management by being fixated only on revenue," and emphasized, "It is time to closely examine embedded risk factors and prepare preemptively."
At the meeting, Assistant Governor Seo called for the following: ▲ strengthening risk management related to rising market volatility and investor protection ▲ continuous enhancement of the liquidity management framework ▲ improving corporate credit provision screening and internal control systems ▲ prompt resolution of delinquent real estate project financing (PF) loans ▲ stronger risk management for overseas investment assets.
The FSS noted that, to prepare for rapid market changes, firms should conduct realistic stress tests and check whether contingency plans operate effectively. It also said stronger internal controls are needed to prevent misselling related to the sale of high-risk products.
In particular, as funding for commercial paper and IMAs has recently expanded, it emphasized that liquidity management for maturity mismatches between funding and investment must be carried out systematically.
It also called for relevant internal control systems and screening capabilities in line with the rapid increase in corporate credit provision by comprehensive financial investment companies. The Financial Supervisory Service (FSS) plans to prepare "best practice standards for corporate credit provision" to strengthen the companies' risk management capabilities.
In addition, the FSS plans to strictly manage the implementation status of reducing nonperforming loans at comprehensive financial investment companies through on-site inspections, and it conveyed that they should encourage exposure reduction through active write-offs for delinquent real estate PF loans where resolution is lagging.
Assistant Governor Seo said, "As the global real estate market recovery is being delayed, we must make every effort in risk management by identifying early signs of deterioration in overseas investment assets and promptly reflecting expected losses in financial statements."
The CFOs and CROs who attended the meeting also agreed on the need to face the risks confronting the industry together and to seek joint response measures for financial market stability.
The Financial Supervisory Service (FSS) plans to continuously examine the soundness and liquidity risks of securities firms, including comprehensive financial investment companies, and to proactively identify and manage potential risk factors to respond to growing internal and external uncertainty in the capital market and sudden market shocks.