Lee Chan-jin, governor of the Financial Supervisory Service, said a corporate governance reform plan will be released ahead of next month's announcement of KB Financial's shortlist of candidates for the next chairman. The financial authorities are currently pushing legislation to improve governance at financial holding companies. The plan is expected to include introducing a special shareholders' meeting resolution for chairman reappointment, limiting three consecutive terms, strengthening the independence of outside directors, and improving performance and compensation systems.
At a press briefing held at the Financial Supervisory Service headquarters in Seoul on the morning of the 22nd, Lee said, "I understand KB Financial plans to announce the shortlist for the next chairman on July 3, and before that the Financial Services Commission will announce a governance reform plan," adding, "Afterward, once the National Assembly's standing committees are formed, the legislative process will proceed and it is expected to be reflected in the best practice code as well." Lee continued, "We recently finalized the agenda to limit three consecutive terms for holding company chairmen, and there will be other areas that will be supplemented and strengthened."
Lee also shared his view on in-house loans, which have recently been cited as a way to circumvent lending regulations. He said, "We are reviewing whether we can link the corporate welfare domain with the financial authorities' debt service ratio (DSR) rules. However, given the limits inherent in a capitalist system, we need to review this carefully."
He added, "The FSS is not the policy authority that can lead this matter, but fundamentally we are mindful, from a public-interest perspective, that in-house loans should be regulated to some extent. The policy direction will likely depend on whether there is room, technically, to bring them under the DSR framework."
Lee reiterated a negative view on relocating the FSS to a provincial area. The FSS is currently the subject of talk about a transfer to Wonju, Gangwon Province. In March, Lee said, "In reality, the field is concentrated in Seoul and the capital area, and it would look absurd if the supervisors left the field."
On the day, Lee also said, "Wouldn't it be strange if a site supervisor on a construction site said they would leave the site and go elsewhere? Our awareness of the problem remains valid. We can exercise various kinds of imagination, but I think policy should accord with common sense."
Lee also explained the reasons for reducing the penalty surcharge related to Hong Kong equity-linked securities (ELS). He said, "Under the FSS's authority at the time, there was no way to lower the penalty surcharge below 1.4 trillion won, no matter how much we reduced it. So, when we sent the related agenda to the Financial Services Commission, we also conveyed our view that discretionary mitigation was necessary." He added, "When the penalty surcharge was first calculated, the guidelines on the Financial Consumer Protection Act were not clear. Recently, the Supreme Court ruled that during the initial guidance period after the law took effect, if efforts were made to fulfill obligations, it is difficult to deem it willful gross negligence, and that approach has been reflected."
Initially, the FSS, following the Sanctions Review Committee's discussions on the misselling of Hong Kong ELS, considered a penalty surcharge in the 4 trillion won range, but reflected the banking sector's voluntary compensation efforts and reduced it to the 2 trillion won range at the pre-notification stage, and to 1.4 trillion won at the sanctions review. After the Financial Services Commission returned the sanctions plan on May 14, requesting supplementation of certain facts and applicable laws, it was readjusted to around 600 billion won after further review. The size of the Hong Kong ELS penalty surcharge is expected to be finalized next month.
Lee also outlined plans to strengthen the response to insurance fraud, including the recently emerging issue of rehabilitation hospital paybacks. A payback is the act of returning a certain percentage of the treatment cost paid by the patient and is illegal under the Medical Service Act. Lee said, "We are in talks to establish a pan-government task force (TF) to respond to insurance fraud," adding, "As for the rehabilitation hospital issue, the National Health Insurance Service, the competent agency, is also being cooperative."
Lee also said, "As shown in the drama 'True Education,' we view gambling and illegal private lending as serious problems even within middle and high schools. Military units are no exception, and about 6,000 people are identified as subjects for debt adjustment by the Credit Counseling & Recovery Service (CCRS)," adding, "Financial education within the FSS used to be a non-core function, but it is becoming mainstream due to this trend."