Refer Report

Financial authorities have decided to establish a plan to manage operational risks indirectly through financial companies to prevent the risks of non-financial companies from being transferred to finance.

As seen in the Timep incident, the aim is to prevent the risk of payment gateway companies (PGs) in regulatory blind spots from being transferred to financial institutions such as card companies.

Furthermore, we plan to review in the long term a plan for financial authorities to directly regulate even non-financial companies.

The Financial Supervisory Service announced on the 5th that it had formed a task force (TF) to strengthen financial company operational risk management, with experts and members of the banking, insurance, and card industries, and held its first meeting, chaired by Senior Vice Chairman Lee Se-hoon of the Financial Supervisory Service.

Previously, financial authorities were able to deal with various financial risks by regulating financial companies such as banks, but this is because there is recognition that new risks have emerged as the financial industry expands outside of the existing supervisory system, such as through e-commerce and fintech.

However, rather than directly regulating non-financial businesses as financial authorities manage financial institutions, this is an indirect method of ordering financial institutions linked to non-financial businesses to manage related risks.

Lee Se-hoon, Senior Vice Chairman of the Financial Supervisory Service, explained the background, saying, “There are too many blind spots that cannot be covered by the existing financial supervision framework, and their importance is growing.”

To this end, we plan to distribute and manage the responsibility for third-party risks arising from business delegation, consignment, or partnerships among executives and the board of directors.

As the risks of non-financial companies can lead to losses for financial companies through financial accidents or consumer damages, guidelines such as best practices are also being established so that financial companies can specifically set up a consignment management process.

In addition, it was decided to pursue measures to ensure that these risks are reflected in regulations on the capital ratios of financial companies.

As the financial industry has diversified due to technological advancements, the tasks for each industry are also diverse.

For card companies, it was decided to strengthen the responsibility for checking and managing online payment risks of Fiji branch offices, and for insurance companies, it was decided to expand the required capital accumulation by considering the accident risk of sales channels such as general agencies (GA).

We also check the effectiveness of operational risk management in banking, analyze the current status to determine if there are any risks in the process of entrusting or partnering with IT work, and prepare improvement measures.

To this end, the task force will prepare detailed implementation plans for each industry in the second half of the year and sequentially launch pilot operations.

The senior vice president said, “This is adding risk factors to the existing regulatory framework, such as timely corrective measures and regulations on business practices,” and added, “There are calls in the international community to directly supervise non-financial risks to some extent, so we will discuss this while adjusting our assistance accordingly.”

Reporter Jo Hae-young hycho@hani.co.kr

Source: Korean