April 24, 2024

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[THE INVESTOR] Financial regulators have restarted their postponed discussion to consolidate a financial supervision system, a measure aimed at spotting the potential financial risks of a group. The move is considered key in the new Moon Jae-in administration’s chaebol reform drive, by hampering cross-shareholding structures of conglomerates.

The Financial Services Commission and Financial Supervisory Service have reportedly picked up talks on ways to oversee a financial group or a conglomerate owning financial arms as a whole, instead of firm by firm.  

The regulators previously measured the financial stability of a single financial business entity, but have in some cases stopped short of gauging potential risks from intercompany funds transfers.

In 2013, Tongyang Financial Services, a financial unit of Tongyang Group, extended loans to subsidiaries under the group, while Tongyang Securities, currently known as Yuanta Securities after Taiwan-based Yuanta Financial Holdings’ takeover, sold corporate bonds and commercial papers of its debt-saddled subsidiaries.

The FSC blamed its “lack of knowledge and countermeasures on business behavior where multiple conglomerate-owned units are engaged in” for Tongyang Group‘s bankruptcy, which triggered losses of 1.3 trillion won ($1.16 billion) for some 40,000 individual investors. 

The FSC-led plan to curb such intercompany loans under a group and prevent investors from damages had unfolded in November 2013, but was removed from its report to the president in 2016, when President Park Geun-hye was in office.

The Moon administration, less than a week since taking office, is seeking to salvage plans to consolidate supervision over financial groups, following Moon’s key presidential pledge, according to the Financial Services Commission on Sunday.

When the new system is adopted, a business group would be obliged to select a financial company representing the group so the representing firm would report the financial management of the group as a whole to the regulator. 

Details on which business group would be affected have yet to materialize, but local reports see the nation’s largest Samsung Group as the “most likely target of the consolidated supervision.”

Samsung C&T, the de facto holding company of Samsung Group, holds 19.34 percent of Samsung Life Insurance, while the life insurance firm holds 7.55 percent of Samsung Electronics shares valued at some 19.1 trillion won, which reports say would be considered as “against the new regulation.”

Earlier words by chaebol reformists under Moon’s campaign team have also foretold the new government’s move to prevent a business from intervening in the financial market or vice versa.

“The market-friendly consolidation of financial oversight systems should replace the existing regulation on financial industry structure,” said Kim Sang-jo, economics professor at Hansung University and key senior economic adviser to Moon during the presidential campaign, in a seminar in February. “The current regulation failed to bring Samsung under control and at the same time curbed the growth of financial industry.”

By Son Ji-hyoung/The Korea Herald (consnow@heraldcorp.com)