Comparison of EU Capital Requirements Regulation (CRR) and South Korea’s Regulatory Framework for Banking

Introduction

This article provides a detailed comparison between the European Union’s Capital Requirements Regulation (CRR) and South Korea’s regulatory framework for banking. The comparison highlights key similarities and differences between the two frameworks, covering confidentiality and international cooperation, own funds requirements, credit risk requirements, and more.

Confidentiality and International Cooperation

The Financial Supervisory Service of South Korea (FSS Korea) has strict regulations regarding the disclosure of confidential information:

• Approval from foreign authorities: FSS Korea must seek approval from foreign authorities before disclosing confidential information.
• Professional secrecy duties: Disclosure of confidential information in breach of professional secrecy duties can lead to imprisonment, fines, and suspension of qualifications.

Own Funds Requirements

South Korea’s framework for own funds is similar to the EU’s CRR in many aspects:

• Similar requirements: Own funds requirements (4.5% CET1, 6% T1, 8% Total Capital) are similar to those of the CRR.
• CET1 composition and eligibility: CET1 composition and eligibility requirements share many features with those of the CRR.
• Adjustments and deductions: Adjustments and deductions provisions in Korean regulation share similar features to Article 32-35 CRR.

However, there are some differences:

• Conservative approach to deferred tax assets: Korean regulations have a more conservative approach towards deferred tax assets.
• Distributions of Additional Tier 1 capital: Distributions of Additional Tier 1 capital are privileged compared to CET1 holders due to dividend stoppers.

General Requirements (Section 7)

The general requirements in both frameworks cover credit, market, and operational risk:

• Own funds requirements: Own funds requirements cover credit, market, and operational risk, similar to those envisaged by the CRR.
• Prudential reporting provisions: Prudential reporting provisions in Korean regulation are similar to those in the CRR.

Credit Risk Requirements (Topic III)

Korean regulations on credit risk, credit risk mitigation, and securitization are largely equivalent to the EU framework:

• Equivalent regulations: Most of the regulations are fully aligned with the CRR provisions.
• Standardized Approach: Korean regulation includes largely the same exposure classes as in the CRR, with some exceptions where treatment is more conservative.
• IRB Approach: Framework for calculating own funds requirements using the IRB Approach is overall equivalent to that included in the CRR.

Conclusion

Overall, the comparison suggests that South Korea’s regulatory framework for banking is largely aligned with the EU’s CRR, with some differences and nuances.