Financial Crime World

Financial Regulatory Framework of Korea: A Comprehensive Overview

Introduction

The Financial Services Commission (FSS) of Korea has implemented a robust financial regulatory framework to ensure the stability and soundness of the country’s banking system. This article provides an overview of the key aspects of the regulatory framework, including Pillar 2 requirements, disclosure requirements, and the binding nature of prudential regulations.

Pillar 2 Framework

In January 2016, the FSS issued regulations regarding Pillar 2, which includes new requirements for banks’ internal capital adequacy assessment process (ICAAP) and the supervisory review and evaluation process (SREP). The key highlights of this framework include:

Regulatory Consistency Assessment Programme (RCAP)

  • The FSS is in the process of implementing the new Pillar 2 framework.
  • Expectations are to complete the first cycle of reviews in 2017.

Disclosure Requirements

In August 2012, the FSS issued minimum disclosure requirements for banks, covering both solo and consolidated basis disclosures. These requirements were revised and updated during the RCAP assessment in June 2016.

Key Highlights

  • Disclosure requirements ensure transparency and accountability in banking operations.
  • Revised requirements demonstrate a commitment to regulatory consistency.

Banking Regulations

Korean banking regulations comprise five main regulations:

Regulations Overview

  1. The Banking Act
  2. The Enforcement Decree of the Banking Act
  3. The Regulation on Supervision of Banking Business (RSBB)
  4. The Detailed Regulations on Supervision of Banking Business (DRSBB)
  5. The Instructions for Unified Disclosure for Financial Services (IUDFS)

Key Highlights

  • These regulations provide a comprehensive framework for banking operations.
  • Ensure that banks adhere to high standards of prudence and stability.

Binding Nature of Prudential Regulations

All Korean banks are subject to the Basel capital regulation on both a standalone and consolidated level. The FSS has authority to supervise banks and ensure they abide by the rules and regulations set by the Financial Services Commission.

Key Highlights

  • Basel capital regulation ensures that banks maintain adequate capital levels.
  • FSS supervision ensures that banks comply with regulatory requirements.