Financial Crime World

Financial Sector Assessment Program (FSAP) Mission to South Korea

Strengthening Financial Supervision in Korea

The International Monetary Fund (IMF) conducted a financial sector assessment program (FSAP) mission to South Korea, resulting in 16 specific recommendations for strengthening financial supervision in the country. These recommendations aim to enhance the stability and resilience of the Korean financial system.

Recommendations for Strengthening Financial Supervision

Enhanced Group-Wide Supervision

  • Enhance group-wide supervision of banks: Ensure that supervisors have a comprehensive understanding of the banking group’s overall risk profile, including conglomerate risks.
  • Strengthen risk-based supervision of banks: Implement a risk-based approach to supervision, focusing on high-risk areas and activities.

Addressing Conglomerate Risks

  • Develop a comprehensive framework for addressing conglomerate risks: Establish clear guidelines for identifying, assessing, and mitigating conglomerate risks.
  • Improve the supervisory review process for conglomerates: Enhance the effectiveness of supervisory reviews by incorporating more stringent standards and risk assessments.

Operational Powers and Climate Risk

  • Increase operational powers to restrict the development or sale of financial products, activities, and practices causing significant investor, consumer, and depositor protection concerns: Grant supervisors the necessary powers to address emerging risks.
  • Enhance interagency cooperation on climate risk: Strengthen collaboration among agencies to better understand and manage climate-related risks.

Banking Supervision

  • Strengthen liquidity risk management in banks: Implement robust liquidity risk management practices, including regular stress testing and scenario analysis.
  • Improve capital adequacy requirements for banks: Enhance capital requirements to ensure banks maintain sufficient buffers against potential losses.
  • Enhance stress testing of banks: Conduct regular stress tests to assess banks’ ability to withstand adverse scenarios.

Transparency and Disclosure

  • Increase transparency and disclosure requirements for conglomerates: Require conglomerates to disclose more information about their operations, risks, and governance structures.
  • Improve cross-border cooperation on conglomerate supervision: Enhance collaboration with foreign regulators to ensure consistent supervision of conglomerates operating across borders.

Conduct Risks and Consumer Protection

  • Develop a framework for addressing conduct risks in the financial sector: Establish guidelines for identifying, assessing, and mitigating conduct risks.
  • Enhance consumer protection policies: Strengthen policies and practices to protect consumers from unfair or deceptive practices.

These recommendations are categorized into different time frames: continuous (C), immediate (<1 year) (I), short-term (1–2 years) (ST), medium-term (3–5 years) (MT), and long-term (>5 years) (LT). They also have varying levels of priority, ranging from High (H) to Medium (M) to Low (L).