South Korea’s financial authorities repeatedly urged local major business groups with financial units to reform their governance structure in preparation for the tighter supervision rules scheduled to take effect as early as the second half of this year.

The Financial Supervisory Service (FSS) on Wednesday held a meeting with seven conglomerates including Kyobo Life Insurance, Lotte, Mirae Asset, Samsung, Hanwha, Hyundai Motor and DB that have financial affiliates to put pressure on each group to take preemptive measures to prevent risks at individual financial units from marring the group as a whole. The meeting was led by Yoo Kwang-yeol, chief deputy of the FSS acting as the governor amid absence of leadership.

At the meeting with the conglomerates, Yoo briefed about the new rules and explained how the conglomerates could avoid shock once the new measure goes into effect. The financial watchdog believes excessive intra-group deals among affiliates could put the whole businesses in danger and it has been in concert with the government to come up with tighter financial group supervising rules that could prevent such risks.

The government plans to start inspecting each chaebol group in July to see how far along they are with the risk management ahead of the enforcement of the new oversight rules. It will also submit a new bill for comprehensive supervision on financial affiliates of large conglomerates within this year.

The financial authorities announced last month that it would revise rules to broaden the scope of eligibility scrutiny on major shareholders of financial companies. The current law only examines the largest shareholder but the new measure would expand the scope to include other majority individual shareholders.

Once the new rule takes effect, business groups should step up their efforts to prevent problems of a unit from affecting the others due to complex cross-shareholding or intra-group transactions.

By Lee Seung-yoon and Choi Mira

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