With Presidential Work Report Imminent, FSC Fails to Reach Final Decision on Governance Reform and ELS Sanctions

Key Financial Issues Delayed to Second Half of the Year

"Governance Reform Plan to Be Finalized Soon"

Uncertainty Remains over ELS Sanctions Before Work Report

Key financial regulatory issues that the authorities aimed to finalize in the first half of the year—such as sanctions against banks over the misselling of Hong Kong H Index (Hang Seng China Enterprises Index·HSCEI) equity-linked securities (ELS) and reforms to financial institution governance—have been postponed to the second half. Although the Financial Services Commission is scheduled to report to the president on July 15, ongoing discussions on major agenda items have cast doubt on whether final decisions can be made before the briefing.

According to financial authorities on July 2, the Financial Services Commission is holding last-minute discussions on major issues, including the financial sector governance reform plan and the ELS misselling sanctions, ahead of the presidential briefing tentatively scheduled for July 15.

The Commission had initially planned to announce the governance reform plan in March, but it has been postponed for several months. Similarly, the final level of sanctions for ELS misselling has not been determined for nearly five months since the Financial Supervisory Service first finalized the bank sector sanctions in February.

An official from the financial authorities stated, "Regarding the governance reform plan, we are organizing the contentious issues and expect to reach a conclusion soon," and added, "It has not yet been decided whether the announcement will be before or after the presidential briefing."

Efforts to improve financial company governance began in earnest after President Lee Jaemyung criticized the financial sector's governance as a "corrupt inner circle" during the Financial Services Commission's work report last December. The authorities have prepared a reform plan focusing on enhancing the transparency of the appointment process for financial holding company CEOs, increasing the accountability of boards of directors, and revising the performance-based compensation system. However, disagreements regarding whether to legally ban a third consecutive term for holding company chairpersons have delayed the final plan for half a year.

Another official from the financial authorities explained, "If the plan includes the restriction on three consecutive terms, it will be a mandatory legal ban rather than a revision of best practices," but emphasized, "Nothing has been finalized yet."

The sanction process for the misselling of Hong Kong H Index ELS is also still underway. The Financial Supervisory Service finalized the bank sector sanctions in February, but after the Financial Services Commission requested a review, the fine was revised from the original 1.4 trillion won to just over 600 billion won and was resubmitted to the Commission on June 12. However, ongoing discussions on certain issues mean that the agenda is still under review by the subcommittee, and it was not included in the regular meeting held the previous day. Although the Commission aims to process the agenda within this month, if it is not addressed in the remaining two regular meetings, there will be no meetings in August, making it possible that the review will be pushed to September.

The issue of selling long-term delinquent bonds, which President Lee Jaemyung pointed out, also remains unresolved. While most financial sectors, including banks, have participated in the Korea Asset Management Corporation (KAMCO)'s New Leap Fund to sell long-term delinquent bonds, participation from the private lending sector—which accounts for about 30% of the total 16.4 trillion won in target bonds—remains low. It has been reported that Hanbit Asset Management, the top company in the industry, refused to sell its bonds, leading other private lenders to postpone participation as well.

A financial sector official stated, "Key issues that the authorities expected to conclude in the first half have ultimately been postponed to the second half," and added, "Once the governance reform plan and the Hong Kong H Index ELS sanctions are finalized, progress will accelerate on major policy agendas, such as household loan management and inclusive finance."

This content was produced with the assistance of AI translation services.