[1mm Finance Talk] From In-House Loans to Bank CEOs... Unrestrained Remarks from the FSS Governor

Hints at Regulating Internal Loans at Non-Financial Firms and Bank CEO Governance
Personal Opinion Claimed, But Timing and Content Deemed Inappropriate
Procedural Concerns Raised ... "Policy Coordination With the Financial Services Commission Ne

Lee Chanjin, Governor of the Financial Supervisory Service (FSS), has repeatedly delivered messages advocating for the expansion of supervision and regulation beyond financial holding companies, banks, and securities firms to include non-financial general corporations, heightening tension across the industry. In the financial sector, concerns have emerged that such statements—issued without sufficient coordination with the Financial Services Commission (FSC), the primary authority overseeing financial policy—are adding to market confusion.

Intervening in Labor-Management Agreements of Non-Financial Firms? ... Claims of Overreach and FSC Bypassing Controversy

According to the financial sector on July 6, since his first press conference in early January, Governor Lee has proactively expressed his personal views on key issues across the financial holding, securities, and banking sectors.

The most controversial point was his suggestion that corporate in-house loans at non-financial firms should be included in the Debt Service Ratio (DSR) regulation. Although Governor Lee prefaced the remarks as his personal opinion, criticism has arisen that publicly discussing this issue without prior coordination with the FSC—the government body responsible for policy implementation—was inappropriate.

In-house loans are typically part of employee welfare plans agreed upon between labor and management. For this reason, critics argue that the head of the financial supervisory authority referring to such internal welfare systems at private companies as regulatory targets constitutes an overreach of authority. Even considering concerns about rising housing prices in the Seoul metropolitan area, many believe it is inappropriate for the regulator to directly restrict matters that are the result of private labor-management negotiations.

There are also arguments that this statement does not align with the original intent of the DSR system. The DSR regulation was introduced to prevent the deterioration of financial companies' soundness and to stop borrowers with excessive debt relative to income from defaulting on financial obligations. In the case of employees at large corporations such as Samsung Electronics and SK hynix, they are often classified as low-risk borrowers. Thus, including non-financial manufacturers under the guise of household debt management is viewed as excessive.

A senior industry official stated, "Given the serious market conditions, it is understandable for the head of the supervisory authority to make public statements seeking cooperation from the business community. However, issuing statements that appear to pressure private companies requires careful consideration."

Targeting Bank CEOs for Governance Reform ... "Statements Out of Touch with Reality"

Controversy also continues in the financial sector over the mention of commercial bank CEOs as targets for the government’s financial company governance reform. The bank CEOs Governor Lee referenced as having terms ending this year include Lee Hwanju of KB Kookmin Bank, Jeong Sanghyuk of Shinhan Bank, Lee Hosung of Hana Bank, Jeong Jinwan of Woori Bank, and Kang Taeyoung of NH Nonghyup Bank—the heads of the five major banks.

The main targets of governance reform in the financial sector have historically been the chairpersons and outside directors of banking holding companies, known as "ownerless companies" and often criticized for repeated long-term reappointments. When President Lee Jaemyung raised the need for reform earlier this year by mentioning a "corrupt inner circle," the industry consensus was that non-banking financial groups or individual bank CEOs were not directly mentioned as targets.

In particular, it is rare for bank CEOs to serve longer than six years, the typical term for holding company chairpersons. For this reason, many have argued that there is little need for strict regulation through separate laws or systems. However, after Governor Lee’s remarks, there is growing speculation that the scope of regulatory discussion may expand to include bank CEOs as well.

An industry official commented, "It is unrealistic to revise the system on the assumption that bank CEOs—who rarely even complete three-year terms—would serve more than six years. Even revising the rules on reappointment of holding company chairpersons is difficult; if the discussion expands to bank CEOs, it could weaken policy momentum and make coordination even more challenging."

"Are We Next?" ... Growing Burden Across the Financial Sector

Within the financial sector, there are rising complaints that the FSS Governor’s strong statements are dampening business operations and increasing the workload required to align with regulatory stances. As Governor Lee’s remarks have touched on issues across financial holding companies, securities, and banking, other industries—such as insurance, credit card, capital, savings banks, and virtual assets—that have not yet been directly mentioned are also closely watching for future supervisory messages.

For example, one insurance company has reportedly begun internal reviews to prepare for the possibility that major issues—such as re-examining insurance payouts for cataract patients or the non-payment problems of fifth-generation indemnity insurance, which could lead to civil complaints and disputes—might be publicly raised by the FSS Governor.

An insurance industry official stated, "There are plenty of issues the supervisory authority could raise, including regulations on corporate insurance agency (GA) commissions, insurance switching, and non-payment of insurance claims. In the field, there is greater pressure from regulatory guidance and analyzing/responding to the FSS Governor’s statements than from product development or sales."

A credit card industry official added, "If the FSS Governor speaks on a particular issue before an official announcement from the FSC—the policy control tower—our public affairs team must separately confirm the facts with the FSC. On matters of common industry concern, we need coordinated messages from relevant institutions."

There are also concerns that repeated controversies over overreach could undermine the authority and credibility of the FSS. A financial industry official noted, "Even if the FSS Governor clarifies that these are only personal opinions, if he continues to make unrefined remarks on sensitive macro policies—such as in-house loans at non-financial firms or governance reforms involving the Presidential Office—the market may treat them as de facto guidelines. This could ultimately weaken the FSS’s own credibility and authority."

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