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Photo courtesy of Financial Services Commission |
[Alpha Biz= Kim Eun-mi] South Korea’s financial authorities plan to ease capital regulations, reducing the period during which financial groups face capital penalties related to the mis-selling of Hong Kong H-index equity-linked securities (ELS) from 10 years to three years.
At a policy meeting held on February 16, the Financial Services Commission announced a set of measures aimed at rationalizing capital regulations and expanding financial institutions’ lending capacity.
Under the new framework, financial incidents that meet certain criteria—such as having already recognized capital costs for more than three years and accounting for at least 5% of net operational risk losses—can be excluded from the calculation of risk-weighted assets (RWA). To qualify, institutions must exit the affected business or implement preventive measures, including improvements to accountability frameworks, subject to approval by the Financial Supervisory Service.
As a result, financial groups facing penalties of approximately KRW 1 trillion for the mis-selling of Hong Kong H-index ELS products are expected to see their capital burden eased after about three years.
The measures also expand RWA exclusions to include banks’ long-term overseas equity investments and retained earnings from foreign branches. The FSC took a cautious stance on introducing a stress capital buffer, noting that excessive tightening of regulations could constrain credit supply.
Regulatory relief will also extend to the insurance sector. Risk weights used in calculating solvency ratios (K-ICS) for investments in policy-driven programs will be reduced from 49% to below 20%. Eligible infrastructure investments will be broadened to include renewable energy and artificial intelligence (AI)-related facilities.
Financial authorities estimate that the measures could free up approximately KRW 98.7 trillion in funding capacity, including KRW 74.5 trillion in corporate lending by banks and KRW 24.2 trillion in infrastructure financing by insurers.
Alphabiz 김은미 인턴기자(kfootle@alphabiz.co.kr)
