South Korea’s savings funds may come under direct supervision of the country’s top financial watchdog as the Financial Services Commission (FSC) is seeking parliamentary approval for a revised bill to scrutinize their financial strength.
The revised bill passed a cabinet meeting on May 2 and will be submitted to National Assembly this month, the FSC said in a statement.
The regulatory move reflects concerns about lax controls of the country’s 76 savings funds, including Korean Teachers’ Credit Union (KTCU) and Military Mutual Aid Association (MMAA), which are growing fast in assets.
Those savings funds sell insurance, retirement savings and loan products to their members only, offering higher yields than financial services firms.
But they are under the control only by respective ministries: KTCU by the education ministry; MMAA by the defense ministry; Police Mutual Aid Association by the home affairs ministry; and National Federation of Fisheries Cooperatives by the fisheries ministry.
“Most of savings funds are left in a blind spot of regulators,” said the FSC source. “As the size of savings funds is increasing, their financial problems, if any, will have a significant impact on the entire economy and financial system.”
In comparison, Korea Post’s insurance unit and Community Credit Cooperatives are under the same regulations as private insurance companies, regarding risk-based capital ratio, reserve requirements and annual reporting of financial results.
The draft revision will provide a legal basis for the FSC to require detailed documents from saving funds to review and supervise their financial soundness.
However, it remains uncertain whether the National Assembly will pass the revised bill which may provoke opposition from the retirement funds and related ministries.
“The key is in the hands of the incoming government,” said a financial industry source, referring to the country’s presidential election due on May 9.
By Tae Myung Lee
<Edited by Yeonhee Kim>