Gov¡¯t bans involvement in financial institutions

A stipulation banning the involvement of officials of financial supervisory agencies such as the Ministry of Finance and Economy and the Financial Supervisory Commission (FSC) in business affairs, loans, and management has been formulated. In addition, all requests made by the financial supervisory agencies to financial institutions for the stability of the financial market must be in official written form or through a meeting with the minutes on record.

In an attempt to alleviate the rising accusations of government involvement in financial matters, the government decided to rewrite and enact the Prime Minister's directive on Monday based on a stipulation that guarantees a level of transparency in the government's handling of financial institutions.

The new directive bans financial supervisory agencies from becoming involved in the direct management of financial institutions and strengthens measures that prevent inappropriate influence and pressure from being levied on financial institutions by government officials for loans to a third party.

Also, all requests to financial institutions for cooperation or support must be made in written form or through a recorded meeting. Although in certain emergencies a phone call seeking assistance can be made, the call must be immediately followed by a formal written document.

All employees of financial institutions will be required to report any inappropriate pressure to the Minister of the Finance and Economy or the Chairman of the Financial Supervisory Commission. Once reported, the Minister or the Chairman will be required to investigate and follow through with legal action should any irregularities be involved.

The Ministry of Finance and Economy and the Deposit Guarantee Corporation will be banned from interfering in the management of financial institutions that have been injected with government funds and can only be present during stockholders¡¯ meetings.

The new directive will be applicable to all institutions that have been vested with supervisory responsibility from such government institutions as the Ministry of Finance and Economy, the Financial Supervisory Commission and the Financial Supervisory Service (FSS), while targeting all financial institutions that have been under FSS supervision.

Kwon Soon-Hwal shkwon@donga.com