Financial watchdog to strengthen control over mutual savings firms

The Financial Supervisory Service (FSS) will suspend the operations of a mutual savings and finance company (MSFC) if it loans more than its equity capital to a large shareholder.

If investors are found to have taken loans exceeding their equity capital by 10 percent more than twice, the MSFC will also be suspended.

The government will also prosecute those buying more than a 10 percent stake in an MSFC but not reporting the purchase to proper authorities.

Whistleblowers involved in such an offense will receive lighter punishment in exchange for cooperating with prosecutors, while those uninvolved will receive benefits in their status.

Chairman Lee Keun-Young of the Financial Supervisory Commission (FSC) apologized for a series of recent illegal loan scandals involving MFSCs Wednesday and announced these measures to strengthen supervision over the MSFCs.

The measures focused on strengthening punishments for large shareholders taking out illegal loans to root out the corrupt practice.

For instance, if a company capitalized at 5 billion won lends 5 billion won to a large shareholder, the company will be suspended and related people will be prosecuted. Up to now, large shareholders have been free from punishment for the reason that they were not company executives. Punitive measures will be applied to cases involving sums of less than 500 million won if they occur three times.

Investors found guilty of abusing their positions to secure funds can serve up to five years in prison and face fines of up to 50 million won. Previously, the punishment was a maximum six-month prison term and 5 million won in fines.

To prevent unqualified individuals from taking control of MSFCs, investors wanting to buy more than a 10 percent stake must report the purchase to the FSS. The measure is expected to help prevent some venture capitalists and private lenders who became rich through the recent Kosdaq market boom from taking over MSFCs.

Kim Seung-Ryun srkim@donga.com