News Regulations09 Jul 2024

South Korea:Authorities work on medium- to long-term financial policy frameworks

| 09 Jul 2024

The financial authorities in South Korea are working on policy frameworks for future finance, based on systematic analyses intended to minimise risks and seek opportunities for growth over the medium to long term, according to the Financial Services Commission (FSC) vice chairman Kim Soyoung.

FSC plans to continue to carry out discussions on this during the second half of this year and announce more comprehensive measures at the end of this year, Mr Kim also said.

He made these remarks in a keynote speech at a policy seminar on future finance hosted by the Korea Institute of Finance and sponsored by FSC the day before. The seminar, held with the theme “Future megatrends and impending changes in the financial sector”, brought public and private sector experts together to discuss the impact of the rapidly changing demographic structure, climate change and technological advance in the financial market and ways to effectively cope with these changes.

A summary of Mr Kim’s speech is as follows:

Three subgroups have been formed to look into the issues, with each subgroup tasked to look into one of the three areas — demographic shift, climate change and technological advance. The sub-groups seek policy measures with three specific aims — mitigation, adaptation and innovation.

The “mitigation” policy is aimed at reducing the impact of impending change while slowing the pace of occurrence. The “adaptation” policy is geared toward minimising potential damage caused by the change and developing a system that can facilitate adjustments. The “innovation” policy, which is deemed to be the most important of all, intends to lay the foundation and establish regulatory frameworks to transform changing situations into new growth opportunities.

Demographics

Rising costs and slowing pace of growth pose risks to an aging society. The financial industry will need to be able to respond to the growing demand for financial services specifically designed for the elderly, such as long-term care, medical care and pension services. Financial institutions can offer products tailored to the needs of specific age groups to ensure the supply of financial products suitable for customers’ lifecycle needs.

It is important to continue to implement financial policies aimed at boosting the birth rate and the size of the working age population, such as the lending support for young adults (“mitigation” policy), alongside the measures to bolster the financial safety net for the elderly (“adaptation” policy) and broaden the availability of services targeted at old age groups (“innovation” policy).

Climate change

Businesses face the need to secure large-scale funds to deal with climate change over a long period, and the financial industry as a whole is also exposed to the risk of climate change. Since climate-related financial markets are expected to see significant growth in the future, this can open up new possibilities with vast investment opportunities.

To this end, the financial sector needs to contribute to greenhouse gas reduction and low carbon emissions. In this regard, in March this year, five policy financial institutions announced plans to supply KRW420tn ($303bn) in total to combat climate risks until 2030 (“mitigation” policy). It is also important to continue to carry out joint stress tests (with the Bank of Korea and the Financial Supervisory Service) on financial sectors to ensure prudential management (“adaptation” policy), while seeking ways to develop climate-related financial products, promote green finance and provide support for climate technologies (“innovation” policy).

Tech advance

While new technologies provide opportunities for the financial industry, there are also downside risks, such as the potential for market instability, or damage to consumer rights and interests, which also need to be taken into account.

In this regard, measures to boost accountability in the application of AI technologies, ensure data security and prevent accidents (“mitigation” policy) need to be implemented, alongside the measures to upgrade regulations on network separation and build a technological infrastructure to promote the use of big data analytics (“adaptation” policy). The financial authorities will continue to promote the use of various types of new technologies to propel the growth of the financial industry.

To make this happen, a concerted effort is required from both the private and public sectors.

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