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| The headquarters of the Financial Services Commission (FSC) in central Seoul / Yonhap |
Revised banking act imposes stronger obligations on lenders
By Anna J. Park
Banks will be required to attain financial regulators' approval from September, when they partially close their businesses, or sell or acquire other banks' businesses, as part of government efforts to better protect consumers, according to the Financial Services Commission (FSC) on Sunday.
The change comes with revisions to the country's Banking Act, which will take effect from Sept. 22 of this year, after a series of legislating procedures.
The country's top financial regulator made the preannouncement of the revisions to the banking law on Sunday. The revisions are aimed at preventing cases like Citibank Korea's sudden decision in late 2021 to wind down its retail business in Korea, which raised consumer protection concerns.
Under current banking law, lenders must attain approvals from financial authorities, only when they decide to close down their entire banking business in Korea. This framework did not allow financial regulators to step in on Citibank Korea's decision in 2021 to implement a partial closedown of its retail business in the country.
"During Citibank Korea's decision in 2021 to close down its retail business, the FSC could not conduct any accreditation process regarding the matter. That's because the incumbent Banking Act stipulates that lenders secure authorities' approval, only when they plan an entire closure of their banking businesses in the country," the FSC said, adding that the financial regulator could only order the U.S.-headquartered bank to detail consumer protection measures and minimize the inconveniences of the planned closure.
To prevent such a recurrence, the FSC last month revised the banking act, requiring lenders to gain approval from local financial authorities when partially closing down parts of their businesses that have been designated as "significant" in nature by executive orders.
"Acknowledging that even a partial shutdown of some significant banking businesses should earn the FSC's approval, in order to maintain orders and to prevent damages to financial integrity, the country's Banking Act was revised in March this year," the FSC explained.
These strengthened obligations for banks will be applied in cases of partial selling or buying of parts of banking businesses.
The revisions of the banking law stipulate in more detail the standards for imposition of penalties on banks when lenders violate their duties to properly report to shareholders at annual shareholders meetings.
