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| Financial Services Commission Chairman Choi Jong-ku speaks about his plan for risk audits of local conglomerates' financial companies at a meeting in Seoul, Tuesday. Yonhap |
By Park Hyong-ki
The Financial Services Commission (FSC) will begin checking risk management systems of local conglomerates' financial subsidiaries next year, the FSC said Tuesday.
Groups such as Samsung, Hanwha, Hyundai Motor, DB, Lotte, Kyobo and Mirae Asset will face audits, it added.
This comes as FSC Chairman Choi Jong-ku said in a meeting with the financial subsidiaries of the seven groups that the regulator will extend the period of such audits on groups by another year.
This is part of efforts to manage risks and prevent potential fallout of financial subsidiaries that could ultimately affect other businesses of the groups.
"We need to pre-emptively manage risks that could affect the whole group," Choi said.
He discussed his plan with chief executives of Samsung Life Insurance, Hanwha Life Insurance, Mirae Asset Daewoo, Kyobo Life Insurance, Hyundai Capital, DB Insurance and Lotte Card.
The audits will include examining their capital base and deals with their nonfinancial affiliates. The FSC will check for any improper trading between financial subsidiaries and the groups' nonfinancial firms. Also, it will evaluate their governance.
The FSC, in coordination with the Fair Trade Commission, first introduced this audit system on local conglomerates following Tongyang Group's liquidity crisis five years ago.
The group's securities company then had underwritten bonds of its nonfinancial affiliates.
It sold those bonds to investors even though they were unfit to issue the fixed-income securities.
This ultimately led to a debt crisis of the conglomerate with five affiliates of the group filing for court receivership.
The five were Tongyang Inc., Tongyang Leisure, Tongyang International, Tongyang Cement and Energy and Tongyang Networks.
The FSC further reintroduced its audit guidelines for local conglomerates' financial subsidiaries last year.
