This peer review examines two topics relevant for financial stability in Korea: the crisis management and resolution framework, and the regulation and supervision of non-bank depository institutions (NBDIs). The peer review finds that good progress has been made in recent years on both topics. The resolution framework already includes a number of the resolution powers set out in the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) and has been tested in previous crises, while reforms are underway to strengthen it further. The authorities have also taken steps to strengthen and more closely align prudential standards in the NBDI sector to those of banks, and to enhance regulatory cooperation on mutual credit cooperative (MCC) issues through the establishment of the MCC Policy Council in 2013. Recent measures relating to household debt indicate the authorities’ proactive stance in identifying emerging risks and enhancing regulation and supervision to address them.
Notwithstanding this progress, the review concludes that there is additional work to be done. The peer review report includes recommendations to the Korean authorities in order to address these issues:
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On crisis management and resolution:
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implementing, on a timely basis, planned resolution reforms to close the gaps vis-à-vis the Key Attributes with respect to recovery and resolution planning requirements as well as bail-in and temporary stay powers;
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developing triggers that facilitate early entry into resolution and permit the use of the full range of resolution tools under the framework; and
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further strengthening crisis preparedness arrangements.
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On the regulation and supervision of NBDIs:
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strengthening the role of the Financial Services Commission and the Financial Supervisory Service in the regulation and supervision of MCCs;
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enhancing MCC and mutual savings bank (MSB) prudential requirements;
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increasing the focus on MCC federations, in terms of regulatory and supervisory oversight and systemic risk analysis; and
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developing measures to proactively manage the orderly consolidation of the MCC/MSB sectors.
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