South Korea’s top five financial conglomerates and two other financial heavyweights will be required to ease their intra-group transactions, especially their cross-shareholding structures, according to regulators.

The Financial Services Commission on Tuesday announced a reinforced set of rules, obligating major financial companies to sell off their shares in non-financial affiliates in case such business practices may bring risks in the financial system.
 

The regulation, which came as part of the FSC’s mid-term plan to tighten its grip over financial players, involves Samsung, Hanwha, Hyundai Motor, DB and Lotte -- the five conglomerates that hold 5 trillion won ($4.7 billion) or more in assets and include financial units. The 97 affiliates of Kyobo Life Insurance and Mirae Asset are also subject to the change.

Financial authorities will also be able to monitor the capital adequacy of the companies and to recommend, when necessary, for improvement measures such as expanding capital, disposing of risk assets, and reducing internal transactions.

Should the corresponding company fail to comply, the commission may ban it from using the title “financial company,” officials added.

“The purpose is to prevent conglomerates from exploiting their financial affiliates as a ‘source of funds’ and to ensure the soundness of their financial business sectors,” said an official of the FSC.

The FSC’s plan is to put the new rules in a trial run, starting July, and submit a related bill to the parliament within the year.

By Bae Hyun-jung (tellme@heraldcorp.com)