Basic direction of financial regulatory reform and entry deregulation

1. Basic direction of financial regulatory reform and entry deregulation

2. Ⅰ. The current status of major tasks Ⅱ. Three main principles of financial regulatory reform Ⅲ. Financial regulatory reform achievements Ⅳ. Future tasks to create new market and new industry V . Future milestone Contents

3. Ⅰ. The current status of major tasks

4. 1. Major achievements for each tasks ‘New Start 2008’(Plans to help low-income people ) Plans are currently under implementation according to schedule after the announcement Privatization of KDB • Financialregulatory reform(A thorough study on all regulations) Complete the study and make a financial announcement in July Commence services on July 1st Online  One Stop system set up Supervision behavior improvement (Implicit regulation) Prepared improvement measures and some measures are now being implemented. Easing of bank ownership Have a final report at the next meeting Improving of non-banking holding company system

5. Ⅱ.Three main principles of financial regulatory reform

6. 2. Three main principles of financial regulatory reform (Principle two) Striking balance between financial innovation and market stability (Principle three) Aligning financial regulations with global standards • Easier entry and liquidation of a company • Create new industry and new market • Principle-based regulation • Negative regulation • Balancing between financial innovation and market stability with adequate regulation • Strengthening of supervision capacity (Principle one) Heightening of competitiveness through market competition

7. Ⅲ. Financial regulatory reform achievements

8. 1. Progress reports based on the study of all financial regulations and financial customer demands Status reports on the study of all financial regulations and deregulation Deregulation by sector 3.26 ~5.7 41 122 Study on all regulations by the FSC(About 1,300 cases) National competitiveness strengthening committee (477 cases) 13 `Private sector-led examination of regulations whether certain regulations need to stay in effect (421 major regulations) 15 4.22 ~7 42 Lessening or abolishing 122 regulations among 421 regulations(29.0%) 11 Present Total Entry/ ownership Corporate governance Business Scope Products/ sales Asset Management

9. 1. Progress reports based on the study of all financial regulations Progress reports based on the study of all financial regulations

10. 2. Major improvements: reduction of corporate burden Points at issue Present Improvements List of companies for external audit (Listed/unlisted companies with more than $7 billion of assets) Application since 1998(The number of companies on the list more than doubled) 18,074개 10 bil won 3,600Companies Around a $50 billion cut 3,600 Companies 7 bil won 18,074개 Mandatory Internal accounting control system (Listed/unlisted companies with assets more than $7 billion) Applicable only to listed companies in the U.S. and Japan 10 bil won 15,000Companies Around a $150 billion cut 15,000 Companies 7 bil won

11. 3.Major improvements: reduction of corporate burden(Continued from the previous page) • Abolition of combined financial statements taking account of global standards Consolidated financial statements and combined financial statements • Taking into account of various factors including debt ratio of less than 200% Uniform requirements for financial soundness of financial companies’ large shareholders 자산운용사의 계열회사 주식취득 자산운용사의 계열회사 주식취득 동일 대기업집단 소속 금융회사의 PEF 출자한도 동일 대기업집단 소속 금융회사의 PEF 출자한도

12. 2. Major improvements: (2) Reduction of financial companies’ burden Improvements and expected results • Scope of asset management companies for standing audit • : More than 1 trillion won of working assets  3 trillion won Exclusion Inclusion 9 Companies 22 Companies 13 Companies • Around a 300 million won cut for each company • (About 6% level of operating profit at the end of 2007 for those 9 companies ) • Diverse investor protection measuresare in place even though standing audit system is abolished.

13. 2. Major improvements: (3) Increased interest of financial customers • Customer protection and market stability • Enhanced customer convenience • Require customer’s assent for the use of personal credit information • Ban on the transfer of customer information obtained by foreign bank branches in the nation Allow the issuance of card in partnership between securities companies and credit card companies Increased interest of financial customers and enhanced market stability ***증권 CMA Increase the number of ways to raise difficulties regarding the usage of cards: In writing By telephone, internet • *This was suggested to be deregulated but was decided to stay in effect. • Shift to negative system in terms of the scope of card payment Ban on the immediate issuance and sale of credit card on the street

14. 3. Online·One-stop service system Online Offline Combined service center for civil affairs regarding financial services ※ FSC+ FSS e – Financial services system ※ Licensing, authorization, registration, authoritative interpretation, civil petitions regarding financial services, information disclosure One-stop service center Services exclusively for licensing, authorization, authoritative interpretation RM(Helper for licensing and authorization process)

15. 3. 온라인 원스톱 민원처리시스템 구축

29. 4. Financial supervision behavior improvement Prepare measures to ease implicit regulations Operate Ombusman system Administrative guidance and sunset clause Prepare legal basis for prohibiting implicit regulations Upgrade transparency Put OnlineOne Stop Service into service Activate No-action letter system Improve sanction-oriented examination practice • Sanctions against violation of regulations • Improve system • Reinforce risk management and management consulting Delegate authority and provide incentives Strengthen self-regulation system in each industry Grant incentives to excellent employees

30. With successful regulatory reform, the government aims to rank within the top 20 during the presidential term and within the top 10 within 10 years Market participants have high expectations on the government’s regulatory reform 5. Satisfaction level and expected results for financial regulatory reform Enhancing the competitiveness of the Korean financial industry Satisfaction level *FSS(‘08.6) IMD 금융경쟁력 순위 IMD 금융경쟁력 순위 Unsatisfactory 11% 10위 Very satisfactory 34% 20위 Average 17% 10위 20위 31위 40위 37위 38위 40위 31위 37위 40위 Satisfactory, 37% 38위 40위

31. Ⅳ.Future tasks to create new market and new industry

32. 1. Entry policy directions for each industry in the financial sector Entry policies for each financial industries in the future Diversify authorization requirements (prepare groundwork for creation of internet banking) 은행Bank Easing of bank ownership (Align regulations with global standaards) 보험Insurance Expand business scope (Use add-on style) Allow new entrants without limit (Especially monoline insurance company) Allow new entrants without limit Loosen regulations on entry Securities and asset management

33. Financial company: concentrate on product development ⟶ promote good quality product development • Customer: can compare products and make purchase through one-stop shopping • Prepare the Act on the financial business of selling wide-ranging financial products until the first half of 2009 • Submit the bill to the National Assembly by the end of 2009 2. Regulatory reform to nurture new industry: (1) Financial business in dealing with wide-ranging financial products Financial business operator in dealing with various financial products Credit card Bank Insurance Asset management Recruiter Agency Distributor Branch office … CustomerCustomer Effects Future plan

34. 2. Regulatory reform to foster new industry: (2) Customer financing industry • Increase the supply of financial services to ordinary citizens • Raise customers’ accessibility to high quality financial services • Prevent damages from private loan • - High interest rate • - Illegal collection • - Lack of supervision Reform 기대효과Expected results Present Specialized credit financial business act Credit card Credit card Lease • Customer financing • Ease sales regulation such as expanding the ratio of loan business • Strengthen soundness supervision and customer protection • Prevent damages from private loan • Fortify supervision of financial supervisory authorities Installment finance Companies with new technoligies The loancompany act Blue-chip and sound loan company Finalize the plan to introduce customer financing within this year

35. 3. Regulatory reform to create new market: Shopless internet banks Shopless internet bank: banks providing most of financial services through electronic media of a few sales center or exclusively through online • Allow as much financial services as possible to be able to choose diverse sales strategies • Allow the amount of capital lower than the current banks capital of 50 billion won Shopless Internet banks • Provide customer services such as allowing customers to raise difficulties not only through writing but also by telephone and email. Emergence of diverse financial products through shopless internet Banks Enhanced customers’ interest and heightened competition in the banking sector

36. 3. Regulatory reform to create new market: (2) Bond insurance company Bond insurer: a financial guarantor and a provider of specialized financial services • Introduction plan(Ex) • Entry requirements: high credit rating(ex: international credit rating above AA • Scope of business: CB insurance, CDS(risk distribution) • Scope of guarantee: blue-chip corporate bonds Bond insurance structure Bond insurer Credit rating agency Credit assessment Guarantee Investment Corporate bond Investor Revitalize the CB market through better corporate bond credit rating -> reduction in capital funding(corporate), diversification of investment products(investor)

37. 3. Regulatory reform to create new market: (3) Merchant cash advance for small-scale businesses Merchant Cash Advance: Extend loan based on the amount of credit card sales of small-scale enterprises Credit card company Repayment of loan with part of monthly credit card payment Credit card sales Bank Bank account for credit card charges Loan based on the amount of credit card sales Small scale businesses Insure certain sales activity of small scale business and secure the repayment of loan

38. 4. Fostering of financial experts • Graduate school of finance • System of fostering financial experts with field experiences(ex: NYIF, a private provider of financial training and education) Improved organizations to nurture financial professional • Formation of communities(corporate, academia and government) to grow financial experts • Development of core standard job for the financial industry • Introduction of ‘Government certificate system’ for quality education course Improved organizations to foster financial experts Taking care of lack of financial professions(Need about 1,400 experts for the next five years) Maximize the job creation effect through development of the financial industry

39. 5. Expected results New industry New market Financial experts Next growth engine Job creation

40. V. Future milestone

41. Future milestone ‘New Start 2008’(Plans to help low-income people) Currently being implemented after the announcement Privatization of KDB Commence services in July after completing the system set up Online Onestop Service set up Supervision behavior improvement Improvement measures for supervision behavior and some are currently under implementation Financial regulatory reform(A thorough study on all regulations) Complete the study of all regulations and make a final announcement in July Easing of bank ownership Have a final report at the next meeting Improvement of non-banking holding company system Improvement of regulations on sales activity and behavior of financial companies Prepare additional improvement measures and report them at the nest meeting Measures to strengthen supervision capacity