FSC signed MOU with Federal Financial Markets Service of Russia

Source. Financial Service Commission (FSC)

Vladimir milovidov, the chairman of Federal Financial Markets Service of Russia had visited Seoul with the president of Russia, Dmitry Medvedev to participate in G20 Summit. The president of Federal Financial Market Service of Russia had met Dong-Soo Chin, the chairman of Financial Service Commission of Korea and concluded MOU (Memorandum of Understanding) in 10th of November, 2010. Under the MOU, both authorities would collaborate for inspecting and preventing illegal financial activities in stock market through cooperation and information sharing.

Summary of the partner, Russia

Russia is one of the emerging markets, so called BRICs (Brazil, Russia, India and China). This country has been rapidly developed after collapse of Soviet Union in 1991 by introducing market oriented economy system into the country. Though Russia had hard time during economy crisis in the end of 90’ and 2008, the economy of the country has been improved dramatically based on growing export of products from agricultural and energy industry. Through growth of natural resources industries, the country is now highlighted in the world market as brightly emerging country.

Korea’s economic relationship with Russia

Economy transaction between private companies had enlarged rapidly by year (except 2009, the year after global economy crisis). Russia have become 8th large economy transaction partner of Korea in 2007 and 2008. Comparing to 2004, it is great change and progress. Mostly, transaction had been done between electronic and auto mobile products of Korea and natural resources from Russia. In other words, both countries are quite dependent on each other in economy aspect.

Table 2. Proportion of Korean exports and exports ranking to Russia


Though private economy transaction has been grown up fast, it has been known that the both don’t have strong connection in government sectors especially financial service area. As world capital market is recognized one combined market, there have been concerns about the way to keep capital transaction within the countries transparent through each authorities’ collaboration.

Details of MOU

The MOU is considered that it has made the new prospects on economy relationship between Korea and Russia. The MOU is quite meaningful since it makes fundamental factors that can lead both economy markets more transparent and sound than ever.

The MOU’s main objective is to share information on both economies, especially on the stock exchange and financial market. In other words, both authorities would exchange their knowledge and experience by sharing information. Based on the MOU, Korea and Russia would be able to prevent markets from illegal market activities such as trials to rig the market and inside trading.

Conclusion

Even though the MOU between Russia and Korea is not legally settled, it is significant since it has improved cooperation within government sectors in earnest unlike the past when collaboration mostly had been achieved within private sectors of the both. Furthermore, the MOU can be considered a new foothold for Korean government to broaden and widen cooperative relation with other countries particularly developing countries such as BRICs in financial area.

Kyoungmin Kim (k.kim@live.nl)

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Financial Stability Board’s strong outreach in Global Financial resilience is expected

Korea will be the first emerging economy to host the Financial Stability Board meeting on the 20th of October, 2010. In its third plenary meeting in Basel, Switzerland, the board decided to have the fourth event in Seoul before the G20 summit. Since Korea is also the chair country of upcoming G20 forum, a Financial Services Commission official said that Korea will be able to take the lead in reforming the financial framework.

 The Financial Stability Board (FSB) was established in April 2009 as the successor to the Financial Stability Forum (FSF). The FSF was founded in 1999 by the G7 Finance Ministers and Central Bank Governors to promote stability in the international financial system. Yet, among the leaders of G20 countries, there had been a broad consensus on stronger institutional ground with an expanded membership. And this movement resulted in the creation of FSB, an extended form of FSF. In an attempt to strengthen its effectiveness, financial authorities from the G20 nations, international financial institutions and several global standard setting bodies joined the FSB as the new members. The FSB performs the initiative role to develop and implement strong regulatory, supervisory and other policies in pursuit of financial stability. 

 As a member of FSB, Korea, especially the Bank of Korea and Financial Services Commission came to have an even more crucial role. FSC is involved in FSB Steering Committee which provides operational guidance and sets the agenda in general. So FSC has been trying to boost regular meetings among the FSB leaders and to continue active discussions. One of them was the financial reform conference called “Envisioning a New Financial System: An Emerging Market Perspective” which Dong-Soo Chin, the chairman of FSC held on Sep.2 in Seoul. The conference called attention to the increasing impact of emerging markets to the world economy, paving the way for more balanced participation of emerging countries in the global finance sector.

 

 

(Sep.2th Korea-FSB Financial Reform Conference, taken from Herald Media)

In fact, a decade ago, Korea felt the tremendous pain due to 1997 Asian Financial Crisis. In the wake of 1997 crisis, Korea had no choice but to strongly restructure corporate and financial field, dealing with long-neglected structural problems hidden behind rapid growth. Passing a time of economic revitalization and renewal, Korea learned valuable lessons and now, it is positioned as one of the competitive global economies. This unique experience enables Korea to serve as a potential broker that can bridge the gap between the emerging and the advanced markets.

 Sharing Korea’s pre-experience and know-how, particularly on financial regulation reform, perspectives of emerging economies can be brought into the global reform process. Many experts admit that Asia will be the engine of future global economic growth. In order to make the emerging markets less vulnerable to external shocks, global financial safety net is strongly required and in this sense, international standards will help them free from poor financial infrastructure.

 Currently, a lot of critical financial agenda are on the FSB table. For instance, to enhance transparency among market participants, prudent oversight of capital, liquidity, leverage and risk management is necessary. Along with Basel III, which delineates the rate of bank capital buffer, Bank Levy is considered a possible measure to increase banks’ crisis management capability, although the feasibility of the proposal still remains to be seen. Furthermore, efforts to reduce systemic risk generated by interconnectedness among financial institutions worldwide led to global coordination to devise measures that cover broader range of financial markets and instruments. Systemically important financial institutions will be strictly monitored and the size of “shadow banking” such as hedge funds and off-balance sheet entities will be shrunk. New international controlling standards on hedge funds will emerge and Central Counter Parties will be installed for over-the-counter (OTC) derivatives. In addition, more standardized forms of OTC products will be used and regulation on credit rating agencies will be intensified. 

                                                                                               (Picture from the Korea Times)

The FSB will take up a vital role of making these regulatory reform recommendations to the G20 summit. Once a certain regulatory reform is approved and adopted through the Financial Stability Board and G20 forum, those international standards are to be implemented by each country. Throughout this highly critical process, Korea is anticipated to undertake a number of initiatives to assess each regulation across sectors, identify regulatory gaps and examine related issues, and reflect emerging Asian market perspective. Gearing up for the G20 summit, FSB activities are an important step in facilitating G20 reform agenda. Everyone hopes to see successful outcome from the impending FSB meeting in Seoul.

Lee, Ki Yeon (kiyeon.m.lee@gmail.com)