Internet banks given grace period for financial soundness requirements

Financial authorities have decided to give a three-year grace period to the nation‘s first Internet-only banks to meet financial soundness requirements in a move to nurture the new financial industry.

The Financial Services Commission said Tuesday that the Internet-only banks will face lower financial soundness requirements compared to their brick-and-mortar peers.

The grace period, which will end in 2019, aims at giving the new banks time to lodge themselves in the financial market that is already dominated by the brick-and-mortar banks.

An Internet-only bank, the first of which will launch in the first half of next year, is a bank that operates online branches only. Internet-only banks can offer the same financial services as other brick-and-mortar banks, including deposits, lending, credit card issuance and even foreign exchange transactions.

Earlier this year, the regulator revealed plans to approve one or two Internet-only banks, citing financial soundness reasons.

The FSC’s regulations on their financial soundness will be implemented the same as their off-line peers after the grace period ends.

Besides financial soundness requirements, the FSC’s grace period for Internet-only banks also applies to the latest global capital adequacy rules of the Basel III framework, an initiative by the Bank of International Settlements.

The latest Basel III regulations include the new liquidity coverage ratio requirement, enforced from this year. The BIS implemented a stronger LCR requirement to have banks prepare themselves for large net cash outflows at any time by holding sufficient liquid assets.

From 2017, the Internet-only banks will be subject to 70 percent of the LCR requirements. Then in 2019, the Internet-only banks will be 100 percent subject to the LCR requirements.

The FSC said the launch of Internet-based banks is part of the government-led deregulation of the financial industries, a measure to boost Korean financial players’ market competitiveness at home and overseas. The Internet-based banks are set to embrace fast-growing financial technologies for the future engine growth of the Korean financial industries.

By Chung Joo-won (joowonc@heraldcorp.com)