South Korea's Financial Supervisory Service on March 17 urged executives at comprehensive financial investment companies to check their risk-management systems amid market volatility.

The watchdog held a meeting on the day with chief financial officers and chief risk officers from 10 such firms to discuss key risk issues.

Seo Jae-wan (서재완), an assistant governor at the FSS, urged pre-emptive preparations, saying market indicators such as oil prices were swinging sharply due to the situation in the Middle East and firms must not become absorbed only in pursuing returns and neglect risk management.

He said firms should conduct realistic stress tests to prepare for market changes and check whether contingency plans were working properly, including reviews of liquidity risk-management systems related to margin calls on equity-linked securities.

He also urged them to strengthen internal controls to prevent mis-selling of high-risk products.

He stressed the need to upgrade liquidity-management systems as funding raised through short-term notes and integrated management accounts expands, potentially worsening maturity mismatches between funding and asset management.

He said internal control systems and screening capabilities should also be strengthened as the scale of corporate credit provision is growing rapidly.

The FSS said it will draw up best-practice guidelines on corporate credit provision to strengthen risk-management capabilities at the firms.

It said impaired loans from real estate project financing should be reduced through measures such as proactive write-offs, and it plans on-site inspections of progress in cutting bad loans.

It also told firms to identify early signs of deterioration in overseas investment assets and reflect expected losses in financial statements in a timely manner.

An FSS official said it plans to continuously check the soundness and liquidity risks of securities firms, including the investment banks, and actively identify and manage potential risk factors to respond to growing uncertainty in capital markets.