Controlling shareholders of all major South Korean financial firms will face tougher eligibility screening starting in August, the Financial Services Commission announced Tuesday.

Currently, the owners of banks and mutual savings banks alone are subject to a periodic review by the state financial watchdog of whether they are qualified to run the entities with stability.

Under the revision to the Corporate Governance Law of Financial Companies, controlling shareholders of non-banking financial institutions, such as credit card, insurance and securities firms, should also go through the eligibility review every two years.

If they are convicted of a finance-related crime within two years, for instance, the exercise of their voting rights may be restricted.

The measure is intended to reduce the so-called owner risk in the nation known for the dominance of family-owned conglomerates.

For instance, SK Group Chairman Chey Tae-won and Hanwha Group Chairman Kim Seung-youn are controlling shareholders of some financial services firms affiliated with their groups.

Regulations on outside directors will be tightened as well.

They are not allowed to work at the same financial firm for more than six years. The limit will be extended to nine years if they serve at multiple subsidiaries of a group.

Financial companies with 5 trillion won ($4.3 billion) or more in assets are mandated to introduce a performance-based pay system.

The enforcement ordinance of the new law was approved by the Cabinet earlier in the day. (Yonhap)