'Securities Should Be
Allowed to Settle Payments'

KSRI organizes an international symposium


Former heads of foreign financial watchdog agencies shared the view that the banking community may oppose reform of the financial market, as shown by controversy over the settlement of payments, but as to the proposed integration of the Korean financial market, reform should be made for the purpose of the development of the whole market.
Foreign speakers concurred on the need for reform during an international symposium, titled "Capital Market Big Bang in Korea,"organized by Korea Securities Research Institute at the Chosun Hotel in downtown Seoul on September 13th. They included Jeffrey Carmichael, former chairman of Austrian Prudential Regulation Authority, who spoke about "Capital Market Reforms in Australia: A reflection on the Wallis Report a decade later," Andrew Sheng, ex-chairman of Hong Kong Securities and Futures Commission, who delivered his lecture about a topic, titled "Developing Financial Centers: Hong Kong's Experience," and Hideki Kanda, professor of law at University of Tokyo, who spoke about "Investment Services Legislation in Japan."Commenting on the controversy that is brewing between securities and banking industries over the function of payment settlement, speakers of the symposium maintained that invest and finance companies be given permission to settle payments.
Carmichael contended that invest and finance companies should be allowed to settle payments if they meet the requirements, saying that such uncertainties as business reductions of the banking field and instability of payment settlement did not show up following the Australian government's step, taken in 2001 to permit them payment settlement.
Sheng noted that the financial market could evolve a step forward only when investment and finance companies share the function of settling payments. He went on saying that payment settlement could have synergetic effects because the function serves as a network among financial institutions.
Appearing as the first speaker of the symposium, Carmichael introduced the Commonwealth Government of Australia's acceptance of the Report of the Financial System Inquiry (the "Wallis Report", which he said established a foundation for the Financial Services Reform Act 2001 (FSRA).
The Austrian expert said reform of the Australian financial market was made in the way transaction costs were reduced and comprehensive financial services were made available. The financial authorities took such steps as on-line transactions, consolidation and abolition of small- and medium-size funds in a bid to reduce transaction costs. In addition, he said, if any company was allowed to offer financial service, they were given permission to handle diverse financial services.
Capitalization of the securities market, which accounted for 70 percent of GDP in 1997, surged to 100 percent in 2005. Per capital indirect investment assets climbed to $33,000, the world's best, he said.
Sheng emphasized that the development of Hong Kong as an international finance center was owed to authorities'open-door policies designed to accommodate international standards, saying that the key of the success was to strengthen protection of property rights on top of enhanced liquidity and a reduction of transaction costs.
He noted that Korea has such advantages as excellent knowledge base, strong manufacturing base and world-class IT infrastructure, which could have the potential to develop the country into an economic powerhouse of Asia, but such factors as taxes and restrictions stand in the way toward development.
The speaker cited that the success of the Silicon Valley was due to roles by advanced financial institutions which have managed risks and provided capital to venture companies. He added that Asian invest and finance companies should be nurtured as the ones capable of developing creative financial products designed to provide professional analyses of risks and ensure risk management.
Kanda spoke about new investment services legislation in Japan that took effect in June.
He said the regulatory scope of the Securities Transaction Act has been expanded to solve such problems as account frauds of listed companies and illegal marketing of financial products without restrictions, and all restrictions related to the capital markets have been consolidated. nw

Choi Dosung, president of the Korea Securities Research Institute, chats with Jeffrey Carmichael, former chairman of Austrian Prudential Regulation Authority during an international symposium.