A Bid to Build a
Global Financial Center

President Lee gets reports from FSC on its plans to loosen financial regulations

The Financial Services Commission reported to President Lee Myung-bak the outline of the major policies it will undertake in the next several years during the presidential visit to the FSC March 31 as part of the annual presidential inspection of key government ministries and agencies.
Financial Services Commission Secretary-General Lim Seung-tae in his report to the Chief Executive at the FSC office in Yeouido, Seoul, touched on such key policy matters as softening the separation of industrial and financial funds and the establishment of financial holding companies to revitalize the financial industry and enhance its international competitiveness.
The secretary-general, in place of FSC commissioner Jun Kwang-woo, reported to the President that the commission will allow M&As to take place so that large financial companies would emerge. The FSC will also come up with policies to allow the emergence of a number of holding companies in the sectors of financial investment, insurance and other financial holding companies with the ultimate goal being to make Korea a regional financial center where global financial companies conduct intensive financial market activities.
As the first step for easing the separation of Industrial and Financial funds, the commission plans to take action to ease the regulations restricting private equity funds and retirement funds from holding stakes in banks from the second half of this year if possible, earlier than originally planned. At the present time, PEFs and industrial funds can only hold less than 10 percent of capital in financial companies to qualify as financial capital, but the FSC intends to expand it to more than 20 percent.
The move will make industrial funds no longer subject to the Banking Law, which limits industrial funds to holding less than 4 percent of a banks'stakes even if its investment is over 10 percent in financial institutions.
The second step of the deregulation is to increase the 4 percent limit on industrial funds invested in banks. The second move can be considered a key move compared to the first move because it touches directly on the banking regulations and the FSC could take action on both stages at the same time if a social consensus is reached. The FSC is entertaining the idea of wiping out all limitations on industrial funds'investments in banks.
The FSC plans to ease financial regulations to the extent that as many non-financial holding companies can be established as possible with the intention being to allow the emergence of new business models and global financial groups with insurance and securities firms at the center.
The FSC is also considering allowing subsidiaries of non-bank holding companies to own non-financial affiliates including manufacturing firms. For example, an insurance holding company could own a car rental firm or maintenance company.
The firewalls between non-bank holding companies and their affiliates to prevent the transfer of risks will be lower than those between bank holding companies and their affiliates, the secretary general reported.
The FSC will control the financial deals between non-banking holding companies and their non-financial affiliates in a strict manner to prevent non-banking holding companies from falling into private hands.
To achieve a balance between bank holding companies and general holding companies, the general holding companies will be allowed to have insurance and securities companies as their affiliates, which will work fine for CJ and SK Groups as they already have non-financial affiliates.
The FSC has also decided to introduce the electronic securities operation system to reduce costs and for the convenience of customers. It will revise or set up new regulations for the introduction in October this year.
The FSC will also revise the regulations for listing companies on the stock exchange so that the requirements would vary depending on the nature of the business in an effort to make the Korea Exchange an advanced one.
The FSC will also simplify the requirements for banks and other financial companies to conduct business abroad.
The FSC will set up a financial center promotion committee by the end of April and nominate financial clusters and improve living conditions for foreign expatriates and their families. nw

Sec. Gen. Lim Seung-tae of the Financial Services Commission.