Fintech Issues

 

On July 22, the Financial Supervisory Service (FSS) held a meeting in Seoul in order to give an explanation of its Internet primary bank screening criteria. The meeting was attended by more than 300 persons from insurers, securities companies, IT firms, e-commerce companies, distributors, and so on, including Mirae Asset Securities, KB Financial Holdings, Shinhan Financial Group, LG CNS, DBK Partners, Daum Kakao, KT, SK Telecom, and LG U+.

“Shareholder lineup and business planning are two of the most important factors for preliminary approval,” the FSS explained, adding, “We would like to ask you to set up your plans during the remaining period in view of the fact that we are focusing on IT-finance convergence rather than commercial banks’ largest shareholder status.” A couple of companies are scheduled to be given preliminary approval in Dec. this year after the filing of applications from Sept. 30 to Oct. 1.

According to the FSS, the minimum capital requirement is 100 billion won (US$85.9 million), equivalent to the average of those of commercial banks, and Basel I is adopted with regard to capital adequacy. A liquidity coverage ratio of 70 percent is applied to preliminary approval and final approval alike. Non-financial business operators’ shareholder ratio is limited to 4 percent, but the percentage can be allowed to go up to 10 percent on the condition that the voting rights pertaining to the extra shares are waived.

The shareholding ratio of a financial business operator, which is defined as a company that has a non-financial capital ratio of less than 25 percent or total non-financial assets of less than 2 trillion won (US$1.7 billion), is limited to 10 percent, but can be increased to 100 percent by the approval of the FSS. This means that only financial business operators such as securities companies, insurers, holding companies in the banking sector, and independent banks can become the largest shareholders as of now. Companies holding insurers or financial investment firms can own the status, but they have to change into bank holding companies upon having an Internet primary bank as a subsidiary. A bank associated with a bank holding company cannot become the largest shareholder. “The government is negative about existing banks’ participation in Phase 1, and thus it is likely that non-banking sector players and IT firms will form a number of consortia,” said an industry insider.

“In a case where a financial business operator and industrial capital form a consortium together and they officially agree to exercise their voting rights together, the contracting parties are regarded as a single entity according to the Banking Act, and the consortium’s shareholding ratio is limited to 4 percent,” the FSS stressed with regard to this point. It is said that the FSS, in doing so, seeks to prevent the joint exercise of voting rights while allowing a physical coupling between industrial capital and a financial business operator.

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