Loosening Strictures
The financial authorities are significantly easing restrictions on overseas subsidiary investment and capital support to activate overseas expansion of domestic financial companies. Consequently, domestic banks will have looser restrictions on investing in foreign non-financial companies, and insurance companies will be able to own foreign banks.
On July 17, the Financial Services Commission (FSC) held the 8th Financial Regulation Reform Meeting at the Seoul Government Complex in the Jongno district of Seoul and discussed regulatory improvement measures to facilitate the overseas expansion of financial companies.
First, the FSC is planning to significantly expand the scope of overseas subsidiaries that financial companies can own. The restrictions on investing in overseas financial and non-financial companies by banks, insurance companies, specialized credit finance companies, and fintech companies will be eased within the limits allowed by local laws overseas. This is intended to enable them to be competitive in overseas markets by diversifying their businesses to match local financial demands.
For example, a domestic specialized credit finance company that provides auto financing could expand its business channels by acquiring a rental car company overseas, or an insurance company could be permitted to own a foreign bank. It is also becoming possible for a fintech subsidiary of a financial holding company to acquire an overseas subsidiary that conducts investment advisory and asset management businesses.
The FSC is also going to ease restrictions on capital support to overseas subsidiaries. Overseas local corporations have difficulties raising funds locally due to a lack of creditworthiness and collateral in the early stages of their entry. However, they have also been limited in fundraising from domestic affiliates due to regulations on credit limits between subsidiaries under the Financial Holding Company Act. The FSC plans to alleviate these difficulties in fundraising by allowing additional credit limits (within 10% points) for a certain period through amendments to the Financial Holding Company Supervision Regulations.
In addition, the provision of collateral for subsidiaries of insurance companies will be allowed. Domestic insurance companies can provide government bonds and similar securities as collateral to local banks, and these local banks can guarantee the debt of overseas subsidiaries, enabling a substitution for operating funds through this guarantee system. Currently, insurance companies can only guarantee debt for their subsidiaries.
The FSC plans to make exceptions or exclude regulations that are inappropriate to apply to overseas branches as they are based on domestic application. Moreover, the FSC is going to overhaul the system of reporting and disclosure-related regulations so that financial companies will not have to report and disclose duplicate foreign direct investment activities. When conducting on-site inspections of overseas corporations, the FSC plans to perform audits that focus on prevention and improvement of soundness and internal control, taking into consideration local regulations and market conditions.