Financial holding company structure is overhauled for the first time in 13 years. The current one began to take shape back in 2001, when Woori Bank was turned into the Woori Financial Group, and has been marked by friction between bank presidents and holding company chairmen. Under the circumstances, many have doubted its role in the development of the local financial industry.
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) are planning to combine their structural improvement plans with each other to come up with measures by which local financial companies can maximize their profits. The idea is to fix the regulations limited to financial holding companies and ease the inter-company sale restrictions to boost the development of the sector.
New Matrix System on the Horizon
The FSC announced on August 11 that it is considering reviewing the role of such companies and their performance by setting up a task force. The watchdog has already commissioned a study into profit improvement and performance evaluation, and the Korea Institute of Finance (KIF) is going to submit a survey report to it by the end of September. Then, the FSC will mull over various reform measures based on the report, including a revision to the Bank Holding Act, and include them in the finance industry vision that is prepared by FSC Chairman Shin Je-yoon.
“The relations between holding companies and their subsidiaries have had great influence upon their profits and corporate governance structure,” said an official at the organization, adding, “We will guide them to reform their business practices for the sound and harmonious development of each holding company.”
In this context, the commission divides the role of such companies into manager and strategic advisor before seeking the direction which is more suitable for those corporations in Korea. “In principle, a holding company is supposed to create business strategies for the joint development of its affiliates while being in charge of financial support such as capital increase and internal control. But many holding companies in Korea have been swayed by their banks,” said the FSC. It went on, “We will look into which is more appropriate between limiting the role of holding companies to financial support with the banks in charge of strategy establishment, and giving more rights to the former.”
At the same time, it is going to check if the holding company executives holding the same positions in the subsidiaries are keeping a balance between their responsibilities and authorities. In the current matrix system, a holding company executive member heading a business unit automatically assumes a high position in the affiliate.
The financial authorities are considering repealing the business regulations between financial businesses, too. Various strategies and products are expected to be available as a barrier between the affiliates of holding companies is broken down.
The measures share the same goal with the finance industry vision. Their purpose is to seek measures for joint prosperity between not just holding companies and subsidiaries but also subsidiaries themselves for the sake of profit improvement.
“In the case of the Citigroup, the overseas corporations are split into intermediate holding companies, sub-subsidiaries, etc.” the FSC explained, continuing, “We will examine the introduction of such a system in an attempt to help local financial firms making their way abroad.”