Online-only Bank
Opening of online-only banks in South Korea has been put on hold as the Minjoo Party of Korea put a brake on the Act on Special Cases concerning Online-only Banks.
Back in October last year, the National Assembly of South Korea suggested the adoption of the special law not to impair the principle of separation between banking and commerce. Then, Financial Services Commission Chairman Yim Jong-yong accepted the proposal to give wings to it. Recently, however, Minjoo Party of Korea lawmaker Lee Hak-young, who is a Secretary of the National Policy Committee of the National Assembly, expressed his opposition to it and the enactment process is now up in the air. “Separation between banking and commerce is a principle that should not be impaired in any case,” the lawmaker remarked on February 2, continuing, “If any exception is made, banks will degenerate into private vaults of conglomerates.”
Sungkyunkwan University Law School professor Ko Dong-won echoed by saying, “Just as is the case with conglomerates and the other types of industrial capitals, ICT firms can turn banks into their own purses and the firms are highly likely to be tempted to mobilize financial resources from their banks in the case of insolvency of largest shareholders like the Tong Yang Group scandal.” The professor went on to say, “With the authorization for the establishment of a new bank absent for as long as 25 years, the special act that entails the risk of breaking the principle does not seem to be the best option and deregulation for lower entry barriers in the framework of the current Banking Act can be a better one.”
Under the circumstances, those preparing online-only banking services are at a loss as a significant increase in capital is essential for the launching of the services and what they need to do so is investment by major shareholders but the secretary’s opposition is blocking the investment.
“We have been in the fintech market for years prior to the establishment of an online-only bank and during those years we have witnessed so many delays in trying to move ahead with our fintech business in cooperation and partnership with different financial companies,” said Kakao Bank CEO Yoon Ho-young, adding, “Our purpose is not to make ill use of a private vault but to provide innovative and transparent financial services in global markets in strict compliance with every rule and regulation stipulated in the special law.”
In the meantime, some in the industry are pointing out that the high entry barriers and ownership regulations based on the principle are ironically serving the good of those with vested interests. “According to the principle, no new bank is likely to be allowed in South Korea down the road and only savings banks will be allowed in the market at best,” said an anonymous source, adding, “The National Assembly needs to look into whether the principle has deformed into a tool for protecting vested rights although there is no doubt a financial system swayed by industrial capitals should be avoided.”