The Financial Supervisory Innovation Committee announced its final recommendation at the Government Complex Seoul on December 20. In this regard, the dominant view in the financial industry is that financial innovation and new financial policies will greatly regress.
The committee clearly expressed its negative view on the deregulation on the separation of banking and commerce, which is the largest issue among the internet-only banks, and the expansion of corporate financing of mega investment banks (IBs) on December 20. This is in line with the Moon Jae-in government’s financial policy that focuses on strengthening management and supervision over the financial industry as an assisted conception of the economy and the industry rather than promoting the financial industry.
Accordingly, there is growing concerns that the new financial policy, which had been aggressively pushed ahead by the former government, will significantly regress and financial authorities will strengthen its supervision and regulation on the institutional financial industry further.
The Financial Supervisory Innovation Committee said that the relaxation of regulations on the separation of banking and commerce is not the requisite for South Korea’s financial development at this point of time regarding to the approval of K bank and it should thoroughly consider the gains and the losses from the deregulation on the separation of banking and commerce. Moreover, it pointed out that K bank should not depend on the separation of banking and commerce but present its own development plans that make people understand. The committee expressed indirectly but it showed its stand against the policy that promotes internet banks.
As not only politicians but also the Financial Administration Innovation Committee have put a brake on the relaxation of regulations on the separation of banking and commerce, it is expected to be impossible to expand capital and business of internet-only banks and launch a third internet-only banks.
In regard to mega IBs, the committee also presented “guidelines” that the credit offering areas of IBs should be limited to IBs' characteristic function or startups and innovative companies. Accordingly, there are concerns that mega IB business, which is already hit by the government’s review on eligibility, will be adversely affected.
Previously, five domestic large securities companies, including Mirae Asset Daewoo, NH Investment & Securities, Korea Investment & Securities, KB Securities and Samsung Securities, were selected as mega IBs but Korea Investment & Securities is the only brokerage allowed to issue promissory notes, which is the main business.
An official from a securities firm said, “The Financial supervisory Innovation Committee’s recommendations do not allow additional business loans for mega-sized IBs. I think that the opinion of commercial banks, which have been against the launch of mega IBs, was reflected in at 99 percent.”
In particular, the committee’s recommendation regarding the improvement of mega-sized IB regulations that the credit offering areas of IBs should be limited startups and innovative companies is considered “guidelines” of the revision of Capital Market Act passed by the National Policy Committee of the National Assembly on the 1st. The revised bill limits business loans to small and mid-size companies, rather than increasing the business credit offering of total financial companies and mega IBs with equity capital of more than 3 trillion won (US$2.77 billion) from 100 percent to 200 percent.
As the Financial supervisory Innovation Committee took a negative stance against mega-sized IBs amid the government’s delayed approval, there are concerns that it will result in a loss of the momentum of mega IBs. The IB industry says that mega IBs are designed to support the innovative growth of enterprises by strengthening the business funding function of securities companies, requesting the early approval of promissory note issuance.
An official from the IB industry said, “It wouldn’t be a surprise to see shareholders take legal action when IBs fail to receive approval even after increasing their equity capital by 4 trillion won (US$3.71 billion).” Hwang Sae-woon, a researcher at the Korea Capital Market Institute, said, “There was a consensus on the directivity in the market when the mega IB policies were announced and there is no problem with the directivity itself. It is important to implement a policy with consistency even there are differing opinions related to the policy.”