South Korea’s financial authority will ease rules on “Chinese wall” for investment banks, Financial Services Commission Chairman Choi Jong-ku said on May 9.
Chinese wall is a business term meaning an information barrier within an organization, especially an investment bank, which is set up to prevent exchanges of information that could lead to conflicts of interest.
“South Korea’s rules on the Chinese wall tend to restrict a company’s autonomy in terms of organizational and personnel management as they do not take into account the size of the company and the nature of its business in prescribing the targets and the regulatory method,” Choi said at a meeting on “the revitalization of financial investment banks’ innovative finance” at the Korea Financial Investment Association's headquarters in Yeouido, Seoul, on May 9.
Choi also said, “The regulations on the Chinese wall often hinder a timely introduction of new products and services. We will improve the regulations across the board as they tend to undermine the capital market dynamics.”
Choi suggested a shift from the present method of setting up Chinese walls at investment banks based on their businesses to a new approach based on blocking data exchanges among “information units.” Under the new approach, only two types of information would be blocked among information units: “undisclosed critical information” and “information on customer asset management” which is obtained from the management and operation of customer assets. At the same time, the cases where information exchanges should be prevented will be more broadly defined to increase flexibility.
Choi added, “We will also ease regulations that ban executives of a parent company from holding an office in affiliates and abolish perfunctory regulations, including obligation of physical block.” Instead, he said the FSC will strengthen monetary sanctions by imposing a fine on financial investment companies when they use information which is restricted to distribution and cause damages on investors or disturb the market system.
The FSC has decided to allow outsourcing core businesses, which is currently banned to entrust to a third party, when companies receive approval and complete registration. In particular,it will enable them to entrust the registration, delivery, execution and confirmation of purchase and sales orders to information technology (IT) companies and change the prior reporting principle on trust business and collateral business to the post reporting principle.