South Korea’s financial regulator has decided to lower the entry barriers in the financial investment industry, allowing a newly established securities company to engage in the whole range of financial investment services. A financial group will also be allowed to operate a multiple number of securities companies. Currently, a financial group can run only one securities company.
In a meeting with officials from financial agencies and sectors held at the Korea Financial Investment Association building in Yeouido, Seoul, on June 25, Financial Services Commission (FSC) Chairman Choi Jong-ku announced a set of new measures to reform the licensing system for financial companies.
These measures are intended to encourage the investment industry to play an active role in supporting innovative growth of the economy and supplying venture capital. Many experts have been pointing out that the current licensing system is complex and imposes severe strain on those seeking to run a financial company.
Currently, the regulator only allows the entry of a new securities company that can offer a limited scope of investment services. However, it will now open the “integrated securities business” to new players. An integrated securities company is licensed to offer the whole range of financial investment services instead of specific ones. Large securities companies fit this category.
The regulator will abolish a rule that had prohibited a financial group from operating more than one securities firm. A group will be allowed to set up or acquire a new securities company or spin off a unit of the existing securities company into a new brokerage.
The regulator will apply the same scope of deregulation on asset management ― no more rule that says one asset management company for one financial group. Rules will be further relaxed, enabling asset management companies to change their private equity funds into public funds with half of the current requirement for trust money.
It will also allow securities companies to enter new business areas simply by registering with the relevant authorities instead of obtaining new licenses. If the company wants to add new services in the same sector after entering the investment industry, it will only need to go through the “registration” procedure.
The FSC is planning to propose the revision of Capital Market Act to the National Assembly in the second half of this year and start implementing administrative measures which do not need statute revision from next month.
Hwang Sae-woon, a researcher at the Korea Capital Market Institute, said, “If entry barriers to brokerages are lowered, more new players will make inroads into the sector, and it will give the industry a competitive edge. It will also affect the basic trend of securities firms’ enlargement which has been driven by financial authorities.”
Securities companies have been growing in size, aligning with financial authorities’ policy. The number of large securities firms with more than 1 trillion won (US$865.05 million) of equity capital increased from 5 at the end of 2001 to 12 at the end of last year.