Gov’t to ease banking lawInternet-based companies such as Naver and DaumKakao will soon be able to start banking businesses as the Korean financial authority is planning to ease a regulation that bans large corporations from owning financial subsidiaries.
The move is being made in order to introduce direct banking to the country as part of efforts to materialize the so-called “fintech” - or financial technology - market.
Currently, the nation’s banking industry law bans non-financial companies with more than 2 trillion won ($1.8 billion) in assets from owning any financial subsidiaries.
The ban was first adopted in 1983 with the aim of restricting large corporations from getting into the financial business out of fears that Korea’s family-owned conglomerates would take advantage of their dealings in the market for personal use.
Non-financial businesses can hold a maximum 4 percent stake in financial companies or banks, according to the current law.
Yim Jong-yong, chairman of the Financial Service Commission (FSC), showed a clear intention to ease the ban at a seminar hosted by the Korea Institute of Finance (KIF) and Korea Federation of Banks on Thursday.
“There needs to be a review of regulations that have separated industrial capital from bank capital,” the FSC chairman said. “This will be the third time that the government attempts to review the law, and I hope this will be the last.”
Yim has been a strong advocate for deregulating the financial industry, saying that old rules should be revised in order to allow businesses from various sectors play in the financial market. He believes this is an important way to promote the competitiveness of the financial sector, whose growth has been stalled for years.
“The current banking law prohibits not only chaebol but also small non-financial companies,” said Cho Jeong-rai, a lawyer at BKL. “The law should be revised in a manner that strictly restricts conglomerates further while loosening the ban on smaller entities by raising the asset ceiling from the current 2 trillion won to 5 trillion won.”
Fintech is one of Yim’s top priorities for his two-year term as the financial chief.
It is not the first time that the Korean government has tried to introduce direct banking in the country. Conglomerates such as Lotte and SK and IT firms like AhnLab once made attempts to co-establish the so-called “V-banks,” meaning virtual banks, in 2002. But the attempts failed due to the banking law as well as the real-name transaction law that requires traders - whether individuals or companies - to appear in person when making any initial financial transactions.
Korea, which is known as an IT powerhouse, is way behind in terms of direct banking via Internet and mobile channels that need no face-to-face encounters. In 1995, the United States allowed the establishment of direct banks such as Charles Schwab Bank and Ally Bank, and the United Kingdom and Japan followed its lead.
At the seminar, the KIF unveiled issues to talk about before the government starts formulating policy measures and revising related laws. These included easing the banking law, which it has discussed with the government for the past three months. The FSC will come up with the final plan on direct banking in June.
According to experts and officials involved in the discussion, the financial authority is currently considering lifting the ban exclusively for IT companies. If IT businesses establish direct banks they will be able to provide the same services as offline banks do now, ranging from receiving deposits to lending loans to issuing bonds.
The minimum amount of capital required for launching a direct bank will be between 50 billion won and 100 billion won.
The authority is also taking into account the idea of raising the maximum stake percentage allowed to be held by those non-financial corporations from 4 percent to 30 percent.
“To encourage businesses’ participation, the authority is mulling over the minimum capital requirement,” said Lee Yoon-soo, director at the FSC.
BY SONG SU-HYUN [firstname.lastname@example.org]