FSC move opens Korea to global investments

Korean brokerage firms have fallen behind in the global investment banking and wealth management industries due to the relatively strict regulations in Korea. To promote growth among brokerages, the Financial Services Commission said on Tuesday that it will enable firms with a certain amount of equity capital to operate investment management accounts.

Many analysts believe the move will help Korean firms enter into foreign markets and catch up with the brokerages of Japan, which have been successful in the global market. The regulatory change, due to go into effect next year, is the latest in a string of government efforts to bolster the country’s finance sector.

The market sizes of Korean brokerage firms are so limited that they aren’t able to participate in Line Corporation’s recent Initial Public Offering or other major global mergers and acquisitions. The local brokerages didn’t have the manpower, licenses to conduct business overseas nor the investors who were interested in such deals. The new regulation would expand their capabilities to allow investors in on IPOs and mergers and acquisitions.

“Both the government and local brokerages approached somewhat passively in entering into the foreign investment market in the past,” said Lee Hyeong-ki, a research fellow at the Korea Financial Investment Association. “I believe that the financial regulator came up with the plan at the right time that we needed and this is something very positive in my opinion.”

Line, a Tokyo-based messaging app subsidiary of Korean portal site Naver, successfully debuted on the New York and Tokyo stock exchanges last month by working with large brokerage firms such as Nomura Holdings of Japan.

Japanese government and firms worked together for more than three decades to develop the country’s investment banking industry, Lee said. “The Japanese government deregulated some of the rules that held brokerage firms back starting in the 1990s and financial institutions took risks participating in big deals overseas,” Lee said. “Experience and reputations of brokerage firms are the top two factors that matter most for clients choosing partners for doing IPOs or M&As. Japanese firms already successfully built them and this is the time for Korean brokerages to get involved in aggressively.”

According to the Korea Financial Investment Association, M&As and IPOs in Japan are dominated by Japanese firms, while in Korea, foreign brokerages handle more than 90 percent of the projects. Clients in Korea rely on foreign firms and think highly of their reputations due to the lack of Korean competitors.

“Japan took more than two to three decades to become where they are now, and I believe Korea will take less time,” Lee said. “It all depends on the global economy, but one thing that is sure is that the need for local financial institutions to take risks at first.”

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]