Finance groups spar over trusts

A quiet battle is being fought between Korean banks and securities firms over policies regulating trusts, with banks calling on the government to give them more freedom to sell trust products on their own.

The tension goes back to Feb. 8, when the Financial Services Commission, the country’s financial regulator, said it would work with other government agencies to review policies on trust products. The commission said it would consider enacting a dedicated bill for regulating trusts, which currently fall under the Capital Market Act, in hopes of nurturing the local trust market that is lagging behind those of the United States and Japan.

The commission’s announcement sparked a heated debate between the banking industry and securities and asset management firms.

When the commission first hinted at such a move in January, Ha Yung-ku, head of the Korea Federation of Banks, said he welcomed the idea. Then on Feb. 6, Hwang Young-key, chairman of the Korea Financial Investment Association, said that domestic brokerage firms are playing on an unfair ground. “Banks should stay away from asset management, just as investment firms keep a distance from depository businesses,” Hwang said.

The feud between Hwang and Ha culminated at the end of February when Ha said, “In order for the enactment of a new trust act to not be seen as a turf war, we need to be able to share the business domain. By doing so, it will be easier for financial companies to expand their size and acquire a wider consumer base.”

The Financial Services Commission then made it clear that any discussion of unspecified money trusts was off the table since they can be “misused as a means of profit maximization and lose their original purpose.”

Unspecified money trusts refer to funds in which trustees have complete discretion over how the money is managed, as opposed to specified money trusts that give power to the trustor.

Ha called on the agency to reconsider. “The size of the overall financial market must grow to provide more variety and better-quality trust services to consumers. It’s only appropriate to include talks on unspecified money trusts during policy discussions.”

Banks in Korea were banned from selling these trust products in 2004 because the government said they lacked consumer protection. This restricted banks to specified money trusts.

Since then, most trusts are operated by securities firms and real estate trust companies, although banks are slowly gaining back ground. While the amount of trust sales by securities and rest estate trust companies rose from 306.5 trillion won ($264 billion) in December 2015 to 352.3 trillion won in September 2016, those of banks went from 288.2 trillion won to 348.1 trillion won over the same period.

“With savings and deposits at banks continuing to yield low interest, even regular customers are now on the lookout for other investment options,” said Wi Sung-ho, the new CEO of Shinhan Bank, during his inaugural press conference on Tuesday.

Wi said that Shinhan Bank has developed a business model for trusts in collaboration with Shinhan Investment, “but if we can come up with products on our own then it becomes inevitable that the bank will invigorate sales of trust products,” he said.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]