FSC to regulate investor influence

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FSC to regulate investor influence

The owners and heirs of family-run chaebol used to wield a dynastic hold over the management of their conglomerates despite only holding a fraction of the shares.

The country’s financial regulator is looking to correct the practice as early as next year by strengthening the screening process of major shareholders at financial institutions, a move that will likely affect Lee Jae-yong, the de facto leader of Samsung.

The new measure, announced on Thursday by the Financial Services Commission, will require investors who hold significant influence and anybody affiliated with the top shareholder to take the so-called fit and proper test. Currently only the top shareholder is required to take the test.

“Holds significant influence” refers to anyone that has the right to appoint CEOs and executive directors of a company.

If key figures fail to pass the screening test that tracks embezzlement and other economic crime records, the regulator will limit their voting rights to 10 percent. If the disqualified person defies the regulation and executes more than 10 percent, the regulator could order their stake to be cut down to limit their voting rights to 10 percent.

Asked if Samsung heir Lee, who holds a 0.6 percent stake in Samsung Life Insurance, could be affected by the new regulations, Kim Tae-hyun, head of the financial policy bureau, answered “Of course.”

Kim said that the regulator will come up with other penalties in case the disqualified figure already has a small sum of shares.

“We will consider different regulations such as limiting transactions with major shareholders, alongside the disposal order,” Kim said.

The Financial Services Commission also revamped the appointment procedure of financial companies’ chief executive officers after Chairman Choi Jong-ku pointed out that the current process is designed in a way that favors the reappointment of incumbents.

The proposal will ban current CEOs from participating in the committee to select new outside directors and auditors since they will likely sway other committee members.

The nomination committee of financial companies must be two thirds outside directors to ensure independency and transparency.

Financial companies also need to set specific criteria for the top post and publish them in a public statement to ensure appointments are not affected by factors irrelevant to the figure’s performance and competency.

The set of the measures are scheduled to be amended in June and will come into effect next year at the earliest, according to Shin Jin-chang, director of the financial policy bureau at the regulator.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]
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