Tech investments by financial firms now liberalized

Banks and other financial companies are now permitted to invest more heavily and more freely into tech companies as the regulators ease rules to encourage development in the sector.

According to the Financial Services Commission (FSC) on Wednesday, under the new guidelines, caps have been removed on investments in new technologies, including artificial intelligence, big data and Internet of Things (IoT), and procedures have been simplified.

Under the existing regulations, financial companies - such as banks and insurance companies - face strict limits on how much they can invest in areas not related to financial services.

Banks cannot own more than 15 percent in companies outside the sector, while non-bank financial companies cannot own more than 20 percent of non-financial companies. Additionally, they must receive the approval of the FSC before making the investment.

Under the new rules, the limits will be lifted and the review period will be shortened.

Currently, it takes 30 to 60 days to get the financial authority to approve an investment plan for banks investing outside of finance.

But under the new guidelines, the FSC will review proposals in under 30 days.

The FSC also said that it will apply new standards in cases where financial companies have made investments that fail. Under the current regulations, financial company executives and employees face investigation when investment losses are experienced.

Under the new guidelines, penalties could be reduced or waived depending on the level of losses and whether that damage was intentional or not.

The FSC said financial companies, including KEB Hana Bank, have requested that exemptions be applied on fintech investments as financial companies have been reluctant to aggressively invest in technologies for fear of facing blame in the event of failures.

The government hopes that the new guideline will boost investments in major fintech companies, as has been the case in other countries.

Goldman Sachs invested $13.5 million jointly with BOA Merrill Lynch in Context Relevant, which specializes in solutions based on machine learning technologies that analyze customer patterns.

The FSC noted the increasing digital transformation trend globally, with barriers between financial companies and IT companies blurring, especially with major global IT companies, including Google, Amazon, Facebook, Apple, Netflix and Alibaba, advancing into the financial services.

“[Under the new guidelines] financial companies will be able to raise customer convenience while securing platform competitiveness,” said Lee Han-jin, director at the FSC’s electronic finance division.

“Also fintech companies will see an increase of new users, while they will be able to develop new technologies with stability.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]