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[ANALYSIS]Finance industry fears over-regulation

Apr 09,2018
The strong presence of civil activists in the Moon Jae-in administration’s economic team has some experts worrying that government policies are too focused on clamping down on banks and other financial institutes.

“The head of financial bodies such as the Financial Supervisory Service [FSS] should be able to consider not only the regulatory loopholes but strategies to develop the financial industry,” said Yun Chang-hyun, a finance professor at the University of Seoul.

“But those from liberal civil organizations will more likely focus only on the regulatory aspect,” he said.

Korea’s financial regulations are considered strict, particularly when it comes to new services like internet-only banks and robo-advisers.

As for internet banks, the law only allows non-financial conglomerates to own up to 10 percent of a financial firm, and only exercise voting rights for 4 percent. The law was introduced to prevent major conglomerates from using affiliated banks as personal piggy banks, but it is now a major hurdle for newcomers hoping to establish digital banks.

Kim Ki-sik, the head of the Financial Supervisory Service, opposed a move to ease the rule when he served as a member of the ruling Democratic Party.

In the robo-adviser segment, automated investment cannot be done completely online since clients still have to visit the offices of securities companies and speak face-to-face with fund managers for the initial sign-up process. That makes it impossible for fund operators to offer fees that rival those in the United States, where such regulations don’t exist.

Jung Yoo-shin, a business professor at Sogang University and the chairman of the Korean Fintech Center, said that regulations should be introduced after a service is launched, not the other way around.

“The regulator should make the regulatory measures come into effect after the service is introduced to improve certain financial services and protect consumers,” the professor said.

“If the regulator puts forward different regulations before the launch of the service, it can hamper the business as a whole,” Jung said.

Sources in the financial sector also voiced concerns over the appointment of heavy-handed regulators in the Moon administration.

“It is fair to say that the series of appointments keeps financial players on edge,” said a source at one of Samsung’s financial affiliates who spoke on the condition of anonymity.

“Rather than pooling resources for innovation and investment, financial companies are busy checking that their transactions and capital reserves do not fall victim of this administration,” the source said.

Another source working in a peer-to-peer financing company also echoed the sentiment.

“There have been less discussions during the Moon Jae-in government about deregulation,” the source said, “I don’t think many of the financial regulators see peer-to-peer lending as a business, but a risky practice to be regulated.”

The source went on to note that if the FSS chair had experience running a business or financial company, he or she would have a better understanding of how to oversee the sector.

An association representing marketplace lenders issued a statement last month to protest the financial authorities’ decision to maintain the current limit on the size of investments in peer-to-peer financing.


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