South Korea: financial regulation package
Updated 30 July 2014
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0.1 Detail
As part of the better regulation agenda launched by President Park in March, all Korean ministries have been required to produce a package of regulatory reforms. Shin Je-yoon, Chairman of the Financial Services Commission (FSC), the financial services regulator, launched his package, on 10 July. Shin presented this as a dramatic shift in Korean financial regulation. It follows detailed discussions in April with UK regulators at the inaugural UK/Korea Financial Forum, and draws on the UK’s experience with the ‘Big Bang’ deregulation of the 1980s.
Highlights from the 75 page press release include:
- Identification of the scale of the problem: over 1,100 regulations and 2,000 ‘hidden regulations hampering growth;
- Strengthening financing for the real economy;
- Simplification for consumers;
- Improving negative regulations including easing additional/overlapping registration, allowing insurance for nature disasters and retirement, and one-stop financial services for consumers;
- Expansion of overseas business including applying overseas laws when domestic and foreign laws conflict;
- Market friendly approach to prudential regulations through easing capital ratios;
- Eliminating hidden regulations and improving overlapping regulations between Ministry of Labour, Fair Trade Commission and Ministry of Finance;
- Improving supervision and inspection practices including a one-stop system for supervision and licensing approval.
The next steps include consultation through the newly created Regulatory Reform Committee at FSC, and creation of a website to gather examples of ‘hidden’ regulation. The aim is for regulations to change from autumn onwards.
Broadly, the financial industry welcomed the package. However, there was some concern about implementation. Most of the proposed reforms are not new; many have been attempted unsuccessfully in the past. The most welcome proposal is the introduction of ISAs, explicitly modelled on the UK.
The British Ambassador met Chairman Shin on 21 July in the presence of journalists from Korea’s FT equivalent. They covered the conversation in the 23 July edition in Korean. The Ambassador raised issues of transparency, consistency and consultation. Shin acknowledged this and spoke about following the UK model for the next 20 years.
0.2 Comment
Shin is aware of the sector’s problems and open about them in public. The Korean financial sector is the least profitable in Asia (3% average return on equity). The President and new Minister of Finance are equally in favour of reform. But successful implementation will require significant change; in effect, a fundamental switch from viewing the financial sector as a utility to service the manufacturing sector to a source of domestic growth and jobs in its own right.
Shin also has a target of increasing the Korean financial sector from 6% of GDP value added to 10% in 10 years. Even if only some of the reforms are implemented, they have the potential to reverse the downward trajectory on profits in the sector and create opportunities for future growth.
The joint media interview will ensure that UK messages on our better regulation principles are widely read.
0.3 Disclaimer
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