Financial Deregulation Needs Revisits, Readjustments
By Park Hyong-ki
Staff Reporter
A noted foreign executive called on the financial regulator to constantly revisit the regulatory framework concerning the capital market and readjust it in response to the rapidly changing demands.
David Proud, managing director and country head of FIL Asset Management Korea, said such a move will minimize risks following the implementation of the Capital Market Consolidation Act next year.
``I think there will be the need to revisit the regulation on a fairly regular basis, and readjust it because we won't get it right on the first time,'' said Proud in an interview with The Korea Times.
He reasoned that Korea has gone through a very condense process in devising and coordinating the deregulatory structure, compared with the steps Britain took in overhauling its financial market.
As a result, this has hastened the regulator to reveal the details of deregulation, which could raise problems and limit market participants in leveraging the benefits of the legislation.
``I'm a little nervous about deregulation. The details are coming through too quickly, and I suspect there will be problems we can't foresee at the moment,'' said the head of Fidelity's Korean asset management operations.
He noted that a very few problems occurred in Britain when it enacted deregulation in 2000 as the country took its time to set up the details concerning its financial services market.
The capital market act, which was introduced in late 2005 and gained parliamentary approval last year, is closely modeled after the Financial Services and Markets Act in London.
Also, given that the capital market act in Korea was drafted a couple of years ago based on the market status and demand then, Proud reiterated that the financial authority or the government must actively revisit and readjust the law.
``Considering the time difference between when it was drafted and when it comes into place, the market has changed a lot. Again, we have to revisit the regulation, and that requires the regulator to be proactive and responsive,'' Proud said, adding that being this was important as it keeps the market competitive and on track with other financial centers.
Finding Strength
Korea is aiming to become an international financial center with the act, which eliminates business barriers between securities, futures and asset management. It is aiming to develop the investment services market as its niche as part of efforts to achieve its hub goal.
However, Proud said the act simply gets Korea's financial industry on the playing field to compete with global players.
The legal framework must be in place first before the country can actually find which financial categories it can excel in and discover its strength.
``We don't know the category yet. At the moment, you would never win because you haven't gotten the regulatory structure at all,'' said Proud. ``No one believes that this act is finished.''
He continued to say that after establishing the basic building blocks to have proper investment banks and financial holding companies in the market, Korea can truly find an area where it can compete alongside Hong Kong and Singapore.
``Once you got those in place working in the domestic market and excelling in certain areas, then you can establish a competitive edge,'' Proud said.
He said the government should be clear and even-handed toward participants should Korea desire to be an international market.
By doing so, it should also move to raise market efficiency through deregulation.
``Through efficiency, companies can get a broader range of products to customers, able to lower prices for consumers and make the industry more competitive at home and abroad,'' Proud said.
Active Dialogue
Fidelity emphasized the importance of having a regular open dialogue between domestic, foreign firms and the regulator.
Proud regrets that most governments around the world don't approach it in an active way, even though they know that consultation with market players is effective.
``Korea can make a difference if it approaches it actively with industry players because they want to be consulted and have the opportunity to influence, and they can certainly make a difference by doing that,'' said Proud.
He believes that the dialogue is accelerating and improving in Korea, compared with other countries in Western Europe where talks are very formalized, bureaucratic and superficial.
``Here is completely different because people work at a multiple level, and Koreans have the desire to make stuff work through strong teamwork,'' he added.
Protection is Regression
A change in the market comes with a sacrifice.
For any country, that is hard and difficult to encounter and overcome.
Some may survive the competition, while others may fold their businesses.
However, Proud said that maintaining protective measures in the interests of domestic players will only deter Korea's potential in finance.
``Protection is regressive. When change comes, it's terminal,'' Proud alerted. ``Forget about protective measures.''
His remarks come as domestic securities companies have been urging the regulator and the government to keep some of protective measures in place, fearing that global investment banks will come and rule once the country further opens its market.
He noted that protection completely goes against Korea's objective of becoming a financial hub, adding that it will only further weaken the local industry like a helpless child because it had never learned to defend or compete itself.
If Korea wants to build itself as a financial hub through market liberalization, it would need more foreign players to back its objective.
``If you have to open the market up, if you want to be a financial hub and if you are going to do that, you can't keep trying to control these hugely competitive, competent international businesses,'' Proud said.
He said don't treat market opening as a threat, but look at it as an opportunity to learn, meet new faces and compete.
``In human business like financial services, you can't compete unless you open the market and bring in global professionals, who can help improve the industry's competitiveness,'' he added.
Proud advised the government to develop the country's social security system ― a safety net ― for a possible unemployment or illness following market restructuring and opening.
phk@koreatimes.co.kr