Top financial regulator seeks capital market deregulation

By Kang Seung-woo

Kim Seok-dong, the newly-appointed chairman of the Financial Services Commission (FSC), declared to reevaluate the country’s Capital Market Consolidation act. He claims it is failing to live up to its promise of sparking new growth in the financial sector.

Retooling the regulations will be crucial for further pushing for deregulation in capital markets and creating an environment that could nurture homegrown global financial players, he said in an e-mail interview with reporters.

The act, which went into effect in February 2009, absorbed 14 capital market-related laws that had separately governed sectors such as securities trading, asset management and future exchanges. By consolidating these activities under the categories of banking, insurance and investment, policymakers aim to eliminate traditional business boundaries and expand the share of the local financial market.

Kim said that the effects of the law so far have been disappointing, as the country has yet to see the first signs of a locally-spawned global investment bank. Kim is now discounting the act he had played an essential role in designing and enacting along with preceding FCS bosses Jun Kwang-woo and Chin Dong-soo.

``I can’t repress self-reflection. The act was introduced with much fanfare thanks to the hopes of paving the way for homegrown global investment banks and expanding the local financial market, but it has failed to live up to these expectations,’’ Kim said.

Kim, then as the director general of the financial policy division at the Ministry of Finance and Economy, was involved in the designing of the Capital Market Act. He travelled to Australia in 2005 to study the regulations there and reflected his findings in building the basic framework of the act.

``Due to the unprecedented global financial crisis, the deregulation effort was not completed, and this made the act less market friendly. When the bill for the act was passed by the National Assembly in 2007, it contained heavier-than-expected regulations. These are the very regulations that have deterred Korea from winning contracts for international projects,’’ Kim said.

Last year, a Korean consortium won a bid to build four nuclear power reactors in the desert of the United Arab Emirates (UAE) by 2020, but the officials encountered a small problem, as no Korean commercial bank was willing to finance this long-term project, with only the state-owned Export-Import Bank of Korea (Korea Eximbank) participating in the financing of the nuclear plant project in mandatory fashion.

“Local companies tend to face limits in financing just on the verge of winning mega projects ... and it’s shameful that the government, if not local financial firms, were unable to do it,” Kim said. “Strongly speaking, the government needs to expand the roles and functions of the state-owned Korea Trade Insurance Corp., Korea Finance Corp., Korea Development Bank and Korea Eximbank, as well as set up a globally competitive large investment banks.

Kim also said that the revamped act will also aim to nurture locally grown hedge funds in order to help them compete with global players and expedite the restructuring of ailing companies.