New FSC chief to be banned from regulating KakaoBank

Financial Services Commission Chairman nominee Koh Seung-beom enters his office at the Korea Deposit Insurance Corp. headquarters building in Seoul, Aug. 6. Yonhap

By Park Jae-hyuk

The nominee to be the country's top financial regulator is expected to be prohibited from being involved in regulations and decisions regarding KakaoBank, an internet-only bank and now a leading financial firm here in terms of market capitalization.

According to the Act on the Establishment of the Financial Services Commission (FSC), Koh Seung-beom, who was nominated earlier this month to lead the FSC, will not be allowed to be involved in regulatory measures on Korea Investment Holdings (KIH) and its affiliates, due to his younger sister's marriage to the company's owner, Kim Nam-goo.

Given that KIH is the de facto second-largest shareholder of KakaoBank with a 4.65 percent stake held by itself and an additional 26.96 percent stake owned by its second-tier subsidiary, Korea Investment Value Asset Management, Koh has to be excluded from any FSC decisions regarding policies related to the internet-only bank in order to avoid any potential “conflicts of interest.”

The FSC spokesman's office has emphasized that the eight FSC commissioners can make important decisions without the chairman's participation.

Koh was absent from an FSC meeting on the approval of KIH's status as the largest shareholder of KakaoBank in 2016, when he was serving as an FSC standing commissioner.

Considering that KakaoBank's position in the market has been inflated over the past five years, however, the FSC will face more issues regarding the internet-only bank if Koh passes a confirmation hearing at the National Assembly.

It is also unclear whether or not the nominee will be allowed to attend meetings on the approval of additional online banks amid conventional banking groups' ongoing moves to establish their own digital banks after KakaoBank's successful stock market debut.

In addition, KIH is running multiple businesses including a brokerage, savings bank and asset management office, so most of the FSC's decisions could either be related directly or indirectly to KIH and KakaoBank. According to observers, this effectively means the new chief financial regulator will be ruled out from most important decision making, as well as face difficulties in expressing his opinions on most financial policies.

There is therefore the chance that this issue will be touched on by opposition lawmakers at the scheduled National Assembly hearing on the FSC nominee, Aug. 27.

Koh earlier apologized for his 25-year-old son having worked as an intern at a KIH subsidiary, Korea Investment & Securities, for five weeks, last year, and for his family's fake residential designation submitted two decades ago to help his children enter a preferred elementary school.

The nominee is also expected to be grilled over his rapid increase in wealth. According to a government document submitted to the National Assembly, the value of his entire assets soared to 5.7 billion won ($4.9 million) this month from 5 billion won at the end of last year because of a sharp rise in the price of his apartment in Apgujeong-dong, southeastern Seoul, which is considered one of the country's richest neighborhoods.