Brokerages face delay in launch of new business amid financial authorities’ reorganization
Financial Services Commission head Lee Eog-weon, right, and the Financial Supervisory Service head Lee Chan-jin pose at Government Complex Seoul, Sept. 16. Yonhap
A growing number of brokerages are facing uncertainty due to delays in approval for key growth driver businesses, caused by a recent reorganization of the two financial regulatory and oversight bodies, market watchers said Tuesday.
Advancing the industry-wide pessimism is the failure of bids to launch the fourth internet-only bank a few weeks ago, amid growing disruption in the approval functions of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS).
Market watchers said prolonged confusion and organizational restructuring of the two would not only stall progress in capital market players’ innovation-oriented business expansion drive, but also undermine Korea’s standing in the global fintech and capital markets.
Central to the drive are the launch of investment management accounts (IMAs) and eased rules on brokerage-issued commercial papers, or notes.
The IMA business involves brokerages that manage client funds as a whole, including deposits and other investments.
Brokerages say the unified accounts will be managed in the same way that global investment banks handle lump sum capital.
The account management carries risks, since it involves venture funding — high-risk, high-return financial capital invested into early-stage or growth-stage startups. Investor funds are pooled in the process to make diversified, strategic investments, similar to how the U.S. or European markets operate.
Currently, Korea Investment & Securities and Mirae Asset Securities have submitted applications for IMA licenses. NH Investment & Securities is expected to file one this month.
“We are awaiting progress in the approval process,” a Mirae Asset official said.
As for the commercial papers issuance business, four brokerages — Korea Investment, Mirae Asset, NH and KB — are allowed to issue up to 200 percent of their equity capital. Commercial papers issuance business refers to short-term financial products issued by securities firms using their own credit for retail investment.
Upon approval of the IMA business, the figure will be eased to 300 percent of their equity capital. This means brokerages can operate up to 24 trillion won as long as they have 8 trillion won, the mandatory minimum under the law.
Five others — Samsung, Shinhan, Hana, Kiwoom and Meritz — are awaiting approval.
According to the FSC guidelines announced in April, brokerages that fail to apply for the IMA business this year will have to wait at least three years before reapplication.
Industry insiders say the approval process has ground to a halt due to confusion over which of the two has the final authority to approve.
“The stalled approval is a lost opportunity for domestic market players, all the while the country’s competitive edge on the global financial market undermined,” an industry official said.
Market pessimism is amplified by the recent rejection of applications for the fourth internet-only bank, a highly anticipated drive that sought to foster innovation amid digitization.
The FSC will soon be dismantled under a plan proposed by the Lee Jae Myung administration. Its domestic financial policy and regulatory functions will be transferred to a newly organized finance ministry.
Instead, the Financial Supervisory Commission will be launched to take over the supervisory and inspection functions of the FSC.
The consumer protection functions of the FSS will be transferred to a newly launched body. The FSS will retain its market monitoring functions and be turned into a state-run organization.