Korea to ease rules to boost securities firms’ overseas presence

Kim Byoung-hwan, front row fifth from left, chairman of the Financial Services Commission, poses with the CEOs of the country’s comprehensive financial investment firms and other financial authorities, including Hahm Yong-il, front row fourth from left, senior deputy governor of the Financial Supervisory Service, ahead of their meeting to discuss measures to enhance the capabilities of the securities industry, at the Korea Financial Investment Association building in Seoul, Wednesday. Yonhap

Financial authorities will introduce institutional incentives to support the global expansion of securities firms, including relaxed liquidity and capital requirements for their overseas subsidiaries, in a bid to boost competitiveness while maintaining financial stability, officials said Wednesday.

These measures are part of the government’s broader initiative to enhance the investment banking capabilities of the securities industry, aiming to enable it to provide comprehensive financial services and support the country’s innovation-driven economic growth.

Kim Byoung-hwan, chairman of the Financial Services Commission, held a meeting with the CEOs of 10 comprehensive financial investment firms to discuss the new measures.

“The key to sustaining momentum and achieving continued growth in Korea’s maturing economy lies in the capital market,” Kim said in his opening remarks. “Since the securities industry is at the core of building and advancing the capital market, we will implement a range of measures to help it play a larger role in corporate finance.”

Although Korea’s securities industry has expanded in scale and increased capital supply, it is still considered to lag behind global investment banks in terms of qualitative competitiveness.

According to the top financial regulator, securities companies still earn only 4.1 percent of their profits from overseas branches, indicating that their global presence remains limited.

A view of Seoul’s Yeouido financial district / gettyimagesbank

To promote overseas expansion while maintaining financial stability, the regulator said the government will ease certain regulatory requirements and offer incentives to support their international growth.

Cash reserves held by overseas subsidiaries will now count as liquid assets when calculating the three-month liquidity ratio.

Additionally, if overseas units invest in stocks included in major indices of countries with an investment-grade rating (BBB- or above), the capital requirement for those investments will be reduced from 12 percent to 8 percent.

The government will also remove the requirement for securities firms to centrally deposit their own foreign securities.

Under current rules, all securities held by firms must be deposited with the Korea Securities Depository (KSD) for safekeeping and legal protection. In particular, foreign securities must be held in accounts under the KSD’s name as overseas custodians.

This, however, limits firms’ ability to use their own foreign securities for purposes such as collateral or overseas funding.

To address this, securities firms will now be allowed to keep proprietary foreign securities in their own name at overseas custodians, giving them greater flexibility in managing those assets.

Other measures include a new rule that requires comprehensive investment firms to allocate 25 percent of the funds raised through issuance-based promissory notes to venture capital.

This obligation will apply to firms with more than 4 trillion won ($2.7 billion) in assets that operate issuance-based note businesses.

The requirement will be phased in gradually, starting at 10 percent this year, increasing to 20 percent in 2027 and reaching 25 percent in 2028.

As of September last year, the venture capital allocation ratios at the four eligible firms ranged from 11.3 percent to 27 percent.