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| Prime Minister Lee Nak-yon, third from right, meets chief executives of banks in Seoul, Nov. 16, where he stressed the importance of developing financial technology through financial companies' acquisition of startups. Yonhap |
By Park Hyong-ki
The Financial Services Commission (FSC) will further relax rules governing financial holding companies, banks and insurance firms to allow them to invest in or acquire financial technology (fintech) startups, the regulator said Tuesday.
The move comes after Prime Minister Lee Nak-yon met with bank chief executives at his office Nov. 16. Lee agreed it was imperative to boost financial companies' acquisitions of such tech companies to spur innovation and develop a fintech ecosystem.
The FSC followed up with a plan that will give the companies "more authority" to define and identify so-called fintech startups for equity investment and acquisition, as long as the targets are able to help them innovate and expand.
The regulator said it will move to revise relevant laws next year after hearing more suggestions from the financial industry by early January.
Financial companies, whether in banking or insurance, had been forbidden from acquiring assets beyond their sectors.
This is because they are ruled by different laws governing those companies, industry sources say.
"Basically, the banking law says a bank cannot have a nonfinancial company as its subsidiary," a bank industry source said.
Another law governing insurance companies "blocks" them from acquiring companies besides insurance and other closely related financial firms.
Given fintech startups had been in the gray zone, where they are considered more a nonfinancial company, it has been difficult for insurance companies to acquire them.
"This blocked insurance companies from finding opportunities outside their field that can technologically help develop their service," an insurance industry source said. "And innovation is about converging with businesses outside their core operations."
Among the rules, laws separating financial and nonfinancial investors have been the most detrimental to financial innovation, another source said.
For instance, a nonfinancial company cannot own more than 10 percent of a bank. The National Assembly recently passed a revision enabling nonfinancial companies to acquire internet bank shares up to a 34 percent voting right.
"Such a law has restricted equity ties between financial and nonfinancial companies," the source said. "To this end, it has been hard to invest in fintech startups even if they have a great technology."
The regulator had pushed for a revision in 2015. But this only led to "three small deals" between financial companies and fintech startups so far, according to the FSC.
"The laws need to be revised so that companies can invest in tech startups in artificial intelligence, blockchain and the internet of things," Yoo Jung-joo, a researcher at the Korea Economic Research Institute, said.
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