[INTERVIEW] Korea to focus on transparency, infrastructure to become Asia's financial hub

Lee Jun-kyo, director general of the International Financial Market Department at the Financial Supervisory Service (FSS), speaks during an interview with The Korea Times at his office in Yeouido, Seoul, Dec. 28, 2022. Korea Times photo by Shim Hyun-chul

Seoul's global ranking as favored financial hub continues to rise

By Anna J. Park

Seoul's ranking as a favored global financial hub city has been on the rise since 2019, coming in at the 11th spot in this year's Global Financial Centers Index (GFCI). It is an impressive climb of 25 places in the past three years, since the city was ranked the 36th most favored in 2019. The ranking of the southeastern port city Busan, the second-largest city of Korea, also rose to the 29th spot, up 14 places in three years.

"Korea is evaluated to have posted a significant development in its capital market system and financial infrastructure during the past few years. The country's world-class digital environment and information technology infrastructure are also part of the favorable assessments attributed to the increase of the financial hub ranking," Lee Jun-kyo, director general of the International Financial Market Department of the Financial Supervisory Service (FSS), said during a recent one-on-one interview with The Korea Times.

"Specifically, Seoul was particularly assessed positively in the realm of financial sector development, business environment, human capital, infrastructure and city reputation in the CFCI evaluation," the director general highlighted.

As he noted, Seoul is ranked fourth in terms of financial sector development in this year's GFCI ranking. Financial sector development is evaluated over a broad range of industry clusters in the country, and also considers availability of capital, market liquidity and economic output. Seoul was also ranked within the global top five in the sub-categories of human capital and infrastructure. Seoul's business environment ranked 9th and its city reputation ranked 12th. Seoul was also one of 15 cities that GFCI survey respondents think will become more significant over the next two to three years.

A view of Seoul's financial district on Yeouido / gettyimagesbank

The director general also leads the Financial Hub Korea, or Fn Hub Korea, as its chief. It was established as a sub-institution under the FSS by the Act on the Creation and Development of Financial Hubs that took effect in 2008. In 2009, the Korean government designated Seoul as a comprehensive financial hub and Busan as a hub city for maritime finance and derivatives.

In order to propel forward the ambitious plan, the center has been devoted to facilitating supports for foreign financial companies that either maintain a presence in the Korean market or attempt to foray into the country. It also helps Korean financial companies to expand operations in overseas countries. As of the end of June 2022, a total of 165 branches of foreign financial firms from 32 countries are operating in Korea, whereas a total of 478 branches of Korean financial companies are maintained in 44 countries.

During the past decades, the center has served various roles as a gateway to the Korean financial market. The center covers a variety of tasks, ranging from conducting investor relations (IR) shows, hosting seminars inviting CEOs of foreign financial companies, as well as operating as a communication channel to listen to foreign companies' opinions and complaints. The center also published a 1,000-page-long licensing manual in English, which has translated all the relevant laws and financial regulations governing foreign financial companies' licensing and approvals of their business operations in Korea

So far, the government announced a total of five rounds of three-year goals since 2008 to realize the country's vision to make Korea a global financial hub. The fifth set of three-year strategies had been implemented from year 2020 to 2022.

"While the previous rounds of three-year goals placed priority on facilitating overall globalization of the country's capital market system, the fifth plan kept a laser focus on fostering areas on which Korea enjoys comparative advantages, such as fintech and asset management. The government's strategic goals also emphasized further advancing financial infrastructure systems to global standards, especially its anti-money laundering system, foreign exchange system, financial regulations and usage of financial data," the director general explained.

Currently, the financial authorities are brushing up on the sixth strategic three-year goals, which will be announced by the Financial Services Commission (FSC), the country's top financial regulator, during the first half of this year.

"While most of the general public might not have noticed the government's decades-long efforts in this area, the Korean financial authorities have consistently come up with laws and initiatives to advance the country's capital market and financial infrastructure to a top global level," he stressed, adding that the government's persistent efforts evidently contributed to Seoul's and Busan's rise in the recent GFCI rankings.

The launch of the Korea Investment Corporation (KIC) in 2005, the establishment of the Act on Capital Market in 2007 and granting licenses to mega-sized investment banks in Korea with the passage of relevant laws in 2013 and 2016 are all part of a series of government measures to develop the country's capital markets to meet global standards, the Financial Hub Korea head enumerated.

Busan International Financial Center (BIFC) II, slated for completion by 2025, is expected to add vigor to Busan's maritime finance and derivative products expertise. Courtesy of Maxerve Consortium

The chief of the Fn Hub Korea noted that the center strengthened communications with foreign financial companies that operate businesses in Korea during the pandemic era. The center held talk sessions with CEOs of foreign financial firms four times in 2022 alone, listening to their suggestions or complaints about operating a business in Korea.

"During the pandemic, ironically, it was easier to meet up with the heads of foreign financial firms, as we could easily link up through online meetings. The things these leaders told us during the meetings are all reflected in financial authorities' key agenda items for advancing globalization and innovating financial practices in Korea," the director general said.

Fn Hub Korea also held IR shows in Silicon Valley in the U.S. and Singapore in 2022, to promote Korea's attractiveness as a financial market, while providing chance for networking and investment opportunities for local fintech companies.

Enhancing speed and transparency of financial regulations

Despite such efforts, there has been a long-held prejudice by foreign financial firms against the Korean financial market due to the country's low predictability in financial regulations and high corporate tax rates. These are considered key hurdles that prevent foreign firms' entry into the Korean financial market.

Some of these prejudices are based on fact. Korea has a corporate tax of as high as 25 percent, which is far higher than Singapore's 17 percent and Hong Kong's 16.5 percent. The country also tends to spend a longer time reviewing and granting licenses to foreign financial firms wishing to conduct business in Korea.

Regarding such criticisms, the director general said the financial authority is currently working to improve on these matters. With respect to corporate taxation, the financial authority has been delivering foreign financial firms' requests to lower the rates to the relevant ministries.

When it comes to licensing procedures, the FSS launched what it calls its "F.A.S.T." project ― standing for fairness, accountability, support and transparency ― to streamline the country's licensing and approval process for entering foreign financial companies. Under the initiative, the FSS is slated to open up a one-stop online portal system, where all licensing will be dealt with quickly and transparently. The online system is expected to be made available during the first half of this year.

"The innovative project is expected to make the Korean financial system take another leap forward," FSS Governor Lee Bok-hyun said, announcing the project in October last year.

In addition, with the goal of becoming a global top-five financial city by 2030, the metropolitan city of Seoul has supported foreign financial firms' operations in the city with increased subsidies for employment and rent support.

Lee Jun-kyo, director general of the International Financial Market Department at the Financial Supervisory Service (FSS), poses for a photo during an interview with The Korea Times at his office in Yeouido, Seoul, Dec. 28. Korea Times photo by Shim Hyun-chul

Paradigm shift in meaning of financial hub

Last but not least, the chief of Financial Hub Korea stressed that a new definition of global financial hub is emerging amid accelerated digital innovation sparked by the COVID-19 pandemic.

"As various sets of financial innovations are taking place all over the world, such as fintech, ESG finances and blockchain technologies, we've witnessed a change in the global financial landscapes over the past few years. This shows that the traditional financial hub concept ― based on the idea of physical and geographical space ― will be transformed into a more flexible one," he explained, adding that the changed notion calls for a new strategic concept of what a financial hub is.

He highlighted that Korea's strengths in the IT sector and fintech businesses are great assets that could facilitate further digital innovation of the financial industries, which could contribute to the country's growth as a financial hub in the coming decades.

"Thus, the Korean government is currently working on establishing a new financial hub model, embracing both inbound and outbound sides of the financial gateway. It means that the country will continue to try to attract foreign financial firms into the domestic market by overhauling regulations, in the areas of taxation and labor, while at the same time promoting local financial firms' foray into overseas markets to strengthen the global financial network of the country," he elaborated, saying that such ideas will be reflected in the government's sixth three-year strategic goals set to be announced during the first half of this year.