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Newsletter | November 2015, Issue 3
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BANKING
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FSC Proposes to Relax Rules Affecting Financial Holding Companies
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Generally, current rules affecting financial holding companies are seen as interferences with the operation of financial holding companies. As such, on August 13, 2015, the Financial Services Commission (“FSC”) announced proposed amendments to both the Enforcement Decree of the Financial Holding Company Act (the “Enforcement Decree”), and the Regulation on Supervision of Financial Holding Companies (the “Regulation”).
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The proposed amendments aim to relax the various rules, and contemplate the following specific changes:
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1. Relaxed Procedures for Officers/Employees Holding Concurrent Positions1
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| A. |
For inspection of work and financial condition, risk management, and internal functions:
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By obtaining regulatory approval, an officer or employee of a financial holding company may hold concurrent positions in two or more of the company’s subsidiaries.
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| B. |
For holding all other concurrent positions, an officer/employee simply needs to file a regulatory report.
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Requirement abolished – one need not obtain prior regulatory approval before concurrently serving as an officer/employee of overseas subsidiaries of a financial holding company.
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2. Expanded Scope of Business Delegation between Subsidiaries, and Simplified Delegation Process2
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| A. |
Subject to approval by the FSC, the existing rule permitted delegation of only part of the “core functions” of the financial business between subsidiaries of a financial holding company.
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| B. |
Under the proposed amendments, if regulatory approval is obtained, the scope of business delegation is significantly expanded to include the “core functions.”
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Further, no prior approval would be required for business support and ancillary financial services (including product application and receipt of documents).
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3. Expanded Business Categories of Permitted Subsidiaries3
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| A. |
The business categories of permitted subsidiaries of a financial holding company are expanded.
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Under the existing rule, the permitted subsidiaries only included:
| 1. |
Companies that engage in financial businesses; and
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| 2. |
Companies that conduct businesses, which are closely related to finance
(e.g., IT, real estate management, finance-related research).
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However, under the proposed amendments:
| 1. |
A subsidiary that engages in a business regulated by the Electronic Financial Transaction Act is added in the second category; and
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| 2. |
A financial holding company can have such a subsidiary.
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4. Expanded Means of Providing Credit to Foreign Subsidiaries4
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| A. |
A financial holding company can provide various types of credit to its subsidiaries
(e.g., through direct funding, but also through indirect means, such as guarantees).
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| B. |
The scope of permissible activities of a financial holding company is expanded to include activities such as offering financial products and providing service development to its subsidiaries.
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5. Diversified Customer Notification Options (Related to Information Sharing)5
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| A. |
When a financial holding company notifies its customers of the provision of their information, in addition to the traditionally permitted means such as mail or e-mail, the company can now also use text messaging for such notifications.
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| B. |
Prior approval by the customer information manager is no longer required if the purpose for information sharing between financial holding companies is either to:
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Comply with international regulations and standards, risk management policies, and internal control procedures, or
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If the period of information sharing is less than one month.
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6. Preliminary Regulatory Approval Abolished6
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| A. |
The preliminary regulatory approval process is abolished for a financial holding company when:
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It is newly established;
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Forms or acquires new subsidiaries;
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Merges with another entity under the Financial Holding Companies Act; or
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Is converted into a different kind of financial institution under the Act on the Structural Improvement of the Financial Industry.
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| B. |
The financial holding company needs to undergo only one approval process for such an event without having to separately obtain both preliminary and final approvals.
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| 1 |
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Article 18 of the Enforcement Decree.
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| 2 |
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Appendix 6 to Article 26 of the Enforcement Decree
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| 3 |
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Article 2 of the Enforcement Decree and Article 1-2 of the Regulation
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| 4 |
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Appendix 3 to Article 11 of the Enforcement Decree
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| 5 |
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Article 27-2 of the Enforcement Decree, and Article 24-2 of the Regulation
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| 6 |
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Articles 2 to 9 of the Regulation
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