The “Big Blur”, a reference to the growing ambiguity between financial and non-financial sectors, is expected to continue in the near future. As competition intensifies between existing financial institutions and big-tech companies, regulatory authorities are once again thinking of ways to reshape the regulatory framework to enhance the competitiveness of the financial industry.
On May 3, 2022, a week before President Yoon Suk-yeol took office, the Presidential Transition Committee announced the “110 National Agenda of the Yoon Suk-yeol Government” (the “110 National Agenda”). The 110 National Agenda are further broken down into six categories: politics/administration, economy, society, future, diplomacy/national security, and the era of geographical decentralization. Several of the 110 National Agenda suggest that the new government expects the financial and non-financial sectors to actively converge, and that financial authorities will be focusing on establishing and improving the financial system in response to such convergence.
1. The Big Blur Phenomenon
One of the recent phenomena in the financial industry is often called the “Big Blur,” where boundaries between industries are becoming increasingly obscure.
It is no longer surprising to see big-tech companies entering the financial industry or providing financial services by leveraging their powerful platforms. In response, financial companies are trying to protect their own traditional turf, while expanding their businesses into areas that previously were outside the realm of conventional finance.
For example, banks are establishing platforms that cater to the needs of the daily lives of their customers or integrating their platforms with those of their affiliates or third party vendors. Shinhan Bank has launched a delivery app service, while Woori Bank has started a logistics service in collaboration with a logistics platform services company. NH Bank has launched a flower delivery and payment service in their mobile banking app.
2. The New Administration’s Regulatory Direction
The new administration expects the Big Blur phenomenon to persist and accelerate, and will likely regulate the financial industry with the Big Blur phenomena in mind. More specifically, under “Digital Finance Innovation for Future Finance,” (No. 34 of the 110 National Agenda), the Financial Services Commission (the “FSC”) will be (i) relaxing regulation on the permissible scope of business for financial companies to reflect the changing industry landscape caused by the Big Blur, (ii) clearing regulatory obstacles that restricted the establishment of a comprehensive financial platform, and (iii) improving outsourcing regulations to enable financial institutions to use external IT resources such as AI.
It is premature to predict how the government's national agenda will be realized in view of the lack of details as to how the government intends to implement the above tasks. However, press releases issued by the FSC this year and comments from the Chairman of the FSC offer a few hints.
For example, during a meeting with bankers on October 28, 2021, Chairman Koh of the FSC said that the FSC plans to (i) develop a policy framework for “digital universal banks” that can provide a multitude of services, including banking, insurance and securities through a single “super app,” (ii) expand concurrent and ancillary businesses so that banks can introduce innovative business models in response to the changing environment, and (iii) promote the sharing of financial and non-financial information. At another meeting with bank chairmen on February 28, 2022, Mr. Koh reiterated the FSC’s plan to develop a regulatory framework for “digital universal banks,” to expand the permissible scope of business for banks, and to amend regulations on bank ownership of subsidiaries. In the same meeting, he also announced that the FSC is revamping several financial business laws (the Banking Act, the Insurance Business Act, and the Specialized Credit Finance Business Act) to respond to the needs arising in the digital era. From these announcements, the FSC appears to be preparing for a new era in which banks and other financial companies may venture into new business areas, and in which financial and non-financial companies form alliances to provide innovative services.
To date, financial institutions have been regulated based on the business sector in which they operate. However, in the digital era when high-powered big-tech companies have penetrated the financial industry, regulators may find it difficult to keep up with the ever-evolving technological changes, and realize that the current regulatory regime may be outmoded. Financial institutions and regulators alike are making efforts to keep up with the technological trend, so it would be worth monitoring how these efforts materialize in the future.