Promotion of the Enactment of the "Fintech Promotion Support Act (Tentative)"
"Institutional measures will be established to enable financial companies to invest in or conduct M&A with fintech firms"
[Asia Economy Reporter Park Sun-mi] As financial authorities seek to improve regulations to allow private financial companies to acquire fintech firms, the principle of separating financial capital from industrial capital is being shaken once again.
According to the financial sector on the 27th, financial authorities recognize the rapid growth of fintech as an unstoppable global trend and are pushing for the enactment of the "Fintech Promotion Support Act (tentative name)" to foster domestic fintech companies. The main focus is to establish institutional measures to promote fintech investments by financial institutions. Specifically, it is expected to include provisions expanding the range of fintech companies that financial firms can invest in and exempting employees from liability in cases of losses during the investment process, provided there is no intentional or gross negligence.
Financial authorities anticipate that the enactment of the Fintech Promotion Support Act will open the door for financial companies to engage in mergers and acquisitions (M&A) of fintech firms.
Lee Hyung-joo, head of the Financial Innovation Planning Division at the Financial Services Commission, attended the "Korea Fintech Week 2021" forum held both online and offline from the 26th to the 28th and stated, "A major difficulty fintech companies face is that after founding and growing their business, it is difficult to exit (recover funds). Currently, due to the strict principle of separating financial and industrial capital, financial companies face restrictions in acquiring IT companies, so practically the only exit route is an initial public offering (IPO)."
"Allowing financial companies to invest in or acquire fintech firms"
He explained, "Through the Fintech Promotion Support Act, we aim to create institutional measures that allow financial companies to invest in or acquire fintech firms."
The current principle of separating financial and industrial capital has been recognized as a representative regulation that confines banks within traditional frameworks and a stumbling block to fostering fintech. Consequently, there have been continuous criticisms that it does not align with the trend of convergence between finance and IT. Additionally, the fintech industry has raised voices that although an administrative guideline called the "Fintech Investment Guideline" exists to promote fintech investments by financial companies, its lack of legal binding power results in financial firms remaining somewhat reluctant to invest in fintech.
However, concerns have been raised that if the principle of separating financial and industrial capital is shaken again by the enactment of the Fintech Promotion Support Act, the firewall between financial and non-financial affiliates will disappear, allowing risk transfer from non-financial to financial sectors. Large financial companies could acquire fintech firms based on their massive capital, potentially undermining the current cooperative structure between financial and IT companies. In fact, in China, where the fintech industry is rapidly growing, there are significant concerns about the stability of financial services caused by fintech firms.
Accordingly, discussions between the growing fintech market and the principle of separating financial and industrial capital are active in academia. At a forum on "Changes in the Financial Environment and the Regulation of Separation of Financial and Industrial Capital," jointly hosted by the Korean Finance Association and the Korean Financial Information Society the day before, Professor Jung Soon-seop of Seoul National University Law School advised, "The basis for separating banks and industry, or financial capital and industrial capital, remains valid. The regulation of separating financial and industrial capital should be maintained as a fundamental principle in Korean financial regulatory law, even considering the development of fintech, which represents the convergence of technology and finance."
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