"Full Licensing of Bank Discretionary Investment Business" Authorities "Reviewing Risks, etc."

8th Banking Sector Management, Sales Practices, and System Improvement Task Force (TF) Working Group Meeting

The banking sector has requested full authorization for discretionary investment management from the authorities. Financial regulators plan to comprehensively review the associated risks and management measures.

On the 11th, the Financial Services Commission announced that during the 8th Bank Management, Business Practices, and System Improvement Task Force (TF) working group meeting held on the 10th at the Government Seoul Office in Jongno-gu, Seoul, chaired by Vice Chairman Kim So-young, they discussed measures to strengthen non-interest income in the banking sector, including this request.

At the meeting, the Korea Federation of Banks presented the "Measures to Expand Non-Interest Income in the Banking Sector." According to the Federation, the proportion of non-interest income for domestic banks stands at 12.0%, less than half of that of U.S. banks (30.1%). Furthermore, most non-interest income is generated from fees.

Among these, foreign exchange income fees are expected to shrink due to intensified competition with large securities firms and big tech companies, and fees related to funds or bancassurance may face conflicts of interest with customers, indicating limitations in increasing non-interest income solely through fee income, according to the Federation's analysis. Accordingly, the Federation plans to actively expand ▲venture investment ▲trust business innovation ▲and activation of investment advisory services.

In particular, the banking sector requested that the authorities consider either fully permitting discretionary investment management or, if difficult, allowing discretionary investment management through public funds and robo-advisors.

Discretionary investment management refers to financial companies receiving a lump-sum delegation of assets from customers to manage in exchange for fees. Currently, domestic banks are only permitted to conduct discretionary investment management limited to Individual Savings Accounts (ISA). Therefore, full authorization of discretionary investment management has been one of the banking sector's long-standing goals.

The banking sector emphasized, "If discretionary investment management is permitted, all customers, including small investors, retirees, and the elderly, will be able to receive customized discretionary investment services tailored to their needs," adding, "From the banks' perspective, the business model will shift from a sales commission focus to a management and operation fee focus, creating a win-win situation for both customers and banks and mitigating profit and loss volatility due to economic fluctuations."

However, the Korea Financial Investment Association expressed concerns regarding this matter. The association stated, "Allowing banks to perform core securities industry tasks solely for stable revenue is not appropriate," and pointed out, "Considering the differences in customer characteristics between banks and securities firms, permitting discretionary investment management for bank customers, who prioritize trust and stability, could raise consumer protection issues."

Private expert groups and research institutions also presented mixed opinions. Some argued that since banks' non-interest income sources are limited, discretionary investment management fees are a focus, and financial products are becoming more complex and difficult to understand, there is a need to allow banks to engage in discretionary investment management. On the other hand, some emphasized caution due to the policy stance on exclusivity and consumer protection aspects.

Vice Chairman Kim stated, "Regarding the discretionary investment management proposed by the Korea Federation of Banks, it is necessary to approach this from the perspective of 'same function-same risk-same regulation' rather than judging based on the interests of a specific industry," adding, "If the banking sector provides additional reviews on the risks associated with permitting discretionary investment management, management measures, and the possibility of offering differentiated services from the existing securities industry, we will discuss this again in future TF and working group meetings based on that."