[Financial Microscope] Trust Market Grows to 1,400 Trillion Won... Rapidly Emerging as a Growth Sector in the Super-Aged Society

Development of Korea's Trust Business Since 1961
Growth into a Mega-Market in the Era of Ultra-Aging
Regulatory Reform and Revitalization Remain Key Challenges

The trust business in the financial sector is rapidly emerging as a future growth industry in the era of low birth rates and ultra-aging. Non-bank financial companies such as insurance and securities firms are fiercely competing to seize the trust assets traditionally held by banks. The government and political circles have also begun preparing measures to revitalize the trust industry.

The trust business, meaning "to entrust with faith (信託)," is a service where trustees operate, manage, and safeguard various assets of investors such as stocks, deposits, and real estate. The Trust Act and Trust Business Act were enacted in Korea in 1961. Initially, the Korea Trust Bank was established to handle trust operations exclusively, and other commercial banks were not allowed to engage in trust business. However, in 1984, all banks were permitted to concurrently operate trust businesses under the Bank Act.

Non-bank financial companies began entering the trust business from the 2000s. In 2005, nine securities firms were first authorized to operate trust businesses concurrently, and in 2007, insurance companies also entered the trust business. The trust industry experienced ups and downs, such as the trust asset size halving after the 2008 global financial crisis. In 2009, with the enforcement of the Capital Markets Act, the Trust Business Act was integrated into the Capital Markets Act.

The trust business took its current form as a comprehensive asset management service starting in 2012. At that time, the Trust Act was fully revised for the first time in about 50 years, significantly expanding the scope and role of trust assets. The testamentary trust, which has recently attracted high interest from banks, was also introduced then. In 2017, the financial authorities attempted to separate the Trust Business Act from the Capital Markets Act again, citing that the growing trust business was stagnating due to conflicts with the Capital Markets Act, but this effort failed. Since then, the authorities have announced several policies to revitalize and foster the trust business.

According to statistics from the Financial Supervisory Service, as of November last year, the trust assets of 60 domestic trust companies (banks, securities, insurance, real estate) reached 1,388 trillion won, breaking the all-time record. Trust assets surpassed 500 trillion won for the first time in 2014 and exceeded 1,000 trillion won in 2020, growing every year. Looking at the trust assets by company type, banks currently hold the largest share at 47.2%, followed by real estate trust companies (30.6%), securities (20.3%), and insurance (1.9%). Five years ago, in 2020, banks accounted for nearly 60%, but recently, non-bank financial companies have strengthened their competitiveness, breaking the majority share.

Domestic trust business is broadly divided into general trusts, retirement pension trusts, and real estate trusts. General trusts are classified into investment types (stocks, bonds, funds, etc.) and management types (inheritance, gifts, donations, etc.) according to the subscription purpose. Retirement pension trusts are services where companies accumulate and manage employees' retirement benefits with financial companies and pay out pensions or lump sums when the subscribers retire. Real estate trusts are services where trust companies manage, dispose of, and develop real estate on behalf of clients for a fee. Lee Kyung-hoon, senior research fellow at Woori Financial Management Research Institute, said, "So far, the domestic trust market has been centered on retirement pensions and real estate assets, so growth in comprehensive household asset management has been sluggish. Considering the rapidly progressing aging situation in Korea, growth in the inheritance trust sector is expected to be prominent."

With Korea entering an ultra-aged society on December 23 last year, where the population aged 65 and over exceeds 20% of the total population, there is a consensus on the need to expedite the revitalization of the trust business. The Financial Services Commission announced the "Trust Business Innovation Plan" in October 2022. The innovation plan included various measures to foster the trust business, such as expanding trustable assets to include debts and collateral rights, supporting collaboration with non-financial specialized institutions like law firms and nursing hospitals, and promoting business succession, housing, and guardianship trusts. However, the plan failed to pass the legislative process and faded away. Since then, the financial authorities have pursued revitalization measures by revising enforcement ordinances. The insurance claim rights trust, implemented in November last year, is a representative example. In the National Assembly, a trust business revitalization bill was also introduced in November last year, led by Kim Sang-hoon of the People Power Party, rekindling efforts to promote the trust business.

Compared to Japan, which entered an ultra-aged society early and where the trust business has rapidly grown, Korea still maintains high regulatory levels. The scope of trust assets in Korea is narrow, including money, securities, monetary claims, movable property, real estate, real estate-related rights, and intangible property rights. However, in Japan, any property recognized as property rights can be included in trust acts as long as it is stipulated. In Korea, conflicts between the Capital Markets Act and the Trust Act make it difficult to outsource work to non-financial specialized institutions such as law and tax firms. In contrast, Japan allows trustees to freely outsource work to external specialized institutions. Korea prohibits advertising trusts to unspecified targets, resulting in high dependence on face-to-face channels, whereas Japan allows it under the Financial Instruments and Exchange Act, enhancing accessibility. Professor Seo Ji-yong of Sangmyung University’s Department of Business Administration said, "It is problematic that banks mainly operate specific (individual) money trusts, while securities firms focus on unspecified money trusts. This is because they cannot expand their business due to regulatory barriers, and institutional improvements are needed to remove these barriers."