"Financial Holding Companies Allowed Up to 15% Stake in Fintech"… Financial Holding Companies Act Amendment Bill Proposed

FSC Announces Legislative Notice for Amendment to the Financial Holding Companies Act
Financial Holding Companies Allowed to Own Up to 15% Stake in Fintech Firms

Regulations on fintech company investments by financial holding companies will be eased. The relaxation of fintech investment and ownership regulations for financial holding companies aims to promote the development of the financial market.

On the 13th, the Financial Services Commission announced that it will conduct a legislative notice on the 14th for the amendment of the 'Financial Holding Companies Act' and the 'Enforcement Decree of the Financial Holding Companies Act,' which includes improvements to enable financial holding companies to create synergy within their groups and respond to environmental changes.

According to the FSC, although financial holding companies have steadily grown, there has been some evaluation that qualitative growth such as organic business promotion and synergy creation within the group has been somewhat insufficient due to investment regulations and ownership restrictions. Accordingly, the FSC prepared this institutional improvement plan by listening to various field difficulties and institutional improvement suggestions from industry, academia, and private experts through the Financial Holding Company System Improvement Task Force (TF), meetings with financial holding company chairpersons, and fintech meetings.

Under the proposed amendment, financial holding companies will be allowed to invest up to 15% in fintech companies that are not subsidiaries. This will enable the establishment of free partnerships between financial holding companies and promising fintech companies. Currently, the Financial Holding Companies Act stipulates that financial holding companies can hold 50% or more (30% for listed companies) of another company's shares (controlling it as a subsidiary), or only up to 5% if it is not a subsidiary. This rigid investment regulation has made it difficult to build strategic partnerships between financial holding companies and fintech companies, leading to this legal amendment.

Additionally, the amendment includes provisions to ease ownership regulations for financial holding companies to facilitate the smooth supply of innovative financial services. Fintech companies that are subsidiaries of financial holding companies will be allowed to own financial companies (investment advisory firms, discretionary investment managers) that have business relevance as subsidiaries. Currently, fintech companies that are subsidiaries of financial holding companies cannot own other subsidiaries (grandchild companies of the financial holding company). This change addresses concerns that fintech subsidiaries' inability to own other financial companies limits the provision of financial services utilizing technologies such as artificial intelligence (AI).

The reporting system for business consignment will also be simplified to enhance synergy within financial holding groups and enable swift business consignment. Although subsidiaries of financial holding companies can currently outsource work to other subsidiaries, excessive regulations such as requiring prior approval from financial authorities have made swift business consignment difficult, and this has been improved.

Furthermore, the amendment relaxes control regulations to resolve operational restrictions on grandchild companies of financial holding companies. As a result, grandchild companies of financial holding companies can establish and operate institution-only private equity funds (PEFs) as general partners (GPs). It also clearly stipulates that when subsidiaries of financial holding companies become GPs of institution-only PEFs, the obligation to own shares is exempted.

The amendment to the Financial Holding Companies Act and its Enforcement Decree will be open for legislative notice from the 14th until the 26th of next month. Afterwards, the bill will go through procedures including FSC resolution, review by the Office for Government Policy Coordination, and approval by the Deputy Prime Minister’s meeting and Cabinet meeting before being submitted to the National Assembly.