[Economic Insight] The Out-of-Place Debate Over Easing the Separation Between Finance and Industry

On October 1, 2025, President Lee Jaemyung announced his intention to ease the separation of banking and commerce regulations, specifically for the artificial intelligence (AI) industry. During a meeting at the presidential office with Sam Altman, CEO of OpenAI, Lee Jae-yong, Chairman of Samsung Group, and Chey Taewon, Chairman of SK Group, President Lee stated, "Given the sheer scale of AI investment, we can consider relaxing the separation of banking and commerce regulations within a framework that has safeguards to prevent the harms of monopoly when securing funding."

It was not immediately clear why relaxing the separation of banking and commerce regulations would be essential for advanced industry investment. The separation of banking and commerce in Korea is symbolic-first and foremost, it aims to prevent financial institutions from being used as private coffers by conglomerates. This separation is codified in several laws, most notably prohibiting industrial capital from owning more than 4% of a bank, banning general holding companies from owning financial subsidiaries, and restricting financial companies from owning or investing in non-financial (industrial) subsidiaries. The core idea is to prevent financial companies from lending to, or purchasing stocks and bonds of, affiliated companies that have trouble raising funds, without considering profitability. This is a safeguard to prevent financial firms, with their strong fundraising capabilities, from providing improper support to affiliates, which could lead to financial instability.

Why, then, is there a need to relax the separation of banking and commerce regulations? Even if large-scale investment is needed in advanced industries, companies like Samsung Electronics or SK Hynix could raise funds through rights offerings, bond issuance, or bank loans. There is also talk of creating a 150 trillion won National Growth Fund. So, is the idea to mobilize financial company funds to support industrial capital affiliates by relaxing these regulations? That seemed odd.

Subsequent discussions clarified that there was no intention to overhaul the fundamental framework of the separation of banking and commerce. Instead, a limited relaxation, similar to the special exception for internet banks, is being seriously considered for strategic industries. When industrial capital was allowed to own internet banks, the rationale was that companies with deep IT expertise should be at the center to build proper internet banks. The same logic is being applied to advanced industries such as semiconductors, AI, and batteries, where companies with sector-specific expertise should lead investment decisions.

The presidential office is reportedly considering relaxing the separation of banking and commerce only when companies like Samsung or SK make large-scale investments in advanced industries such as AI and semiconductors. Under the current separation principles, industrial capital cannot directly create and manage funds as a general partner (GP) for advanced industry investment. The proposal is to allow exceptions or to permit joint GP structures with vehicles like the National Growth Fund. In this case, there would be no need to simultaneously relax regulations on corporate venture capital (CVC), as some have demanded. There is also expected to be discussion about exceptionally easing the investment limits for banks and insurance companies in non-financial firms, thereby broadly allowing direct and indirect investments in strategic industries.

On October 16, 2025, the Korea Chamber of Commerce and Industry, in its policy proposals for the regular session of the National Assembly, called for more flexible regulations, stating, "Allow companies with expertise in industry and technology to own asset management firms and establish strategic industry funds by making the separation of banking and commerce regulations less rigid." Under the current holding company system, the Fair Trade Act broadly prohibits not only banks but also non-bank financial companies (such as insurance, securities, and asset management firms) from being owned by holding companies. In non-holding company systems, the Capital Markets Act prohibits private equity funds (PEFs) of large business groups from investing in affiliates, which acts as a constraint on advanced industry initiatives. The Chamber also cited the example of the United States, where the separation of banking and commerce is more flexible, and recently, semiconductor company Intel partnered with asset manager Apollo in a 51:49 joint venture to build a new fabrication plant.

Relaxing various investment regulations to promote the development of Korea's advanced industries is a positive move. However, let's not call it easing the separation of banking and commerce. Instead, let's refer to it as relaxing PEF or CVC regulations. The phrase "easing the separation of banking and commerce" immediately brings to mind the risk of conglomerates turning financial institutions into private coffers.

Jeon Sungin, a prominent advocate for chaebol reform and professor at Hongik University, criticized the idea in a column titled "Relaxing the Separation of Banking and Commerce Regulations Is Not Acceptable," published in the Hankyoreh on October 15, 2025. He referenced the Park Geunhye administration's push to allow intermediate financial holding companies, arguing that relaxing these regulations or amending the Fair Trade Act could enable illegal succession within conglomerates. While I do not agree with Professor Jeon's argument, relaxing the separation of banking and commerce inevitably raises such suspicions.

The intention behind mentioning the relaxation of the separation of banking and commerce was not out of the blue, but the very use of the term itself seems misplaced.