Financial Crime World

South Korea to Boost Competition in Banking Sector

Seoul, South Korea - A New Era of Financial Reform

South Korea’s financial regulators are taking steps to increase competition in the banking sector, aiming to break the dominance of the country’s biggest lenders. According to sources close to the matter, a joint task force established by the Financial Services Commission and the Financial Supervisory Service is working on proposals to reform banks’ business conduct and capital buffers.

Key Areas of Reform

  • Licensing and Entry: Regulators are exploring ways to make it easier for new players, including challenger banks and internet-only lenders, to enter the market.
  • Stoking Competition: Discussions are underway to expand the scope of services that fintech operators can provide, allowing non-bank institutions to offer a full suite of payment settlement functions.

Expert Insights

Anne Henow, an expert on South Korea’s financial system, highlights the global dynamics driving these changes. “With interest rates rising continuously, global liquidity continues to shrink, affecting economies worldwide,” she explained. “Introducing more competition in the banking sector could be a way to ease such tight credit conditions.”

Regulatory Measures and Their Impact

The task force is also looking into changes to banks’ remuneration policies, including:

  • Say on Pay: A principle that would give shareholders a vote on the pay received by bank executives.
  • Non-Core Services: Boosting non-interest income through the provision of non-core services.
  • Overseas Expansion: Encouraging potential overseas expansion.

Experts believe these changes could have a significant impact on the country’s wider financial services market, potentially benefiting consumers and small businesses. However, regulators are also emphasizing financial stability and consumer protection.

Timeline

The commission and the Financial Supervisory Service are expected to announce specific regulatory measures based on the discussions of the joint working group in June 2023.

Leading Korean law firm Yoon and Yang has published a legal update warning financial services companies that the proposed changes could have a significant impact on their work scope and business environment.