Hana Financial Group Applies for Subsidiary Inclusion Review of The-K Non-Life Insurance... Any Issues with Acquisition?

Financial Services Commission: "Application of the Holding Company Act... Major Shareholder Eligibility Issues Do Not Constitute Grounds for Review Suspension"
Different from Hana Financial Investment M&A... Points Out Legal Contradictions in Licensing Regulations

[Asia Economy Reporters Haeyoung Kwon, Minyoung Kim] Hana Financial Group has applied to financial authorities for approval to incorporate The-K Non-Life Insurance as a subsidiary. Initially, it was expected that controversies over the suitability of Hana Financial Group’s major shareholder would hinder the licensing process, but since the Holding Company Act rather than the Governance Act applies, it is unlikely to become a major obstacle. Some argue that the financial authorities have exposed a 'legal contradiction' in licensing regulations, as they have suspended the merger and acquisition (M&A) review of Hana Financial Investment’s asset management company for over two years due to concerns about Hana Financial’s major shareholder suitability.

According to financial authorities and the financial sector on the 16th, Hana Financial Group applied to the Financial Services Commission on the 9th for approval to incorporate The-K Non-Life Insurance as a subsidiary and is currently under review. Last month, Hana Financial signed a stock purchase agreement to acquire 70% of The-K Non-Life Insurance shares from the Korea Teachers’ Credit Union for 77 billion KRW.

A Financial Services Commission official stated, "We are currently reviewing Hana Financial Group’s application to incorporate The-K Non-Life Insurance as a subsidiary," adding, "Issues regarding the suitability of the major shareholder should not be grounds for suspension in this review and, in principle, should not affect the examination."

Initially, the financial sector viewed the major shareholder suitability review by financial authorities as one of the biggest hurdles in Hana Financial Group’s acquisition of The-K Non-Life Insurance. This is because Chairman Kim Jung-tae of Hana Financial Group was reported to the prosecution in June 2017 over allegations that he gave preferential promotions to a Hana Bank employee who managed funds related to the Choi Soon-sil scandal, and the prosecution investigation is still ongoing. Previously, the Financial Services Commission had withheld approval for over two years on Hana Financial Investment’s acquisition of a 51% stake in Hana UBS Asset Management, a deal with Swiss UBS AG, citing this issue. Therefore, from the perspective of consistency and fairness in licensing reviews, it was expected that approval for the acquisition would not be easy. However, the Financial Services Commission has decided not to suspend the subsidiary incorporation review for Hana Financial Group, unlike with Hana Financial Investment.

The reason for the differing stances of financial authorities regarding M&A licensing reviews for two companies within the same financial group is due to the different laws applied. Hana Financial Investment is subject to the Governance Act as an individual law, whereas Hana Financial Group is governed by the Holding Company Act.

A Financial Services Commission official explained, "The Governance Act includes provisions allowing suspension of major shareholder suitability reviews under certain circumstances, whereas the Holding Company Act does not," adding, "The Holding Company Act will be applied in the review of Hana Financial Group’s incorporation of The-K Non-Life Insurance as a subsidiary, and the presumption of innocence for unresolved matters is the basic principle, so the review will proceed with this in mind."

In this context, some in the financial sector point out the legal contradictions in licensing regulations. Financial authorities apply the Holding Company Act when the subsidiary’s assets exceed 100 billion KRW, and apply the Governance Act as an individual law if below that threshold. The problem is that grounds for suspending reviews due to major shareholder suitability issues exist in the Governance Act but not in the Holding Company Act. In particular, some sectors such as financial holding companies and banks are excluded from the Governance Act’s scope, so holding companies do not undergo separate major shareholder suitability reviews during M&A assessments.

As a result, paradoxically, holding companies with much larger asset sizes do not undergo major shareholder suitability reviews, while smaller individual companies do and may face delays of over two years in obtaining M&A approval. This highlights the need to amend the Governance Act.

Since financial authorities pledged last year through the Financial Supervisory Innovation Plan not to deliberately delay licensing reviews, it is expected that review delays will be difficult unless there are special reasons. However, conflicts with the Financial Supervisory Service may remain a variable, as Hana Bank deleted internal documents ahead of the Financial Supervisory Service’s inspection of overseas interest rate-linked derivative-linked funds (DLF) last year, deepening tensions.

Lee Si-yeon, a research fellow at the Korea Institute of Finance, said, "There is a definite need to supplement the excessively relaxed standards for the suitability of controlling shareholders of bank holding companies," but added, "As control weakens further down the chain to subsidiaries and sub-subsidiaries, there are calls to strengthen control over subsidiaries, so it may be difficult to treat bank holding companies the same as other subsidiaries in terms of suitability standards."

This content was produced with the assistance of AI translation services.