Democrats Push to Ease Geumsan Separation Regulations... "Should View from Economic, Not Moral Perspective"

Kim Byung-wook and Lee Won-wook Propose Partial Amendment to the Fair Trade Act Allowing General Holding Companies to Own CVCs

On the 11th, a forum on revitalizing corporate-led venture capital CVC, hosted by the Democratic Party's COVID-19 National Crisis Overcoming Committee, was held at the National Assembly. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Wondara] The Democratic Party of Korea is pushing for a plan to allow general holding companies to own corporate venture capital (CVC) to foster venture companies. The intention is to ease regulations on startup investments by large corporations.

On the morning of the 11th, Democratic Party lawmaker Kim Byung-wook held a forum on the "CVC Activation Plan" at the National Assembly, stating, "Concerns about side effects such as the possibility of slush funds due to general holding companies owning financial firms have decreased, and control will be possible through legislative adjustments." He added, "We must actively utilize the advantages of CVCs and block side effects through other control measures, achieving regulatory innovation through system design." Democratic Party lawmaker Lee Won-wook also supported this, saying, "Now, it is necessary to approach the ownership of CVCs by general holding companies not from a moralistic perspective but from an economic revitalization perspective."

Under the current Fair Trade Act, based on the principle of separation between finance and industry, general holding companies are prohibited from owning CVCs classified as financial businesses. Accordingly, lawmakers Kim and Lee proposed a partial amendment to the Fair Trade Act to exclude cases where small and medium enterprise startup investment companies and new technology business finance operators are involved, which are financial sectors that general holding companies cannot own. The Fair Trade Commission has also announced a comprehensive amendment to the Fair Trade Act that removes the prohibition clause. Except for the case allowing internet-only banks, this could be the first exception to the finance-industry separation under the Fair Trade Act, so the matter has been postponed as a subject for National Assembly discussion.

However, concerns have also been raised. Kang Ji-won, a researcher at the National Assembly Legislative Research Office, said at the forum, "If CVCs are excluded from financial businesses, there is a risk that it could be abused as a means to expand the controlling family's control over non-financial affiliates." He added, "It would be clearer to have a provision that considers CVCs as non-financial companies only in relation to the finance-industry separation regulation." Furthermore, he suggested, "To prevent excessive inflow of CVC funds into unlisted venture companies where the controlling family holds a high stake, a measure requiring CVC investment and transaction details to be reported to the Fair Trade Commission should be considered."

Meanwhile, currently, venture investments by large corporations are conducted mainly through subsidiaries rather than holding companies. Regarding this, Professor Kim Do-hyun of the Department of Business Administration at Kookmin University said at the forum, "Samsung, which operates Samsung Venture Investment, is investing centered on Samsung Electronics." He added, "When investments are made by individual affiliates rather than holding companies, it is unrealistic to form a portfolio of 20-30 investments given the high failure rate of venture investments. Also, if a CVC is established as a grandchild company of a general holding company, the holding company must own 100% of the shares of the great-grandchild company, which imposes a heavy financial burden."

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