Holding Company CVC Permission Law... 'Fair Trade Commission - Ministry of SMEs' Still at Odds

Fair Trade Commission: Only Possible to Check Chaebols Through Amendment of the Fair Trade Act
Ministry of SMEs and Startups to Revitalize Investment with the Venture Investment Act
President Moon Orders "Quick Conclusion" but Standoff Continues

Minister Park Young-sun of the Ministry of SMEs and Startups (left) and Chairman Cho Sung-wook of the Fair Trade Commission. (File photo)

[Sejong=Asia Economy Reporter Joo Sang-don] The government had planned to announce within this month a measure allowing conglomerates under holding company systems to own corporate venture capital (CVC), but it appears that disagreements between ministries have yet to be resolved. The Fair Trade Commission (FTC) insists on including provisions for CVC ownership by holding companies through amendments to the Monopoly Regulation and Fair Trade Act, while the Ministry of SMEs and Startups (MSS) argues that the Venture Investment Promotion Act should contain the allowance for CVCs within holding companies. Ultimately, President Moon Jae-in personally intervened, ordering, "Reach a conclusion quickly and implement it."

According to Asia Economy’s coverage on the 22nd, the biggest point of contention between the FTC and MSS is which law should permit holding companies to own CVCs.

The FTC holds the position that it is appropriate to regulate CVC ownership by holding companies through an exception clause in the Fair Trade Act, which stipulates the principle of separation between financial and industrial capital for holding companies. Initially, the FTC was opposed to allowing holding companies to own CVCs, citing concerns over "private interest appropriation" where the controlling family might channel work (investments) to their own venture companies via CVCs. However, seeing that allowing CVC ownership through the Venture Investment Act, as MSS advocates, would make it difficult to check the controlling family, the FTC shifted its stance toward amending the Fair Trade Act. An FTC official said, "The regulation on separation of financial and industrial capital is in the Fair Trade Act, and it does not make sense to resolve it through another law," adding, "Also, limited ownership, i.e., safeguards, are essentially regulations, and placing them in the Venture Investment Act would make it difficult for the FTC to manage and supervise CVCs."

The MSS believes that permitting holding companies to own CVCs through the Venture Investment Act is reasonable both in terms of justification and practicality. For investment activation, the promotional purpose of the Venture Investment Act aligns better than the Fair Trade Act, and if CVC introduction is regulated under the Fair Trade Act, CVCs would have to comply with two laws, creating a burden. An MSS official explained, "The Fair Trade Act only regulates whether general holding companies can own CVCs, but the Venture Investment Act includes registration and operation matters for venture capital (VC). VCs that raise funds externally must register with the government under this law, which already has regulations and rules on fund formation, operation, and investment obligations." He added, "If CVC ownership by holding companies is allowed through the Fair Trade Act, startup investment firms that basically follow the Venture Investment Act would also have to check the Fair Trade Act additionally. If there are concerns about private interest appropriation by the controlling family, restrictions can be placed within the Venture Investment Act."

The government plans to announce a limited allowance plan for holding companies’ CVC ownership by the end of this month. A Ministry of Economy and Finance official said, "Initially, there were significant disagreements over regulatory methods and levels, but much has been narrowed down," and added, "We will present a concrete plan on which law?Fair Trade Act or Venture Investment Act?will allow holding companies to own CVCs, and what level of prior control measures will be implemented."

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