Financial Holding Company Chairman: Is a 'Strangulation Law' Coming?

Ruling Party Plans to Propose Related Legislation with Financial Labor Union
Concerns Grow Over Intensified 'Discipline' Ahead of Presidential Election

[Asia Economy Reporter Kiho Sung] The Democratic Party of Korea has decided to join forces with the National Financial Industry Labor Union (Financial Labor Union) to propose a bill that limits the reappointment of financial holding company chairpersons and prohibits executives from holding concurrent positions. Park Yong-jin, a Democratic Party lawmaker who is leading the bill's proposal, recently declared his candidacy for the presidential election, raising the possibility that related discussions will intensify during the ruling party's primary process. Financial companies have expressed concerns, calling it excessive intervention in the market and businesses.

According to political and financial circles on the 2nd, Park and the Financial Labor Union announced at a press conference held at the National Assembly the day before that they plan to soon propose an amendment to the Financial Company Governance Act.

The core of the amendment is to establish provisions regulating the qualifications of financial holding company representatives. It will include limiting reappointment to one time and capping the total term at six years. If the bill passes, all of the five major financial holding companies except NH Nonghyup Financial will be subject to the law. The chairpersons of the four major financial holding companies have already been reappointed at least once.

Additionally, the current governance law’s exception clause allowing holding company chairpersons to concurrently serve as representatives of subsidiaries such as banks, securities, and insurance companies will be deleted.

Park and the Financial Labor Union argue that excessive authority is concentrated in financial holding company chairpersons, undermining fairness and independence. However, there are criticisms that legally restricting personnel rights of private financial companies goes beyond administrative finance into political finance, hindering industrial growth.

Professor Seongjin Kang of Korea University’s Department of Economics stated, "It is not right to regulate personnel matters of private companies by law. While the reappointment of financial holding company chairpersons can cause various issues, these are matters for improvement, not for legal prohibition."

The financial sector is wary of increasing political intervention in finance with the presidential election just over a year away. Policy discord between the political and financial sectors has been intensifying since early this year as the COVID-19 situation somewhat eased. This is because the financial sector was stigmatized as the industry that benefited the most during the pandemic.

The ruling party has been applying pressure in various ways since early this year, after limiting the financial sector’s profit-sharing system known as the ‘Interest Stop Act.’ A representative example is the ‘Bank Act Amendment,’ which allows businesses with reduced income due to disasters to apply for principal reduction and interest repayment deferral. Also, the ‘Basic Loan Act,’ which was proposed on the same day, enables low-interest loans of up to 10 million KRW at 3% interest for young people. The amendment to the ‘Act on Support for Financial Life of the Underprivileged (Amendment to the Underprivileged Financial Support Act),’ which requires the financial sector to contribute over 200 billion KRW annually for five years to support low-income households, has passed the National Assembly plenary session and is about to be implemented.

The financial sector fears that political pressure to ‘tame’ the financial industry will intensify ahead of the presidential election. A financial industry official said, "The financial industry is one of the sectors that faces strong political pressure every presidential election. Especially with the COVID-19 situation, the pressure is even greater this time."

Professor Kang pointed out, "Regulation for the sake of regulation can ultimately cause public misunderstanding that ‘a particular industry has problems.’ The problem is that political circles are trying to use excessive power over the private market by riding public opinion ahead of the election."

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