"In the Big Blur Era... Financial and Industrial Separation Regulations Must Be Improved"

[Asia Economy Reporter Eunju Lee] As the ‘big blur’ phenomenon, where the boundaries between financial and non-financial sectors become increasingly ambiguous, accelerates, voices are emerging that regulations should be improved to maintain the basic principle of separation between banking and industry while enabling risk control. There is an opinion that regulations need to be reconsidered from the perspective of expanding the scope of financial companies’ business to diversify banks’ business models.

On the 26th, the Korea Federation of Banks held a financial regulation innovation seminar titled “Separation of Banking and Industry and Improvement Directions for Outsourcing for Financial and Non-Financial Convergence” in cooperation with the Life Insurance Association, the General Insurance Association, the Credit Finance Association, and the Korea Institute of Finance at the 19th-floor auditorium of the Korea Deposit Insurance Corporation in Seoul.

Professor Jeong Soon-seop of Seoul National University, who gave a presentation that day, stated that the basic principle of separation of banking and industry, which restricts industrial capital ownership of banks, should be maintained. However, he believed that changes are needed in the regulations limiting the scope of subsidiaries and incidental business so that banks can diversify their businesses in various ways. Financial companies face certain restrictions on entering other industries due to outdated regulations, but considering the reality that big tech companies are entering or engaging in the financial industry, regulatory adjustments are necessary.

Accordingly, Professor Jeong said, “There is a need to reconsider the separation of banking and industry regulations from the perspective of expanding the functions of financial companies to respond to the digitalization of the economy.” As improvement measures, he suggested “methods such as expanding the scope of incidental businesses and investable subsidiary industries by enumeration while adding efficiency criteria, or switching to a complete comprehensive system by enumerating prohibited industries restrictively and introducing total risk regulation.”

There was also an opinion that the system regulating the outsourcing of financial companies’ business needs improvement. This is because, in an environment where the digitalization of finance is accelerating, the scope of outsourcing by financial companies is increasing. For example, financial companies are outsourcing and collaborating with third-party firms for cloud services or alternative credit evaluation model development. Furthermore, as the bargaining power of trustees receiving outsourced work increases, their influence on banking operations and the associated risks are also rising.

Professor Jeong Jun-hyuk of Seoul National University, in a presentation titled “Improvement of Financial Companies’ Outsourcing System for Utilizing External Resources,” said, “The impact of trustees on financial companies’ operations and sales is expected to increase,” and emphasized that “it is necessary to improve the system to strengthen risk management responsibilities when financial companies outsource or partner.” He added, “Outsourcing is not merely incidental but can play a core role in the management and governance of financial companies, so the financial company’s board of directors should be able to bear responsibility for risk management related to outsourcing.”

Kim Yeon-jun, head of the banking department, who participated in the comprehensive discussion that day, said, “It has been over 10 years since the main contents of the Banking Act and Insurance Act were amended,” and added, “As the environment is changing with the digitalization of finance and the acceleration of convergence between financial and non-financial sectors, we are gathering opinions from various stakeholders from the perspective of providing better services to financial consumers.” He further stated, “We will take a broad approach to create alternatives regarding subsidiary investments, incidental businesses, and outsourcing from the perspective of stimulating innovation in financial companies, efficiently utilizing their human resources, and enabling them to provide better services to consumers.”

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