Significant Rollback of the 'Saemaeul Geumgo Proliferation Prevention Act' Amid Industry Backlash

Government Reissues Partial Amendment to Saemaeul Geumgo Act Enforcement Decree
Initial Capital Raised Sharply from 500 Million to 5 Billion Won
Adjusted to 2 Billion Won with Implementation Delayed by 5 Years

The regulatory bill created by the government to prevent the proliferation of Saemaeul Geumgo has significantly retreated amid industry backlash and opposition from some ministries. Critics say that the government's withdrawal of the bill, which was announced as a comprehensive measure to strengthen soundness, has diluted the original intent of the legislation.

According to related ministries on the 13th, the Ministry of the Interior and Safety announced the re-legislative notice of a partial amendment to the Enforcement Decree of the Saemaeul Geumgo Act the day before. This means the bill announced during the legislative notice in March was changed within three months, mainly by lowering the previously strict establishment requirements and postponing the implementation date.

In August last year, the government announced a 'Comprehensive Plan to Strengthen Soundness' after a series of financial accidents occurred at Saemaeul Geumgo. At that time, the government viewed that the establishment conditions for Saemaeul Geumgo were too easy, leading to the proliferation of small-scale Geumgo, and that the lack of monitoring and checks resulted in internal control accidents such as embezzlement and non-performing loans. Accordingly, it announced plans to raise the establishment standards to prevent the proliferation of potentially insolvent Saemaeul Geumgo and protect members' assets.

The government planned to increase the required capital contribution for establishing Saemaeul Geumgo by tenfold. For example, the establishment condition within metropolitan cities and special cities, which previously required only 500 million KRW, was to be raised to 5 billion KRW. For cities, it was to be raised from 300 million KRW to 3 billion KRW, and for towns and townships, from 100 million KRW to 1 billion KRW. However, in the current re-legislative notice, these amounts were relaxed to 2 billion KRW for metropolitan cities, 1 billion KRW for cities, and 500 million KRW for towns and townships, which is looser than the original plan.

Moreover, it was decided to maintain the current standards until 2025. From 2025 to 2028, the capital contribution standards will be set at 1 billion KRW, 600 million KRW, and 200 million KRW respectively, allowing for a transitional period. A new clause was also added stating that the regulatory bill will be enforced from July 1, 2028, meaning the regulations will likely be applied only five years later. The number of consenters required when establishing Saemaeul Geumgo was planned to increase from 100 to 1,000 but was completely removed. In other words, the government significantly revised the regulatory bill it had introduced as a soundness measure within about a year.

Capital Contribution Limit '5 Billion KRW' Was Said to Be Reasonable... But Dropped Sharply to 2 Billion KRW

Initially, the Ministry of the Interior and Safety held the position that a capital contribution limit of 500 million to 5 billion KRW was reasonable, considering establishment costs and fairness with other financial sectors. Typically, securing the human and material resources necessary to establish a Geumgo costs at least about 1.26 billion KRW. In the case of savings banks, which are also part of the secondary financial sector, the capital requirement was raised more than 100 times from 15 million to 60 million KRW in 1995 to 2 billion to 6 billion KRW. In 2001, it was raised again to 4 billion to 12 billion KRW.

The reason for loosening the establishment requirements again lies in industry concerns. Inside the National Federation of Saemaeul Geumgo, there were voices that the bill would make it difficult to establish Geumgo. A National Federation of Saemaeul Geumgo official explained, "It might be a decision considering the autonomous cooperative nature of Saemaeul Geumgo," but added, "As a result, the capital requirement increased about fourfold from 500 million KRW to 2 billion KRW, so it will have an effect in preventing proliferation." He also said, "It will become difficult to attempt establishment with minimal capital."

Other government ministries also expressed differing opinions. In particular, the Office for Government Policy Coordination reportedly suggested that the bill should be revised. The reason is that raising the establishment approval standards is more about restricting competition than strengthening soundness. Increasing the capital contribution limit raises entry barriers, reducing new market participants and potentially causing side effects.

The Ministry of the Interior and Safety responded to criticism that the amendment's intent was diluted by saying, "The expression 'prevent proliferation' did not mean to block all market entry unconditionally," and added, "It meant that only those who meet certain requirements should enter."

[Image source=Yonhap News]

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