Korea Economic Association Calls for Abolition of Subsidiary Shareholding Requirements and Easing of Industry-Finance Separation Regulations

Rationalizing CVC Fundraising and Investment Target Regulations
Proposals to Broaden BDC Participation and Improve the System
"Need to Advance Systems Centered on Corporate Field Operations"

The business community has proposed institutional reforms for corporate venture capital (CVC) and business development companies (BDC), emphasizing the need to establish a system that enables innovative companies and startups to raise risk capital through the capital market.

The Korea Economic Association announced on the 12th that it had collected opinions from its member companies and submitted 20 proposals for institutional reform to promote productive finance to the Financial Services Commission and the Fair Trade Commission.

Through this proposal, the association presented four key tasks: expanding adventure capital based on the capital market, strengthening the linkage between industry and finance, improving policy finance infrastructure, and enhancing the efficiency of policy finance operations.

Holding company CVCs, introduced to strengthen the innovation investment function of companies, have seen limited utilization due to various regulatory restrictions such as the external funding ratio (40%), debt ratio (200%), and overseas investment cap (20%). In addition, CVCs are restricted from investing in affiliates or companies in which the controlling family holds shares, making strategic investment connections difficult.

BDCs are listed fund vehicles introduced to promote private investment in unlisted and innovative companies. Although they could serve as a key channel for private capital to flow into innovative companies, securities companies are restricted from participating due to potential conflicts of interest, such as prioritizing their own interests in connection with investment banking work and the risk of transferring non-performing assets.

In response, the association pointed out that securities companies already strictly block information exchange between investment and sales divisions through the "Chinese Wall" system, which can prevent conflicts of interest. Therefore, there is no need to restrict the participation of securities companies with operational capabilities and market expertise in BDCs.

The association emphasized the need to rationalize regulations on CVC fundraising and investment targets, and to broaden the range of participants in BDCs to create an environment where private capital can flow more smoothly into the market. It also stated that, to establish a virtuous cycle between industry and finance, there should be rational improvements to the requirements for holding company subsidiaries’ shareholding ratios and the restrictions on financial company shareholdings.

Under the current Monopoly Regulation and Fair Trade Act (Fair Trade Act), general holding companies are required to hold a certain percentage of their subsidiaries’ shares (30% for listed subsidiaries and 50% for unlisted subsidiaries) and are, in principle, prohibited from holding financial companies.

The association pointed out that these regulations not only increase the financial burden on holding companies but also restrict collaborative investment and innovative capital management between industry and finance. Accordingly, it called for the abolition of subsidiary shareholding requirements for holding companies and a phased relaxation of regulations to allow holding companies to own credit finance companies in the short term and financial companies in the long term.

The association also stated that, to secure policy finance more efficiently, it is necessary to further advance the government’s ongoing "Policy Finance Integrated Platform" initiative, which aims to consolidate policy finance that has so far been operated sporadically by various institutions, thereby enhancing user convenience.

In particular, the association suggested that the platform should evolve into an "AI-based policy finance matching and execution platform," where artificial intelligence analyzes a company’s industry, size, financial status, and funding purpose to comprehensively assess its characteristics and capital needs, and then automatically recommends, applies for, and executes optimized policy finance products. The core of this platform is to enable companies to quickly secure the funds they need through an intelligent financial support system that automatically processes everything from real-time data linkage and analysis, to support limits, guarantee and loan procedures, and post-management in a single channel.

The association stressed that, by upgrading existing government systems to be more company-oriented, the effectiveness and accessibility of policy finance could be significantly enhanced. It also noted the need for institutional improvements such as simplifying review procedures and reducing administrative burdens, so that policy funds can be provided to companies swiftly and efficiently in response to their funding needs.

Specifically, for companies verified by recommending institutions (such as associations or cooperatives), the association requested that part of the evaluation stage be standardized and simplified so that funds can be disbursed quickly by streamlining the support process. Additionally, it emphasized that the administrative cost burden continues due to the complexity of post-funding documentation and reporting procedures, and called for the introduction of electronic receipt and automatic account verification functions in the policy portal to minimize the burden of document submission.

Lee Sangho, Head of the Economic and Industrial Division at the Korea Economic Association, stated, "For productive finance to truly take root, it is essential to create an environment where finance leads to corporate innovation and investment," adding, "We hope that the direction of the government’s ongoing financial and industrial policies will boost market vitality and lead to regulatory innovations that companies can truly feel."

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