Financial Companies of Large Conglomerates Are Restricted in Purchasing Subsidiaries` Shares

Insurance and financial companies of large conglomerates will not be allowed to purchase shares of their affiliated firms more than a fixed rate.

According to the Korea Fair Trade Commission (KFTC) on Jan. 16, it has recently reported the Presidential Transition Committee (PTC) that it will push for a plan to request for separating subsidiaries, targeting insurance and financial companies of large chaebol that cross-fund is restricted. If the plan does not work, it will introduce a system that will restrict purchase of shares by affiliated firms.

Even now, financial companies of large conglomerates are regulated not to possess shares of the whole company more than a fixed rate of the total or trust assets, while there is no restriction to acquiring shares of each subsidiary.

In particular, the new system will be tougher than the current forward-looking criteria, because it is targeting the separation of industrial capital and financial capital. Therefore, should it be introduced, life insurance and investment trust companies of major conglomerates are expected to be considerably restricted to the assets management.

Lee Dong-gyu, director general of Antitrust Bureau of the KFTC said, “The Japanese government has been regulating financial companies not to possess shares of a particular company by more than 5-10% through the antitrust law. We are considering the introduction of the system for Korean financial companies of chaebol.”

“When the task force of the Ministry of Finance and Economy and the Financial Supervisory Commission (FSC) is organized for the introduction of the request for separating subsidiaries, we will discuss the restriction rate of share and whether to introduce a system that will restrict purchase of stocks by affiliated firms,” he added.

An official of the Ministry of Finance and Economy said, “The purpose is opposite in that the Japanese system is aimed at preventing the financial capital from dominating the industries. But it seem to have less negative effects than the one that requests for separating subsidiaries.”

The Ministry of Finance and Economy and the Financial Supervisory Commission are skeptical about the system that requests for separating subsidiaries due to the violation of the constitution and the possible drain of the national wealth. However, they agree that there needs to be a strengthened measure to supervise and regulate assets management in order to prevent financial firms from being like a private safe of major companies.

In the meantime, the KFTC said that it reported the PTC on a plan to introduce the US system to order companies to split off.

Kwang-Am Cheon iam@donga.com