[Editorial] Investment Regulation Reform

The International Institute for Management Development (IMD) announced that this year, Korea ranked 51st among 61 surveyed countries in the competitiveness of corporate laws. Kwon Oh-seung, Chairman of Fair Trade Commission said, “We will reform inappropriate institutions such as the regulation on total equity investment.”

Yoon Jeung-hyun, Governor of Financial Supervisory Service, said in New York recently, “In order to use domestic corporate capital effectively, the authorities must ease the limit on corporate capital’s ownership of financial institutions. Such remarks clearly show why Korea’s corporate laws ranked near the bottom in the IMD’s assessment.

Kwon said, “As the regulation on total equity investment has so many flaws and exceptions, I do not exactly know about the extent of the exceptions it makes.” Given this situation, it is natural corporations do not have a clear picture about the regulation. Nonetheless, the government has kept delaying its regulatory reform. The Fair Trade Commission said that it will discuss the issue of abolishing of the regulation after it draws up measures to prevent side effects of the circular cross-unit equity investment. There has been no mention on how to ease the regulation limiting corporate possession of banks. Given the government’s unwillingness to shed such harmful regulations, no wonder Korea’s competitiveness keeps falling.

The Roh administration has faithfully stuck to the regulation on total equity investment for the past three years. As a result, listed companies are unwilling to make investments, even though they have about 70 trillion won in their safes. When corporate capital owns banks, there will be problems such as conflict of interest, transfer of losses and concentration of economic power. As to these side effects, Governor Yoon said, “The current financial system has capabilities to prohibit banks owned by corporations from becoming their private safes.” Then there is no reason to stick to the principle of separation between corporations and banks, which has exposed corporate Korea to the threat by foreign speculative capital.

The Fair Trade Commission said in its report released last month, “While the economy is ever advancing into the digital era, the government is still sticking to duplicate and excessive regulations.” Despite this, there has been no deregulation effort made so far. The government must start the process of scrapping the regulation on total equity investment now. Also it must present a detailed timeframe for easing the limit on corporate ownership of financial institutions. These regulatory reform efforts will lead to creating more jobs and income, and is the right move for the interests of the middle class and ordinary citizens in Korea.