The South Korean government has eased regulations to allow foreign financial institutions to establish subsidiary banks in Korea. The Financial Supervisory Commission (FSC) and the Financial Supervisory Service (FSS) amended the Guidelines for Authorization of Banking Business to allow for these changes.
Previously, foreign financial institutions could operate in Korea only by setting up bank branches or by investing in Korean banks. With the changes to the regulations, a foreign financial institution may establish a subsidiary bank by fulfilling the following criteria: (i) if requested by the FSC/FSS, the foreign financial institution must get the approval of the supervisory authority of its home jurisdiction with regards to setting up a subsidiary bank; (ii) the supervisory authority of the home jurisdiction must supervise the foreign financial institution and its overseas subsidiaries and branches; (iii) the foreign financial institution must be well managed and capitalized, and must be recognized internationally; (iv) the foreign financial institution must prudently manage its subsidiaries and branches; and (v) any information the FSC/FSS needs to supervise the management and business activities of the foreign financial institution must be provided.
The amendments to the regulations will also relax barriers for banks from developing nations to open branches in Korea or to create subsidiaries in the country, due to the deletion of the international finance business requirement that applied to such banks previously.
The FSC/FSS expects that the changes will promote efficiency in the banking industry through increased competition. Further, the Korean banking market will become more open to banks from developing countries. These changes will hopefully result in better performance for Korean banks, as profitability at Korean banks was 10% of that for banks in the Group of Seven Countries at the end of 2003.