A financial holding company's subsidiary has now gained the opportunity to establish and operate a private equity fund (PEF) exclusively for institutions.
The Financial Services Commission noted on the 13th that it will begin a legislative notice for the revised 'Financial Holding Company Act and Enforcement Decree,' which includes these details, from the 14th to the 26th of next month. The revision will be presented to the National Assembly after going through the Financial Services Commission's resolution, the Legislation Office's review, and the Vice Ministerial and Cabinet Council's approval.
The core of this revision is to relax governance regulations so that a financial holding company's subsidiary can operate an institutional PEF. The current Financial Holding Company Act has prevented subsidiaries from controlling great-grandchildren (subsidiaries of subsidiaries) to avoid excessive vertical governance structures. However, it has been criticized that the asset management subsidiary cannot establish and operate a PEF, which is its primary business.
Meanwhile, the revision also includes a plan to allow financial holding companies to hold equity in fintech corporations from the previous 5% up to 15%. Fintech corporations can receive support while maintaining management rights, and financial holding companies can collaborate through equity investment rather than control.
Financial holding companies can control subsidiaries by holding more than 50% of their equity (30% for listed companies), but if they are not subsidiaries, they can only hold 5% of the equity. However, with the acceleration of digital transformation in finance, voices have been raised for reforming the system. This funding regulation is said to hinder the establishment of strategic partnerships between financial holding companies and fintech corporations.
The revision also includes provisions that if a fintech corporation is a subsidiary of a financial holding company, it can own a financial company with operational relevance as a subsidiary. Additionally, when a subsidiary of a financial holding company entrusts work to other subsidiaries, if it is not an essential task, a plan to simplify the reporting system requiring post-reporting to financial authorities will also be promoted.