The financial sector as engine for growth

There was no hope of applying the Chatham House rule at yesterday’s talk by HE Dr Jun Kwang-woo, chairman of Korea’s Financial Services Commission. With two TV cameras and numerous digital recorders on show, this meeting was firmly on the record.

Reflecting the more formal nature of this meeting, Dr Jun spoke from a prepared text, though there was also a generous amount of time afterwards for Dr Jun to take questions from the floor.

It was a whistle-stop tour for Dr Jun. Earlier in the week he had been at the IOSCO meeting in Paris, where he was appointed Chair of IOSCO’s regional committee for Asia. He was only in London for the day and was heading back to Seoul immediately after the Chatham House session. He will be back at his desk at the FSC on Sunday. It’s a 24/7 administration.

Usefully, Dr Jun began his talk by explaining what his Commission is called. If you go to the website (www.fsc.co.kr) you will variously see “Financial Services Commission”, “Financial Supervisory Commission” and “Financial Supervisory Service”. Like other ministries, the Commission has been through one of President Lee’s reorganisations. The new Financial Services Commission is the result of merging the Financial Policy Bureau of the Finance Ministry and the (old) Financial Supervisory Commission – thus bringing together under one roof both policy-making and supervision. The Financial Supervisory Service remains as the arm of the Financial Services Commission which conducts on-the-ground supervision of financial institutions.

Having got that out of the way, Dr Jun gave a regional perspective on some of the recent financial turmoil, and highlighted ASEAN Plus 31 and the Chiang Mai Initiative as regional efforts to coordinate financial stability.

Dr Jun then moved on to setting out his domestic agenda:

  1. A “Big Bang” to reorganise Korea’s financial sector, with the Capital Markets Consolidation Act coming in to force next year. An English translation of this is currently being prepared. Dr Jun considered the UK’s Big Bang in 1987 to be a good model, and preferred it to the more gradual approach adopted in Japan
  2. The establishment of Financial Clusters, where resources and financial expertise are concentrated, with an aim to assisting in the formation of new business ventures
  3. Strengthening international cooperation between regulators. Dr Jun stressed the importance of information exchange between national supervisors when dealing with international banking groups. Korea currently has formal memoranda of understanding with 19 regulators in 13 countries (including the UK, but excluding the US – that’s work in progress at the moment). Dr Jun also stressed the importance of risk-based supervision, and also expressed a strong desire to move towards principles-based regulation. Earlier in the day he’d had a chance to compare notes with Calum McCarthy at the FSA.
  4. Enhancing the competitiveness of the financial sector through privatisation and introduction of new investment. In this context he noted the upcoming privatisation of Korea Development Bank.

A lot of these changes require a gradualist approach. In respect of the introduction of new capital into the financial services industry – particularly capital from the chaebol – Dr Jun envisaged a step-by-step raising of the maximum shareholdings permitted, and he recognised that the move to a more principles-based framework could not happen overnight. But he viewed the arguments for both as compelling: complex rule-based frameworks inhibit innovation, increase compliance costs and prevent effective enforcement, while when industrial groups such as POSCO have more cash flow than they can reinvest internally there was a strong argument for allowing some of this surplus to be directed towards investment in the financial services industry.

President Lee’s aim is growth, and a vibrant financial sector is seen as crucial to long-term economic expansion. Dr Jun’s job is to help to deliver that.

  1. the extra 3 being China, Japan and Korea []

One thought on “The financial sector as engine for growth

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.