I am curious about the conditions for establishing a financial holding company under the Financial Holding Companies Act.

Under Article 8 of the Financial Holding Companies Act, a financial holding company must obtain authorization from the Financial Services Commission upon establishment, and it may be established in one of two ways: the newly-established type or the conversion type.

The newly-established type is a method in which a person that is not a financial company newly creates a financial holding company to control its subsidiaries.

In contrast, the conversion type is when an existing financial company converts into a holding company structure through methods such as a spin-off of its subsidiaries' shares or a stock exchange.

To obtain authorization, the following requirements must be satisfied.

Capital requirement:
Under the Financial Holding Companies Act, in principle, a certain level of paid-in capital or more must be secured, which represents the financial basis for stably controlling and managing subsidiaries.
→ This is not merely establishment funds; a level of equity capital that can maintain soundness even after acquiring subsidiaries and securing shares is required.

Principal purpose requirement:
The principal purpose must be to own the shares of and manage the operation of subsidiaries, and it must not engage in businesses other than finance.
→ In other words, a holding company must not be a company that directly conducts business, but rather a structure that focuses on the control and management functions over its subsidiaries.

Governance requirement:
It must have a transparent governance structure that does not undermine fair competition or financial soundness.
→ The eligibility of major shareholders, the qualification requirements for executives, and the internal control and risk management systems are also reviewed together during the authorization examination process.

In addition, the Financial Holding Companies Act places certain restrictions on the extent to which a financial holding company may hold companies other than financial companies as subsidiaries, and violating these restrictions may result in sanctions such as the imposition of a penalty surcharge or the cancellation of authorization.

Because establishing a financial holding company is not a mere organizational change but a structural conversion that follows the core of the financial regulatory framework, it is very important to fully understand and prepare for the applicable requirements and procedures of the Financial Holding Companies Act.

If you are considering establishment, we recommend that you thoroughly prepare from the authorization application stage with the help of a finance attorney at Daeryun who is well versed in the Financial Holding Companies Act.