Amendments to the Financial Holding Companies Act and Deregulation Points Companies Should Note

With the amendment to Article 15 of the Enforcement Decree of the Financial Holding Companies Act, a fintech company that is a subsidiary of a financial holding company may own an investment advisory or discretionary investment business operator as its subsidiary (a sub-subsidiary of the financial holding company).

This enables a structure in which a fintech company holding artificial intelligence or robo-advisor technology directly provides financial services.

From a company's perspective, a legal basis has been established that allows technological capabilities and a financial license to be combined vertically, enabling the design of more sophisticated services.

Summary of Key Points of the Financial Holding Companies Act Amendment (Equity Investment and Governance)

Under Article 48-2 of the Financial Holding Companies Act, the scope within which information may be shared without customer consent is limited to "internal management purposes."

Because this scope had been ambiguous, there were difficulties in using data to develop new products or to enhance credit evaluation models.

Once the law is amended, the provision of customer information for the development and enhancement of credit evaluation models and the development of new products, rather than for marketing purposes, will be deemed to fall within internal management purposes.

However, caution is required, as making marketing contact with specific customers through such information remains prohibited.

The provisions on the joint use of facilities under Article 48(4) of the Financial Holding Companies Act are also scheduled to be eased.

Once the law is amended, business outlets and electronic devices may be used jointly even when subsidiary employees are not stationed there.

For example, it will become possible to conduct securities company or card company consultations through a video consultation device installed at a bank branch.

This is a highly useful change for companies seeking to maximize the operational efficiency of their offline channels.

When business outlets or computer systems are used jointly, strict standards for the protection of financial consumers and for security must be observed.

Originally, under the Financial Holding Companies Act, a subsidiary must own at least 50% of the equity of the company it controls.

However, where a subsidiary becomes the general partner (GP) of a PEF, it was practically impossible to apply the 50% equity ownership obligation regardless of actual control.

This amendment seeks to remove legal uncertainty by clearly providing that the 50% equity ownership obligation does not apply where a subsidiary or the like becomes the GP of a PEF.

The business outsourcing regulations under Article 47 of the Financial Holding Companies Act have also been substantially eased.

Much of the business that previously required prior approval or prior reporting has been converted to an ex post reporting system.

Changes to the Business Outsourcing Reporting System

There had been divided opinions on whether a financial holding company could directly develop and operate a "One-App."

Once the law is amended, the development and provision of an integrated platform by a holding company to support its subsidiaries' development and sale of financial products will be deemed to constitute the "provision of resources necessary for subsidiaries' business" as prescribed in Appended Table 3 of the Enforcement Decree of the Financial Holding Companies Act.

As a result, holding-company-centered data integration and improved consumer accessibility appear to be legally guaranteed.

A business in which a holding company develops a financial group's characters or trademark rights and provides them to its subsidiaries is also expected to be recognized as "business incidental to management."

This serves as an important benchmark for companies seeking to secure brand consistency across the entire group and to systematize the management of intellectual property rights (IP).

However, it should be remembered that, even in the course of carrying out such business, related regulations such as the Credit Information Act must be thoroughly observed.

Although the regulatory barriers that hinder corporate growth are being lowered, ex post internal control and legal risk management have become all the more important to the extent that regulations have been eased.

Situations may arise in which the complex provisions of the Financial Holding Companies Act conflict with a company's business structure or cross the boundaries of authoritative interpretation.

In particular, issues of customer information protection in the course of data sharing, or the determination of where responsibility lies in business outsourcing, may risk escalating into significant legal disputes.

For a company's sustainable innovation, careful review from the initial design stage is indispensable.

If you are planning a new business model related to the Financial Holding Companies Act, or if you need confidence regarding regulatory compliance, you are welcome to obtain a specific review through a 🔗corporate legal consultation booking.

Daeryun provides legal solutions so that companies may pursue stable growth amid the changing financial environment.