Market and policy climate
Market climateHow would you describe the current market climate for M&A activity in the financial services sector in your jurisdiction?
The plentiful market liquidity garnered due to the covid-19 pandemic is acting as a stimulus for transactions that have been delayed for several years to proceed forward and new transactions to begin. Therefore, the overall climate of M&A activity in the financial services sector in Korea is considered booming. In particular, there is a convergence of finance and IT sectors. The first-ever internet-only bank of Korea, KakaoBank, has been listed on the Korea Exchange and IT companies, including major platform providers (such as Naver), have been entering the financial industry. Further, existing financial institutions are seeking to go beyond regulatory limits and expand their business scopes to platform, financial technology and digital finance businesses. Such a tendency shall boost demands for deregulation of the aforementioned businesses and attempts to expand strategic investments to and partnerships with such businesses.
Meanwhile, as financial institutions are trying to improve both efficiency and profitability in a low interest rate environment, M&A activities to restructure unprofitable sectors are also expected to be prolific. Private equity funds, which have established themselves as key players in the market, are actively investing in the financial industry and thus M&A activities shall be even more active.
Government policyHow would you describe the general government policy towards regulating M&A activity in the financial services sector? How has this policy been implemented in practice?
The authorities that supervise the Korean financial services sector are the Financial Services Commission and the Financial Supervisory Service. The Financial Services Commission is a government agency with statutory authority over financial policy and regulatory supervision. The Financial Supervisory Service is a specially legislated quasi-government supervisory authority that is in charge of financial supervision across the entire financial sector.
In South Korea, regulations of the financial services sector have traditionally been complex and strict. In many cases of M&A activity in the financial services sector, the aforementioned authorities examine the eligibility of a party seeking to acquire a financial institution or become its controlling shareholder. The key regulatory aspect is the approval of change of a controlling shareholder, which is granted by the Financial Services Commission. More specifically, a person who intends to become a controlling shareholder of a financial institution shall, first and foremost, obtain the aforementioned approval from the Financial Services Commission. Thus, to receive such approval, the prospective controlling shareholder needs to qualify under certain requirements. Although the Financial Services Commission, in principle, examines requirements that are prescribed under the relevant Korean laws, it holds and utilises a certain degree of discretionary power. Therefore, in practice, the Financial Services Commission has conducted its examinations in light of the overall circumstances of the financial sector.
