On the 2nd, the Lee Jae-myung administration announced its intention to review the relaxation of the separation of banking and commerce, raising expectations in the domestic industrial sector. It is anticipated that a company at the forefront of global industry investments, such as artificial intelligence (AI), similar to Japan's SoftBank, could emerge in Korea.

The key is to relax regulations on corporate venture capital (CVC). This would allow companies with foresight to act as general partners (GP) in managing funds, selecting companies to invest in, while the financial sector provides the capital, thereby increasing both the scale and success rate of investments. If this plan materializes, it is expected to not only foster promising startup companies but also address funding issues in the increasingly competitive global advanced industries such as semiconductors and batteries.

● Both Industry and Financial Sectors Call for Relaxation of Banking-Commerce Separation

Following the financial battles among companies in industries like AI, there have been repeated calls to lift the funding constraints on domestic companies. SK Group Chairman Chey Tae-won notably stated last month that "even if we want to invest in advanced industries like AI, there is little we can do due to the separation of banking and commerce regulations."

Similar sentiments were echoed in the financial sector. At the National Growth Fund National Report Conference attended by President Lee Jae-myung on the 10th of last month, Jin Ok-dong, Chairman of Shinhan Financial Group, remarked, "Korea is the only place where CVCs are tied up by the separation of banking and commerce, but if CVCs can play the role of GP, banks could also participate."

The calls for easing the separation of banking and commerce from both the industrial and financial sectors are due to the increasing complexity of investments in advanced industries. Technologies such as AI and semiconductors are now difficult for general investment companies to assess. Even if the financial sector wants to invest, the structure is challenging, hence the proposal to resolve this through CVCs led by companies.

An industry insider stated, "Building a semiconductor fab (factory) used to cost KRW 30 trillion five or six years ago, but now, due to inflation and rising labor costs, it is said to cost KRW 40 trillion to KRW 50 trillion," adding, "There is a limit to competing with overseas companies through the investment of a single company." Joo Jin-yeol, a professor at Pusan National University School of Law, commented, "Even if we combine the capital of all Korean conglomerates, it cannot match a single US big tech company, so it is unreasonable for a company to bear all the investment burden alone," advocating for the relaxation of CVC regulations.

● Fair Trade Commission Considers Legal Amendments

In Korea, a CVC system that allows holding companies to invest was introduced in 2021, but it has not been activated due to various regulations. According to the Monopoly Regulation and Fair Trade Act (Fair Trade Act), general holding companies must own CVCs as 100% subsidiaries, and external funding is only allowed up to 40% when raising investment capital. Overseas investments cannot exceed 20% of total assets. Companies also cannot play the role of GP in raising funds and leading investments.

The Fair Trade Commission has begun reviewing amendments to this Fair Trade Act. Discussions include relaxing CVC regulations or allowing GPs. Several bills to increase the external funding ratio for CVCs to 50% and the overseas investment ratio to 30% are already pending in the National Assembly. However, core regulations of the separation of banking and commerce, such as the limit on industrial capital's bank shareholding (4%), aimed at preventing conglomerates from turning financial companies into private coffers, are expected to remain unchanged.

President Lee, regarding the separation of banking and commerce, emphasized at a chief secretary meeting on the 2nd that "there is a need for societal discussion limited to very special areas without monopoly harm," according to Presidential Office Spokesperson Kang Yoo-jung. Spokesperson Kang stated, "In areas nationally important like the AI industry promoted by the government, where corporate and government demands align, we can discuss exceptions limited to very special areas," adding, "What President Lee emphasized was 'very limited areas.' It needs thorough discussion and a pragmatic approach." President Lee's remarks are interpreted as a response to some ruling party members' criticism that relaxing the separation of banking and commerce allows for chaebol privileges.

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