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| Overview |
The European banks have a long established presence
in Korea and have shown over the years their commitment to the
country - we are currently 21 European banks present in Korea
including 12 branches and 9 representative offices and employ
1400 staff.
Besides on top of Wholesale and Corporate & Investment Banking,
the European banks are now investing and bringing their expertise
in various fields at the core of the development of the Korean
Finance Industry such as Retailed Banking, Securities, Bancassurance
and Asset management - Altogether the European financial institutions
including Banks and their affiliate companies are employing
2700 staff.
We European banks are committed to develop our business further
and to bring value and expertise to our clients, individuals
and corporations, private and public sector, Korean and multinationals.
However further investment requires several ingredients:
1. An active
support from the Korean Authorities and an opened dialogue with
them - In this respect we want to thank the Korean Authorities
and to express our hope that an even more fruitful dialogue
be developed further
2. We
need also that Global Standards be the benchmark of any regulation
and policy
3.
Last but not least we need transparency and stability in the
regulatory environment so that we could develop our business
in an harmonious manner
Based on those 3 elements we CEO of European Banks are confident
that we will be in a better position to convince our HO to invest
more in Korea, thus creating more jobs and contributing to make
Korea recognized not only as a strong domestic market but also
as a financial center better geared towards competing with its
main Asian competitors like Hong-Kong, Singapore and Shanghai.
In this respect we believe that it is time to introduce more
flexibility in the current regulations and in the supervision
of foreign banks and also that changes be made -
We thank the Korean Authorities in advance and would like to
take the opportunity of this meeting to express the following
suggestions:
① Capital
Requirement
Foreign Bank Branches in Korea are required to keep Dotation
Capital (Capital A); it is the core measure to determine various
Lending and Trading caps and therefore it limits the extend
of business a foreign bank can conduct in Korea.
The European Banking Committee:
- acknowledges that some flexibility has been introduced with
the possibility to consider long-term funding (over 1 year)
from Head Office or other branches as quasi-capital.
- has taken note that the Korean Authorities consider this matter
as a Long Term Review.
However the European Banking Committee confirms its suggestion
that Korea adopts the “Global Equity” principle asap in line
with many OECD countries. Its application could be subject to
the Banks concerned having a satisfactory rating (to be discussed
further) by international rating agencies and falling under
the supervision of top quality regulators. Reciprocity on the
same conditions could be considered for Korean Banks in Europe
through discussion with the EU.
②
Sharing of back offices and support functions among all the
entities of a same Foreign Financial Institution present in
Korea.
Korea has adopted a segregated financial system clearly separating
Banking business from Securities business in particular versus
the universal banking system applicable in Europe. Based on
this principle non marketing related functions like Human Resources,
Finance & Control, Legal, Compliance, Internal Audit, Risk,
IT, Administration, General Affaires etc… cannot be shared among
the entities of the same group and have to be set-up for each
entity separately; this situation has several negative effects
for Foreign Banks:
1.
It increases significantly our cost base and
therefore prevents smaller market participants from market entry
or might lead to the closure of existing entities due to unprofitable
result. We strongly believe that permitting Foreign Financial
Institutions to organize their functions on a shared basis will
enable us to reach a critical mass and to set up center of expertise
and therefore ultimately creating more jobs.
2.
This system doesn’t permit us to control our
operations in the most efficient and comprehensive manner in
particular, in terms of Compliance and Risk due to the split
of our teams in charge of those matters.
3.
Last, this is an obstacle for Korea to become a Financial HUB.
Indeed it is proven fact that in this respect Korea is far behind
all its competitors in Asia, including Japan.
We suggest: To allow the sharing of the non marketing related
functions such as Human Resources, Finance and Control, Legal,
Compliance, Internal Audit, IT, Risks, Administration(Operation),
and General Affairs.
In December 2003, the Korean Authorities have announced that
they would consider an opening in the field of Human Resources,
Internal Audit, Administration, etc… Despite several contacts
and discussions with the Korean Authorities and a comparative
survey recently submitted by Foreign Banks showing how non competitive
Korea is in this field, unfortunately no progress have been
registered so far.
However we are ready to pursue our dialogue with the Korean
Authorities to achieve progress on this important matter for
the European Banks and for the competitiveness of Korea as a
financial center.
③
Retail Banking
There are five key areas that we would like to see changed when
it comes to opening a new branch. These areas do not compromise
the focus on good compliance, governance, audit and control
of our banking practices but, compared to local bank regulations
and regulations in other countries, it provides unneeded administrative
process and cost.
There are two stages for approval of additional branch opening
of a foreign bank branch in Korea ie., Preliminary Approval
and Final Approval. We are facing the following difficulties
in obtaining the Approval from the FSC.
 Capital
Requirement: KRW3 billion per additional branch to be newly
set up.
It
normally takes 5-6 months to obtain the Final Approval from
the Application for Preliminary Approval.
At
the time of submitting the application for Final Approval, we
will need a real branch address (need to present a copy of the
lease agreement). However, if the Final Approval cannot be obtained
for any reasons unexpected, there will be some risks for us
in relation to the lease agreement. So we would like FSC to
consider changing the timing of presenting a copy of the lease
agreement to “after the Final Approval” has been granted by
the FSC from “before the Final Approval”.
At
the time of submitting the application for Final Approval, we
will need to appoint the legal representative for the additional
branch. However, if the Final Approval cannot be obtained for
any reasons unexpected, there will be some risks for us in relation
to the employment contract. So we would like FSC to consider
changing the timing of appointing a legal representative of
the additional branch to “after the Final Approval” has been
granted by the FSC from “before the Final Approval”.
We do regret that the Authorities have rejected our request
in relation to the 2 above mentioned issues. However we take
note of the Korean Authorities’ assurance, that when the preliminary
approval has been given, Final Approval should nominally be
obtained without particular problem.
The
Final Approval will be automatically cancelled if we cannot
open the additional branch “within 6 months” from the Final
Approval date. In order for us to get prepared for opening of
the additional branch, 6 months is somewhat short. So we need
to prepare many things before the Final Approval. However, there
is a certain limitation for us to prepare for the additional
branch opening before the Final Approval because there may be
some risks in case the Final Approval cannot be obtained for
any reasons unexpected. So, we would like FSC to consider to
extend the validity period of the Final Approval from “within
6 months” to “within one year” so that we have more time to
prepare for opening of the additional branch in a more comfortable
position. Though, we do regret that FSC has not accepted our
request, we take note of their assurance that the preparation
period can be extended when there is a special reason that an
additional Branch cannot be opened within 6 months.
④ Entrustment of non core business
functions
As a matter of fact the organization of the international banks
has changed a lot over the past last years. Indeed most of us
have now moved from mostly territorial type of organization
to regional and even worldwide type of organization which is
now a core principle of our way of doing business. The European
Banks thank the Authorities for taking into consideration the
changes in the financial environment and outsourcing related
supervision policies and for accepting that the outsourcing
scheme for financial institutions be gradually converted into
a negative method - we take note that this move will be reflected
in the establishment and review of financial laws in cooperation
with related organisations and do hope that its implementation
will come asap.
⑤ Cash
management
The issues here are two folds.
5.1
E-banking system acceptance:
In order not to block any further the offering of cash management
services to their clients, the European Banks are reluctantly
moving forwards the “Certificate of Authority”.
We thank the Korean Authorities for the constructive dialogue
on this matter - However we continue to believe that this extra
cost imposed on us could have been more efficiently allocated
to fields more conducive of value added and job creation.
We hope that the goodwill so shown by the European Banks will
be recognized by the Korean Authorities as a confirmation of
our commitment to the Korean market and to the service of our
local and global clients and also of our attachment to maintain
harmonious relationship with the Korean Authorities.
5.2 Documentation:
In many countries there are no regulatory obstacles for multinationals
to use a cash management system which allows them to transfer
freely money between parent company and subsidiaries. Given
the Korean Forex Regulations this is not possible, unless it
is specifically approved by the BOK; and when it is approved
these transactions are made under the form of documented loans,
not under the form of simple transfer of money.
We acknowledge that the BOK has introduced some flexibility
by approving an increasing number of transactions, but we still
think that the present regulations and practices are not adequate
to attract Corporates Foreign Investors or to attract Corporates
Regional Head Offices.
This point does not refer directly to banks but to multinationals;
however, keeping in mind the concept of financial hub there
is a correlation between the attractiveness of Korea for the
International Financial Institutions and the attractiveness
of Korea for multinational companies.
This issue was raised last year and so far no further flexibility
has been brought to the matter.
 Conclusion:
We European Banks thank again the Korean Authorities for the
on going and positive dialogue maintained all along this year
and are pleased that some progress have been made though still
too limited
We recognize also that some issues can be more complex than
others and therefore could require some time to be fully assessed
and translated into the regulation. But we believe also that
for some other progress could be done more rapidly, particularly,
when it related to matters which would contribute to increase
Korea competitiveness as a financial center.
We European Banks remain committed to the Korean market and
to bring our contribution for making this market a more international
one; in this spirit we will be pleased to pursue the dialogue
in a constructive manner with the Korean Authorities. |
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