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[South Korea] FSC Introduces Internet-Primary Bank in Korea

August 2015 - Finance. Legal Developments by Kim & Chang .

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From January to April 2015, the Financial Services Commission (β€œFSC”) operated the Internet-Primary Bank Task Force (β€œTF”), which was a joint private and public sector effort.  The TF reviewed related legislative bills and system reform plans regarding the introduction of the Internet-primary bank in Korea.

An Internet-primary bank is a bank that conducts most of its business via online channels (e.g., ATM, the Internet, mobile), and operates either few or no offline office.  It is expected that the introduction of the Internet-primary bank will enhance consumer benefits by granting favorable interest rates, improving commission and customer access, and triggering competition within the banking industry through the development of new and innovative IT-based services.

On April 16, 2015, the FSC held a seminar to discuss measures to introduce a customized Korea Internet-primary bank (β€œKorea Internet Bank”).  The TF presented the results of its discussions and industry officials shared their opinions.  Additional presentations and discussions included a business model for a Korea Internet Bank, as well as its implications and schemes to reform bank ownership structure in order to introduce the Internet-primary bank.

As the governor of the FSC reiterated at the April 16 seminar, the time is ripe for the establishment of the first Internet-primary bank in Korea.  Additionally, on May 18, 2015, as part of deregulatory efforts, the FSC announced measures to simplify the real name verification process under the β€œAct on Real Name Financial Transactions and Guarantee of Secrecy” (i.e., non-face-to-face real name verification).


As for the establishment of the Korea Internet Bank, on June 18, 2015, the FSC, after gathering various opinions, announced a two-track approach:   
- approving one or two Internet-primary banks for a test run under the existing policy of separating banking and commerce; and  
- approving additional Internet-primary banks after easing the separation of banking and commerce through amendments to the Banking Act.  

On July 10, 2015, the FSC released an approval manual for banks, and held an information session on the manual on July 22, 2015.

In September 2015, the FSC is planning to receive application for preliminary approval.  A bill to increase the shareholding limitation of non-financial business operators (except for business groups subject to limitations on cross-shareholding) for banks from 4% to 50% in connection with the Internet-primary bank will be submitted to the National Assembly within the year.

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