“Korea's economic policy, going against the global standards... it needs to change its direction urgently" [Economic Policy Forum]

“Korea's corporate policies going backward, is everything okay as it is?”

How can we assess the recent policy issues, such as governance restructuring strongly pushed by the Korean government, and the controversies of Samsung BioLogics accounting fraud and National Pension stewardship code, based on global standards?

At the ‘Korea Business Policy Forum from the Perspective of Global Standards’ held at the Korea Press Center Foreign Correspondents' Club on the 27th, experts made a diagnosis that "There are too many cases of running against global standards in Korea's corporate-finance policies."

At the policy forum hosted by the Korea Business Law Institute (Director, Prof. Choi Joon-sun), experts presented the current status of Korea’s corporate-finance policies that have emerged as recent issues, such as business law reform, governance restructuring and the stewardship code, and direction for their improvement in comparison with the policies of other countries.

Professor Kwon Jae-yeol, Dean of the Graduate School of Law at Kyunghee University, who presented the topic "Applying the External Audit Law and International Accounting Standards" with the focus on the issue of Samsung BioLogics said, "The Korean Financial Services Commission (FSC) is applying Korean translated versions of IFRSs to listed companies and those preparing for listing based on the external audit law," and added, "Korea fully accepted the principle-based IFRS at once, which was assessed to be the Big Bang of accounting standards."

Professor Kwon emphasized, "However, there is a skit going on, in which the domestic supervisory authority only demands the subjects to shift their perception to the principle-based one without changing its own attitude more positively.” and "The US and Japan, the world's greatest powers, have not introduced IFRSs with unclear standards."

Professor Kwon predicted that if IFRS was introduced, it would be difficult for companies to comply with it, and authorities would not be able to sanction all the violations of standards.

"The Securities and Futures Commission has accused Samsung BioLogics of having committed deliberate accounting fraud to the prosecutor, and issued administrative measures including the recommendation of dismissal of the CEO", and "It does not make sense for the government to pass on unclear inefficiency to the subjects while implementing unclear accounting standards.", he pointed out.

Professor Kwon said, "Abolishing the already implemented IFRS and shifting to regulation-centrism are not different from recharging spilled water.", and urged the supervisory authority to break away from the government’s existing regulation-based thinking and practices.

Professor Choi Joon-sun, Director of the Korea Business Law Institute, who presented the topic of 'Analysis of Global Business Environments, Korean Business Law Amendment and Stewardship Code’ criticized, "The government and the ruling party are pushing for a number of commercial law amendments to pass through the National Assembly as economic democratization laws," adding, "These commercial law amendments are strange bills with no precedents in the world to businesses."

Professor Choi said, "With the introduction of the stewardship code, HANJIN KAL and Korean Air have been already experiencing a lot of difficulties, which made companies very nervous", adding "The National Pension Service is the largest shareholder or the controlling shareholder of 270-300 listed companies in Korea."

"The National Pension Service can even change the corporate governance according to the stewardship code and the revised commercial law if it want to do so", and "Companies will now be exposed without protection to wolf pack-like attacks even by domestic hedge funds as well as foreign hedge funds", he assessed the current situation.

Dr. Hwang In-hak, a senior research fellow at the Korea Business Law Institute, who presented the topic "Limitations of the Korean Fair Trade Act Amendment, and the Task of Its Advancement" said, "Korea first enacted the 'Monopoly Regulation and Fair Trade Act' in 1980, which has acted as a watchdog of competitive order.", and "Korea's Fair Trade Act has set a separate goal to prevent concentration of economic power, and has implemented various regulatory measures on investment, ownership and governance, and subsidiary transactions for business groups of a certain size or larger."
 
In the market economy, competition promotes consumer welfare, efficient allocation of scarce resources, and entrepreneurial discovery based on creativity and innovation, and therefore, a competition policy is considered an essential factor.

"Regulation of the economic power concentration, not the economic power abuse, is a Korean-style exceptionalism that is not found in advanced legislation", and "Korean companies are designated, managed and regulated as 'corporate groups subject to disclosure' and 'corporate groups with restrictions on mutual investment', and holding companies are subject to additional regulations on the debt ratio, investment stages and directions, and the shareholding ratio in subsidiaries.", Mr. Hwang said.

He expressed concerns, "the Moon Jae-in administration is pushing for a full revision of the Fair Trade Act after 38 years of its enactment, and it needs to upgrade the legal system in consideration of economic conditions, changes in the system, and the development of knowledge.", and "An amendment deliberated and voted on by the cabinet meeting last year is contrary to this purpose."

Dr. Hwang emphasized, "Pre-regulation to prevent the concentration of economic power and the regulation of the abuse of economic power are different matters.", and "In order to upgrade the Fair Trade Act, it is most important to shift the goal of regulation from 'prevention of concentration' to 'prevention of abuse'."

Yoon Chang-hyun, Professor of Business at the University of Seoul, presented the topic 'Global Financial Policy and Analysis of the Direction of Korean Financial Policy', and said, "With SNS, mobile, big data and AI becoming a new issue in the financial industry, there are a lot of worrying signs in the current status of finance."

The current status of the financial industry in Korea shows the limits and does not look very bright. The new trends represented by FinTech are promoting unbundling in the financial industry. In addition, a new situation is emerging, in which service packages provided by large financial institutions are dismantled and better services are provided through lower cost and high efficiency structures rather than large banks.

He emphasized, "The government is emphasizing the role of financial industry as a tool to support other industries.", and "The financial industry should also continue its efforts to strengthen its own competitiveness not just as a role of a tool but also as a high-end service industry."

"The government should implement policies to enhance the industrial competitiveness of the financial sector, not just to develop the sector as a tool, through various measures to strengthen the international competitiveness of the financial industry.", and "Various efforts to strengthen the financial industry's own competitiveness are needed more than ever.", Professor Yoon added.

Lee Kyung ah [WikiLeaks Korea]