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금융의 범세계화와 증권산업의 구조개편(Globalization of finance and the restructuring of the securities industry)

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Title 금융의 범세계화와 증권산업의 구조개편(Globalization of finance and the restructuring of the securities industry)
Similar Titles
Material Type Reports
Author(Korean)

이덕훈; 최범수

Publisher

[서울]:한국개발연구원

Date 1996
Series Title; No 연구보고서 / 96-06
Pages 201
Subject Country South Korea(Asia and Pacific)
Language Korean
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding KDI; KDI School

Abstract

This study proposes the reform and improvement of the securities industry in Korea as a top-priority issue that must be solved in order to support the advancement of the Korean financial sector in the 21st century. Due to the overwhelming emphasis on its public nature and its subservient role to the growth of other industries, the financial sector in Korea has until now been choked with excessive regulations that undermined its chances for growth. The Korean government, however, can no longer wield as much control as it used to on financial activities, at least not without causing the accumulation of inefficiencies, as international competition continues to grow rapidly and the demand for financial services and products is also increasingly diversified on the international market. The government has responded to these changes by launching a variety of new measures, including the rollback of its presence, the liberalization of interest rates and asset management and the incremental expansion of the scope of activities in the financial sector.

However, in order for the Korean financial sector to serve its key functions in the efficient distribution of capital and information, fundamental institutional reforms must be conducted, including measures of deregulation. Amid the sweeping tide of financial deregulation worldwide, profound innovation is required in the Korean financial sector in order to ensure its competitiveness on the global market. Even the United States and Japan, which have previously insisted on the compartmentalization of financial operations, are increasingly allowing financial companies to interpenetrate and set up subsidiary companies. The tendency of financial enterprises to take on new roles and jobs in addition to the existing ones continues to grow strong, exerting significant influence on the changing dynamics of the international capital market, including the procurement, administration and international movement of capital.

The scope of activities for Korean financial companies is far narrower than those of their American and Japanese counterparts. Investment trust and finance companies in Korea handle only simple tasks, and they face great restrictions on interpenetration through the setup of subsidiary companies and on expanding their portfolios of tasks. The reform of the securities industry is therefore the top-priority issue in the drive for the reform of the financial sector. The narrow scope of activities for this industry severely limits innovation and the ability of the industry to respond flexibly to the changing business cycle. The reform of the securities industry and related institutions will promote competition and increase efficiency in general. However, allowing the securities companies to alter and add new functions to their portfolios of tasks may cause increasing conflicts of interests with their clients. Because these companies have so far grown in the tight frame of excessive regulations and protection, the systems for the administration and monitoring of securities need to be redefined from a new perspective in order to allow for free competition.

The companies, moreover, may be required to appoint external (nonexecutive) directors to their boards in order to establish strong internal control mechanisms and earn the public’s trust regarding the transparency and compliance of their asset administration practices. The government should also introduce complementary measures in case the growing competition increases the risks of bankruptcy of these companies. In the future, end consumers should be encouraged to take greater responsibility in evaluating and choosing the financial institutions with which they do business. In the meantime, the government should reinforce the duty of public disclosure of relevant and timely information to investors by facilitating clients’ evaluation and choice of financial institutions. The legal authorities should get involved only minimally, concerning themselves with maintaining the public’s trust in the securities industry by enhancing the industry’s safety and protecting it from investors. The rest should be left up to autonomous regulatory agencies after the administrative and monitoring systems are reformed and strengthened. The institutional and formal grounds of these regulatory bodies, such as stock exchanges, stock traders’ associations and investment associations, should be strengthened.