Fair Trade Commission, Cautious About Deregulation, The atmosphere within the government is tense due to differing opinions among departments about easing the separation of industrial and financial capital to boost investment in new industries like artificial intelligence (AI). Fair Trade Commission Chair Joo Byeong-gi stated, “We cannot change decades-old regulations due to the complaints from a few companies,” openly expressing concerns about the potential negative consequences of conglomerates turning financial companies into private vaults and concentrating economic power. His remarks were perceived as targeting SK, seen as a major beneficiary of deregulation, and contrast sharply with the tone of the presidential office and economic departments which had hinted at possible deregulation. He also strongly opposed allowing fund management companies (GP) to enable large-scale investments worth trillions of won, arguing that it could undermine the current regulatory framework. Companies should first consider traditional financing methods like using retained earnings or issuing bonds and equity before treating deregulation of industry-finance separation as a last resort.
43-Year-Old Industry-Finance Separation Regulation… AI Investments Challenging Under Current System, The principle of industry-finance separation prohibits industrial capital from owning or controlling financial capital to prevent conglomerates from turning financial institutions into private vaults. This regulation was introduced in 1982 and remains a critical measure to prevent the concentration of economic power and the transfer of financial risks from failing industrial capital. Although related laws were slightly relaxed in December 2021 to meet the growing demand for investment in innovative startups, the regulation is still firmly in place.
The economic sector argues that this outdated regulation, established 43 years ago, no longer fits the current corporate environment and calls for its relaxation. President Lee Jae-myung initiated a formal discussion after meeting with Sam Altman, CEO of OpenAI, mentioning the possibility of reviewing the deregulation of industry-finance separation for AI investments. The AI industry requires massive long-term investments, often amounting to tens or hundreds of trillions of won. Companies like Samsung and SK would need to double their semiconductor production lines to supply high-performance memory semiconductors for OpenAI’s Stargate project, necessitating external funding of similar scales. SK Group Chairman Chey Tae-won also recently commented on the need for a “new system” to accommodate AI investment, reflecting this necessity.
The core of the discussion is about relaxing two regulations binding holding companies: lowering the mandatory ownership ratio of grandchild companies from 100% to 50% and allowing the establishment of general partners (GPs) to manage financial funds under holding companies. Currently, industrial capitals, including large corporations, are restricted from owning financial companies or setting up funds to attract trillion-won investments from external giants like pension funds. For example, holding company subsidiaries like SK Hynix can’t secure external investments for constructing semiconductor plants.
A financial investment industry official noted, “Due to the separation of industry and finance, domestic companies must rely solely on traditional funding methods like corporate bond issuance, equity financing, or internal reserves for AI investments.” They added that “securing equity investment, which incurs no interest costs, is hindered by industry-finance separation, while bond issuance or loans require bearing significant interest costs and are recorded as liabilities on financial statements, making them unsuitable for massive new industry investments.” Given the global reality where the AI race is emerging as a key national survival strategy beyond individual corporate profits, some suggest that exceptions should be made to allow funds to flow into advanced industries by temporarily relaxing regulations for AI.
As the separation of industry and finance is linked to multiple laws, including the Fair Trade Act, the Banking Act, the Financial Holding Company Act, and the Financial Industry Structure Improvement Act, there are also proposals to address this through a “special law.” There is a precedent for exceptional permission. Under the Moon Jae-in administration, a special law on the establishment and operation of internet-only banks allowed industrial capital to acquire up to 34% of the voting shares of internet banks.
Discussion Stuck Due to Differences Among Departments?, Economic department heads have suggested the possibility of exceptional permissions for strategic industries like AI. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol stated on the 19th that they would review the matter “within the scope of not undermining the fundamental spirit of industry-finance separation,” hinting at the possibility, and Minister of Trade, Industry and Energy Kim Jeong-gwan emphasized the importance of “putting all efforts into creating competitiveness” in fields such as semiconductors. Given the broad consensus for deregulation to expand AI investment inside and outside the government, there are predictions that the Fair Trade Commission might find it difficult to maintain its opposing stance. Concerns about moral hazard, such as private vaulting, can be overcome through supervision and regulation. Kim Jong-sik, an honorary professor of economics at Yonsei University, suggested, “There is a need to activate discussions on deregulation plans that do not heavily disrupt the current legal framework rather than radical regulatory relaxation of industry-finance separation.”