Financial authorities are delaying the announcement of a governance reform package for financial holding companies. Regulators had initially aimed to unveil the measures in March, ahead of annual shareholder meetings, but the schedule slipped to April and is now reportedly being pushed back until after June. Within the financial industry, there is growing talk that working-level discussions have largely concluded, but coordination over the final direction of the reforms is taking longer than expected.
Officials at the Financial Services Commission (FSC) headquarters in central Seoul. /News1
According to the financial industry on May 21, authorities have already finalized most discussions within the “Governance Advancement Task Force (TF),” which has been operating since late last year. The TF is understood to have focused on issues such as improving transparency in chairman selection procedures, strengthening the independence of outside directors, reforming the operation of chairman recommendation committees, and expanding accountability for internal controls at subsidiaries.
However, internal reviews over the intensity of the policy measures are reportedly dragging on ahead of the final announcement. Officials are said to be coordinating which best-practice recommendations, currently voluntary in nature, should be incorporated into the Financial Company Governance Act.
Both inside and outside the financial sector, there is speculation that the delay reflects not merely scheduling issues but also shifts in sentiment within the presidential office and financial regulators. Some observers believe the presidential office is pushing for governance reforms that are tougher than those initially outlined by the TF.
Differences in opinion appear particularly pronounced regarding the expansion of the National Pension Service’s (NPS) role and restrictions on long-term CEO tenures. Financial Supervisory Service (FSS) Governor Lee Chan-jin has previously argued that encouraging the NPS to recommend outside directors is necessary to strengthen the independence of financial holding company boards. Lee has publicly advocated for a more active NPS role in nominating outside directors since his time as a member of the NPS Fund Management Committee.
There are also calls to ease the burden imposed by the so-called “5% rule” and “10% rule” under the Capital Markets Act if the NPS is to play a more active role in nominating outside directors. The 5% rule requires investors holding more than a 5% stake in a listed company—or increasing their stake further—to disclose such holdings to the market. The 10% rule requires major shareholders to return profits gained from short-term stock trading to the company.
Under current regulations, if an investment purpose is interpreted as management participation, disclosure obligations and restrictions on short-swing profits become stricter. Critics argue that this effectively discourages the NPS from actively intervening in the governance of financial holding companies.
The FSC, however, maintains that the NPS can sufficiently recommend outside directors even under the current framework. In fact, during a 2017 interpretation of stewardship code regulations, the FSC concluded that even if the NPS held more than a certain level of shares, actions such as recommending outside directors or requesting higher dividends would not constitute management participation as long as the investment purpose remained classified as “general investment.”
As a result, the NPS may be able to nominate outside directors without being subject to enhanced disclosure requirements under the 5% rule or short-swing profit return obligations under the 10% rule.
The industry is closely monitoring the broader implications of expanding the NPS’s influence. Concerns are emerging that if the NPS’s ownership stakes exceed 10%, or if it becomes deeply involved in chairman recommendation committees and outside director appointments, government influence could effectively become embedded in the governance structure of financial holding companies — reviving fears of state intervention in management.
Another contentious issue is whether to limit CEO reappointments. President Lee Jae-myung has sharply criticized the current outside director system at financial firms as a “corrupt inner circle,” while FSS Governor Lee Chan-jin has likened it to “digging trenches.” Controversies surrounding the qualifications of candidates in recent CEO selection processes at financial groups such as BNK Financial Group and JB Financial Group have further fueled debate.
At the center of the discussion is whether to legally impose a “three-term limit” on chairmen. Lawmakers including Democratic Party Rep. Kim Hyun-jung and Rebuilding Korea Party Rep. Shin Jang-sik have each proposed amendments to the Financial Company Governance Act that would require special shareholder approval for chairman reappointments and prohibit a third consecutive term.
Even within regulatory circles, however, there are concerns that explicitly codifying a “three-term limit” in the governance law could trigger controversy over fairness and regulatory consistency.
Attention is now turning to whether financial authorities will provide clearer direction on governance reform during a meeting hosted later that day by FSC Chairman Lee Eok-won.
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