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Seoul's financial hub dream gone wrong

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By Kim Jae-kyoung

SINGAPORE ― Korea has lost the opportunity to establish itself as an international financial center in Asia, giving way to China and other Asian countries.

The country introduced a proper vision but it has been too cautious to make it happen.

"Korea has lost the 15 years of accumulated human and regulatory learning and experience that would have come with establishment of a global financial center," said James Rooney, chairman of Advanced Capital Partners.

Rooney, who has been serving for 15 years as vice chairman of the Seoul Financial Forum, said that during that time China has caught up and is moving ahead of Korea in many ways, including the convertibility of the Chinese renminbi.

"An excess of caution on Korea's part in order to avoid unknown risks has led to the realization and consequences of a greater risk and loss of a wonderful opportunity that was in fact clearly identified at least 15 years ago," he said.

Rooney's remarks should come as no surprise to many because of clear signs that Korea is losing its attractiveness as a financial center.

Foreign financial firms have been closing their offices here or reducing operations.

This year, Barclays Capital decided to withdraw its investment banking division, following Citigroup (consumer finance) and Royal Bank of Scotland last year, and HSBC (retail banking) in 2013. Goldman Sachs closed its asset management arm and UBS returned its banking license.

In the Global Financial Centers Index (GFCI) released recently, Korea saw the deepest fall, with Seoul at the 12th, six notches down from six months ago. London ranked the first, followed by New York, Singapore and Hong Kong.

The GFCI, calculated every three months and published every six months by London-based research firm Z/Yen Group, examines the global competitiveness of the major financial centers.

Foreign banks' exit from Korea, together with Korea's fall in the global financial center ranking, suggests a failure in the government's efforts to transform Seoul into a financial hub in Asia.

They highlight Korea's unfavorable market environment, with its complex regulatory system, bureaucratic control, unsupportive tax system and slowing economic growth.

These factors have combined to undermine the predictability and transparency of Korea's financial market and policies, which are essential for becoming a global financial center.

"The Korean government has kept saying that it would create a level playing field for foreign investors through deregulation but such efforts are marred by regulators' attempts to peddle their influence," a Singapore-based source knowledgeable of Korea said asking not to be named.

"Singapore's regulators always try to listen to voices of foreign financial firms and upgrade the legal-regulatory system to be more predictable and transparent, which makes the city state attractive to foreign investors. Korea should learn from it."

In the global financial center index, Singapore overtook Hong Kong to become the most competitive financial center in Asia. It ranked third in the world, just behind London and New York.

"This alludes to a more fundamental point. Korea's vision to become a financial hub in Asia depends not only on the system itself but mindset reform of policymakers and regulators who actually control it," he said.

Another major drawback is that Korea is way behind in its move to embrace technology disruption. The biggest problem is that Korea's regulatory scheme is deterring the growth of future engines of the financial sector such as fintech, or financial technology.

From a government perspective, it is very important to foster financial innovation by supporting ecosystem creation rather than direct support of fintech creation itself. This requires a major shift in both financial practices and regulatory framework.

Choi Jung-kiu, head of AT Kearney's Financial Institutions Practice for Asia Pacific, said that financial regulations controlling new entries have prevented Korean financial players from pursuing innovative approaches.

"In order to create a new fintech industry or ecosystem, the regulator should remove all unnecessary entry regulations and suspend all penalties in the initial phases of development," Choi said.

Advanced countries have placed a strong emphasis on fintech on the back of slowing global growth and greater competition in the financial sector.

For example, the Monetary Authority of Singapore (MAS) has committed $225 million to the development of a fintech ecosystem. It also decided to set up an all-in-one addressing system to support fintech development.

Kim Jae-kyoung


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