’Caution required for cross-border services’
Korea Herald
’Caution required for cross-border services’
By Kim Jung-min
28 August 2006
A financial research institute urged Korea to take a cautious approach in allowing cross-border insurance brokerage services as it would be harder to protect local consumers from potential damages.
"The cross-border trade in financial services could offer more varied financial products to local customers but it would make it extremely difficult for the regulator to supervise such operations," said Lee Suk-ho, a research fellow at the Korea Institute of Finance, in a report on potential problems stemming from the possible approval of cross-border supply of financial services.
Cross-border financial transaction refers to the supply of financial service from the territory of one party into the territory of another without having a commercial presence.
In many countries, regulators have taken a very conservative approach in allowing free trade in cross-border financial services out of fear that such trade may increase volatility in domestic financial markets. They also seem to be more cautious because the vital financial know-how factor may be missing unlike commercial trades.
Local insurance brokers lag far behind foreign rivals and a possible approval of cross-border insurance brokerings would make it tougher for local players to compete with global players, Lee said. Korea’s insurance brokerage industry is estimated to be worth 1.2 trillion won. The number of local businesses is 34, more than triple to that of foreign players but the combined market share of local brokers is only 20 percent, he said.
Whether or not cross-border financial services is allowed in constitutes one among many thorny issues in the ongoing FTA talks between Korea and the United States.
Chin Dong-soo, vice minister at the Finance Ministry said in a recent news briefing that a partial approval for cross-border financial deal may be inevitable. During the second round of FTA talks with the United States, "Both sides reached a consensus on opening the whole sale market for financial products and professional services, which is relatively free from consumer protection issues," he said.
In the third round of FTA talks scheduled from Sept. 6-9 in Seattle, officials will decide the list of specific financial businesses to be opened, he added. Government officials have said that U.S. counterparts will increasingly demand the opening up of the insurance brokerage and the asset management businesses.
For derivatives and other new financial products, the regulator would take a case-by-case approach to financial firms seeking approval to do business here, the vice minister said.
A new financial service is one not provided in the territory of the first party but provided within the territory of another party.
