South Korea’s top financial regulator has indicated a major U-turn in its policy to make Seoul and Busan international financial hubs, shifting its weight to more humble goal of facilitating cross-border financial transactions around Seoul instead.

The policy change comes after the branches of some foreign financial companies have withdrawn or scaled down their operations in Asia’s fourth largest economy since the financial crisis in 2008.

“As some foreign financial branches are leaving the country or scaling down operations due to global market dynamics, it is time for us to re-examine the existing policy of drawing foreign financial companies to Korea,” said Jeong Eun-bo, vice chairman of the Financial Services Commission (FSC) on Thursday.

With an enactment to create financial hubs in 2008 in its two key cities, the Korean government had pushed for efforts to ease regulations and attract foreign financial companies to Yeouido in Seoul and Munhyeon-dong in Busan. It laid out basic plans three times for financial hub development since 2008.

Earlier this year, however, British investment bank Barclays closed its operations in South Korea following the departure of the Royal Bank of Scotland (RBS) in 2015. Goldman Sachs recently consolidated its local banking services. UBS and Spanish banks BBVA and Banco Santander decided to pack out of the country.

Critics point to rigid regulations in Korea despite deregulation efforts when compared to other financial cities like Hong Kong, Singapore and Shanghai. Poorer returns on capital investment and less foreigners-friendly environment also discourage foreign players.

Against this backdrop, the government decided to consider a major shift in its key policy position to facilitating cross-border financial transactions, while maintaining its financial hub vision. It means the government will further revamp systems and processes to help revitalize international financial transactions rather than attracting physical branches or offices to Seoul.

“If cross-border financial transactions are further boosted, foreign financial companies will be naturally drawn here,” Jeong said.

By Chung Seok-woo

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