South Korea’s Regulatory Shift: Easing Banking-Commerce Separation to Fuel AI & Semiconductor Growth

The South Korean government, under Finance Minister Koo Yun-cheol and President Lee Jae-Myung, is pursuing regulatory reforms to relieve stringent restrictions on the separation between banking and commerce, particularly to foster investment in high-tech sectors such as semiconductors and artificial intelligence. The current law prohibits industrial groups from controlling banks, and limits voting and ownership stakes of corporate entities in financial institutions; the government plans to retain most of the legal separation but soften certain regulatory barriers to allow greater “productive finance” [1][8].

Key among these changes are possible loosening of equity holding limits: while industrial capital is capped at 4% equity in banks (raising to 10% if non-voting), and financial holding companies face their own limits, the proposed reforms may allow holding entities to acquire greater financial stakes or exert more influence, especially if those financial flows are directed toward innovation industries rather than real estate [8]. Additionally, existing efforts to reallocate capital — such as reducing risk weights on banks’ equity investments (from 400% to 250%) and raising floors on risk weights for mortgages (from 15% to 20%) — underscore a shift toward steering finance toward technology and away from real estate speculation [2][7].

These reforms accompany broader industrial policy: large domestic conglomerates have committed massive investments in AI, semiconductors, research and manufacturing, partially in response to an untenable structure of global trade and tariff exposure [20][17]. A sovereign wealth fund is being designed to bolster state revenue management and perhaps help anchor these policy changes. Additionally, legislative and regulatory incentives (and penalties) are being considered to ensure transparency, limit capture, and promote fairness [1][8]. Civic actors are raising concerns especially about consolidation effects favoring chaebols.

Strategically, the reforms attempt to balance several pressures: global competition in high-tech (notably with China and the U.S.), vulnerabilities in real estate exposure in the banking sector, and fiscal pressures given projected weak growth and currency depreciation. Also, by partly relaxing banking-commerce separation, the government hopes to lower the cost of capital for innovation and consolidate industrial policy coherence.

Open questions include: exactly how much equity control or voting power holding companies will gain; which industries will qualify for preferential treatment; what guardrails will be imposed to prevent abuse; the design and governance of the sovereign wealth fund; and how these reforms will affect competition, systemic risk, and Korea’s international obligations concerning financial regulation.