Financial subsidiaries of major business groups are likely to face stern regulatory inquiries over their governance structure, financial authorities said.

The chaebol-based financial sectors mostly involve credit cards, insurance and securities, while laws on the commercial banking sector strictly ban the industrial (or non-financial) capital from becoming majority shareholders of banks.

Aside from the banking regulations, the Financial Services Commission is poised to bolster shareholder-eligibility rules for the three major non-banking industries in consultation with the National Assembly.

According to regulatory officials, FSC chairman Shin Je-yoon has notified some lawmakers of his plan to propose a revised motion on enhancing governance structure in the financial industry as early as next month.

The motion reportedly highlights the action that a biggest shareholder of a credit card issuer or insurance firm or brokerage house will be subject to periodical investigations from financial inspectors.

Further, should a majority shareholder of a non-banking financial firm engage in irregular practices such as embezzlement and unfair stock trading, he or she will be banned from exercising voting rights over a 10-percent stake or more in the firm.

The shareholder, in addition, will be ordered to dispose of the shares if he or she fails to meet the requirements for eligibility within six months from the revelation of the irregular practices.

Another key action is that the FSC is pushing forward legislation under which conglomerate-based owners of financial firms are obliged to publicize their annual salaries through regulatory filings.

The authorities’ move, however, is expected to face a tough backlash from business lobbies and some ruling party lawmakers, though FSC chief Shin has been contacting the ruling Saenuri Party to fine-tune details.

The conglomerate sector has yet to comment on the coming regulatory policy.

For more than a decade, there have been a series of allegations that chaebol-based firms have been exploited as slush-fund sources to their parent groups.

Samsung Group operates financial units including Samsung Life Insurance, Samsung Fire & Marine Insurance, Samsung Card and Samsung Securities.

Among units of Hyundai Motor Group are Hyundai Card, Hyundai Capital, HMC Investment Securities and Hyundai Life.

President Park Geun-hye had promised to partly restrict cross-affiliate shareholdings in business groups. Her administration also said it would reinforce the separation of industrial and financial capital by restricting their influence and limiting the allowed shares.

In Korea, the concentration of economic power with family-owned conglomerates, rather than financial capital, has reached the point that it could undermine other sectors.

By Kim Yon-se (kys@heraldcorp.com)