South Korea is working on relaxing financial regulations to boost the startup ecosystem by allowing conglomerates to own venture capital firms, according to news reports Monday.

The government is also preparing measures to prevent any adverse effects that could arise if deep-pocketed businesses were to own such investment firms.

A working group that will be formed by different ministries and government agencies, including the Ministry of Economy and Finance, the Fair Trade Commission and the Ministry of SMEs and Startups, will soon finalize its rules for the so-called corporate venture capital, or CVC.

The government’s official announcement is scheduled for July. It has previously hinted that it would relax regulations that ban conglomerates’ holding companies from having wholly owned VC units under their wing. The regulations are aimed at preventing nonfinancial conglomerates from wielding excessive influence in the financial sector. They are also intended to keep financial groups from ending up serving as private vaults for conglomerates and their owner families.

“There are still concerns that CVCs could be used to financially benefit the owner families of conglomerates, so the government is working on measures regarding the matter,” an official from the Finance Ministry was quoted as saying by Yonhap News Agency.

One of the measures entails restricting fundraising from outside investors while allowing the CVC to receive capital only from its parent company.

The FTC and the Ministry of SMEs and Startups have reportedly agreed to ban outside fundraising.

“The FTC considers that CVCs should make strategic financial investments with funds that they have received entirely from their parent companies,” an FTC official said.

Some global companies, including Google and Intel, run wholly owned venture investment arms.

Banning owner families from having a stake in CVCs and restricting VCs from investing in companies linked to owner families are also among the proposals under discussion.

After the ministries and agencies fine-tune the details, the government will likely finalize the rules next month.

By Kim Young-won (wone0102@heraldcorp.com)