AMCHAM Chief Says Network Separation Rules Delay Security Updates at Foreign Banks

James Kim, chairman and chief executive of the American Chamber of Commerce in Korea (AMCHAM), said South Korea's network separation rules "can act as a constraint on branches and subsidiaries in Korea in linking smoothly with their group's global information technology infrastructure." His remarks point to the rules hurting the competitiveness of foreign financial firms, at a time when calls are growing to ease network separation requirements in response to artificial intelligence-driven hacking attacks on the financial sector.

"Network separation rules can delay the rollout of group-wide systems and security updates, and can also create difficulties in using cloud services and AI technology," Kim said in an interview with The Seoul Economic Daily on the 12th.

AMCHAM is the largest foreign business organization in South Korea, with about 800 member companies at home and abroad. It also makes policy recommendations aimed at improving the domestic business environment for foreign financial firms. In March this year, it laid out 39 regulatory reform proposals in a report on strategies for developing Korea as a financial hub, including exemptions from network separation rules and criteria for recognizing head office capital for domestic branches of foreign banks.

AMCHAM has consistently argued that the country's network separation rules impose a significant cost burden on foreign financial firms, because complying with requirements that do not apply overseas forces their Korean branches to build IT infrastructure separate from that of their headquarters. "It is extremely difficult to carry out domestic IT-related work by outsourcing it to overseas affiliates," the chamber said, arguing that network separation obligations should be eased when domestic computer systems are connected to the networks of overseas affiliates where safety has been verified.

On the planned relocation of financial regulators and state-run financial institutions out of the capital, Kim said the government should proceed cautiously, taking into account the impact on the country's competitiveness as a financial hub and on communication with the market. "We fully understand and respect the government's policy goal of balanced regional development," he said, while stressing that "a financial hub becomes more competitive when supervisory authorities, financial companies, specialized professionals and legal and accounting services are clustered in close proximity and function as a single ecosystem." He added that "if major institutions are dispersed across several regions, the impact on policy coordination and communication with the market needs to be examined closely."

Kim also voiced concern that moving financial regulators out of Seoul could affect the work of financial companies. "Routine reporting and document submissions can be handled digitally, but licensing, interpretation of regulations, inspections and periods of heightened volatility in financial markets require prompt and direct consultation with supervisory authorities," he said.

He was upbeat about South Korea's potential to become a financial hub. In April, he met Financial Services Commission Chairman Lee Eok-won and said the number of regional headquarters of multinational companies based in South Korea has the potential to grow from fewer than 100 at present to as many as 1,000. "This is less a short-term forecast than a target that shows the potential Korea can realize over the long term," Kim said. "Korea is home to globally competitive companies, and it has world-class digital infrastructure and a solid economic partnership with the United States."

He stressed, however, that improving the regulatory environment is necessary to turn that potential into actual investment. "To translate Korea's potential into investment and regional headquarters, the country needs to improve regulatory predictability and transparency and strengthen alignment with global standards," Kim said. "Only then will global companies choose Korea not simply as a domestic market but as a base for overseeing their Asian operations."

Among the key areas for improvement, he cited the real-name verification system and the responsibilities map framework for internal controls. "The real-name verification system can require a separate verification procedure for corporate clients from abroad that have already gone through rigorous customer due diligence," Kim said. "The responsibilities map can likewise create a burden by requiring domestic branches to set up separate procedures on top of their head office's internal control framework."