M&A broker regulation bill sparks controversy

By 박한나

Published : Sep 8, 2016 - 11:48
Updated : Sep 8, 2016 - 18:12

[THE INVESTOR] A new bill that seeks to tighten regulation on merger and acquisition brokers has prompted conflict of interest between securities and accounting firms here.

The bill, proposed by Rep. Park Yong-jin of the main opposition Minjoo Party of Korea in August, outlines that companies offering advice concerning corporate acquisitions require authorization for financial investment business, by revising the current Capital Market Act. 




In South Korea, private company M&A advisors and business brokers are allowed to receive transaction-based compensation without having to register as a broker-dealer.

Local accounting companies have opposed the bill, citing the motion aims to grant exclusive rights to securities firms which already obtained a license for financial investment business.

If parliament pass the bill, accounting and law firms have to transform into a company limited by shares in order to win the approval as they are private companies.

“It is inappropriate to include M&A brokerage service in financial investment business as it’s more close to advisory service than the sale of securities,” said Park Dae-joon, a deal business deputy leader at local accounting firm Samil PricewaterhouseCoopers.

Private business brokers and small boutiques also took a hard stance against the bill.

“Making a new entry barrier is a discrimination for other brokers,” said Lee Chang-hun, chairman of Korea M&A Exchange, an M&A matchmaking platform.

Foreign investment banks such as Credit Suisse and Morgan Stanley took dominant positions in the local M&A advisory market, taking 70 percent of total deal size, followed by local securities firms and accounting firms with 16 percent and 14 percent, respectively.

According to Rep. Park, the bill is designed to revitalize the country’s financial market with more defined rules.

The move came as the government unveiled a set of measures this year to foster big investment banks which sparked debate that the bill will only help the securities firms to increase revenue from M&A deals.

Securities brokerages houses backed the revision to protect investors from damages they could face in the fallout of M&A deals they pursue.

“More stern regulations are needed to screen whether M&A brokers are qualified to take legal and financial responsibility when transactions go wrong,” Moon Tae-young, a managing director at NH Investment & securities.

Bringing M&A brokerage business into the regulatory system is required to promote M&A market here to guarantee transparency and fairness in the market, Moon said.

By Park Han-na (hnpark@heraldcorp.com)

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