Kakao's Regulatory Risks Deepen Amidst Mounting Political Scrutiny from South Korea's President

Published: November 03, 2023 at 3:29 am Updated: November 03, 2023 at 3:33 am

In Brief

South Korea’s Kakao grapples with escalating regulatory pressure over taxi app practices and suspected stock manipulation.

South Korean tech conglomerate Kakao, known for its infamous chat app KakaoTalk and diverse tech portfolio of digital banking, taxi services and entertainment —- faces mounting regulatory challenges. South Korea’s President Yoon Suk Yeol has called for a review into its taxi app practices, citing monopolistic behaviors.

This adds to the company’s woes following a recent investigation into suspected stock market manipulation.

It is reportedly being said that of Kakao Corp’s shares have plummeted by 27% over the past three months, signifying heightened concerns around regulatory uncertainties impacting the company’s valuation.

These issues could further intensify, creating unwelcome disruptions as Kakao endeavors to advance its artificial intelligence initiatives and infrastructure investments to compete with its local rival — Naver. Kakao’s issues now seem to have expanded and given the firms dominance in the country, and analysts say that it is a prominent subject to attract public attention ahead of the general elections next April.

Korean President’s Take On Kakao’s Market Manipulation

During a public meeting on Wednesday, President Yoon Suk Yeol labeled Kakao Mobility‘s taxi-hailing service as monopolistic, calling for an urgent review.

“In the sense that they attracted (drivers) and then raised prices, it’s very immoral and the government should take action,” President Yoon Suk Yeol commented in response to a complaint raised by a taxi driver, concerning market-abusing practices.

Kakao Mobility holds over 90% of South Korea’s taxi-hailing market, and has announced a scheduled emergency meeting with taxi drivers to reform the fee structure — in response to public concerns. The group faced public scrutiny a year ago following a widespread outage of KakaoTalk, raising queries about the app’s significant market dominance and the extent of consumer and business reliance on its associated services.

Regulatory challenges were also compounded last month, after the arrest of one of Kakao’s executives over suspected stock market manipulation during the acquisition of K-Pop agency SM Entertainment. The Financial Supervisory Service (FSS) revealed its intent to refer Kakao, its affiliate Kakao Entertainment and involved executives in the SM Entertainment acquisition to public prosecutors for suspected violations of the Capital Markets Act.

If wrongdoing is found at Kakao Corp, the group might be compelled to divest part of its 27.2% stake in online bank KakaoBank, as it would not be legally permitted to remain the bank’s major shareholder. In addition to these concerns, the state-run National Pension Service (NPS) announced a shift in the purpose of its investment in Kakao from passive to more actively exercising shareholder rights.

Kakao’s resources are currently spread thin amid various legal proceedings and probes by the prosecution, financial regulator.

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Victor is a Managing Tech Editor/Writer at Metaverse Post and covers artificial intelligence, crypto, data science, metaverse and cybersecurity within the enterprise realm. He boasts half a decade of media and AI experience working at well-known media outlets such as VentureBeat, DatatechVibe and Analytics India Magazine. Being a Media Mentor at prestigious universities including the Oxford and USC and with a Master’s degree in data science and analytics, Victor is deeply committed to staying abreast of emerging trends.
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Victor Dey