Laws and decrees related to the Financial Services Commission

• The Act for the Establishment of Financial Services Commission Under the Amendment of the Act for the Establishment of Financial Services Commission which was enacted on Feb. 29, 2008, the Financial Services Commission was established by integrating the Ministry of Finance and Economy's financial policy function and the Financial Supervisory Commission's supervisory policy function to proactively deal with rapidly changing financial environment characterized by conglomeration, financial convergence, and globalization while separating policy-making and execution functions so as to enhance the responsibility of financial administration, thereby laying the groundwork for the advancement of the Korean financial Supervisory industry.
  
  The FSC is responsible for the stability of financial markets, the promulgation and amendment of financial supervisory rules, the authorization and permission of establishment and mergers of financial companies, and the supervision of the Financial Services Commission, etc.
  
  
• The Act Concerning the Structural Improvement of the Financial Industry
  
  The Act concerning Merger and Conversion of Financial Institutions, enacted by the Law No. 4341, March 8, 1991 tructural Improvement of the Financial Industry. This Act was amended again by the Law No. 5496, Jan. 8, 1998, in compliance with the enactment of the Act concerning Establishment of Financial Supervisory Organizations.
  The purpose of this Act shall be to contribute to the balanced development of the financial industry by supporting the structural improvement of the financial industry such as the merger, conversion or reorganization of financial institutions, promoting sound competition between financial institutions and raising the efficiency of financial business.
  
  

Enhanced protection for consumers of financial services

• The Banking Act The Banking Act is the principal law governing banking regulations in Korea, which was enacted by the law No. 139, May 5, 1950 and lately amended (19th) by the law No. 6429 March 28, 2001. The Banking Act, The Bank of Korea Act, and the Act on the Establishment of Financial Supervisory Organizations together provide for the basic framework of Korea's banking supervisory system. The purpose of this Act is to contribute to the stability of financial markets and the development of the national economy by promoting the sound operation of financial institutions, enhancing the efficiency of the fund mediating functions, protecting depositors, and maintaining the credit order.
  
  

• The Trust Business Act
  
  The Trust Business was enacted by the law No. 945, December 31, 1961 and lately amended (5th) by the law No. 6180, January 21, 2000. The purpose of this Act is to protect the beneficiaries by protecting and supervising the trust business, and rationalizing the organization and management of trust companies.

Laws and decrees related to securities

• The Securities and Exchange Act
  
  The Securities and Exchange Act was enacted on January 15, 1962 to contribute to the development of the national economy by attaining a wide and orderly circulation of securities and protecting investors through the fair issuance, purchase, sale or other transactions of securities. Since then, it has experienced 24 amendments including a comprehensive amendment on December 22, 1976.
  In order to ensure fairness in securities issuance and corporate disclosure, the Act requires a corporation to be registered with the Financial Services Commission (FSC) if it intends to list its securities on the Korea Stock Exchange or to conduct such other activities as prescribed in the Act. If a corporation wishes to make a public offering of 2 billion Won or more, it must file a registration statement with the FSC pursuant to the SEA. The SEA also requires a tender offer to file with the FSC a tender offer statement which contains regarding the tender offer such information as to the purpose of, the source of funds to be used, and terms and conditions of the tender offer.
  
  A person intending to conduct securities business should be a joint-stock corporation licensed by the FSC for the type(s) of business to be conducted. Also an investment advisory corporation must be registered with the FSC.
  
  The Act has provisions for the disclosure requirements of securities issuers and the functions and roles of securities-related institutions, such as the Korea Stock Exchange (KSE) and the Korea Securities Depository (KSD), in order to ensure the fair and equitable pricing and trading of securities. Corporations listed on the KSE (or registered with the Korea Securities Dealers' Association) should file annual, semi-annual, and quarterly reports with the FSC and the KSE (or the KSDA).
  
  The Act prescribes unfair tradings such as insider trading and price manipulation as illegal activities. In order to prevent insider trading, the SEA prohibits officers/employees of a listed corporation from effectuating securities transactions while in possession of non-public material information, short-swing transactions, and short selling. It also prescribes wash sales and accommodation trades to deter price manipulation.
  
  

• The Act on External Audit of Corporations
  
  This legislation stipulates accounting and auditing-related rules for joint-stock corporations. Specifically, the Act prescribes the FSC's responsibility for establishing accounting and auditing standards, firms' responsibility for preparing financial statements in compliance with accounting standards, and auditors' responsibility for conducting audits in accordance with auditing standards.
  
  According to the Act, a firm with assets of 7 billion Won or more must issue audited financial statements. In addition, a company with one or more subsidiaries must issue audited consolidated financial statements. Conglomerates as defined in the Anti-trust and Fair Trading Act must issue audited combined financial statements.
  
  A firm can appoint its auditor based upon the recommendation of the internal auditor or the Auditor Selection Committee and approval at the shareholders' meeting. However, the FSC
  
  shall appoint an auditor for a company when the company:
  - violates the due procedure in hiring the auditor;
  - changes the auditor without any legitimate reason; or has an owner-manager.
  
  The FSC is responsible for establishing accounting and auditing standards and the Securities of Futures Commission(SFC) is responsible for audit review. The FSC also takes measures against the auditors and management of a company based upon the results of the audit review.
  
  Finally, the legislation requires the auditor to maintain confidentiality of the client and to report any managerial fraud to shareholders. The auditor is also liable for any damage due to negligence in performing his duties or failure to disclose material information.

• The Futures Trading Act
  
  The Futures Trading Act(FTA), which was enacted on December 29, 1995, and amended once on January 13, 1998, is the unitary statute regulating derivatives transactions.
  
  The FTA basically stipulates structure and operations of the futures market, and contains provisions of the:
  
  - Establishment, membership, and trading system of the futures exchange;
  - Licensing and regulation of futures companies such as futures commission merchants (FCMs) and commodity pool   operators(CPOs);
  - Establishment and regulatory functions of the futures association as a self regulatory organization; and
  - Supervisory authority of the statutory regulators such as the MOSF and the FSC.
  
  Unfair and fraudulent transactions, including price manipulation, are prohibited to ensure the futures market's mechanism of fair price discovery. For the purpose of protecting customers, the FTA also has a provision which bars FCMs' unlawful solicitation.
  
  Pursuant to the FTA, the FSC may authorize the SSB to conduct an examination of the business condition and properties of the futures exchange, futures association, and futures companies. If any one is alleged to violate the FTA, the FSC may require submission of a report or documents and/or direct the SSB to conduct investigation on the books, records and other relevant materials.
  
  

• The Indirect Asset Management Business Act
  
  The Indirect Investment Asset Management Business Act, which integrates the Securities Investment Trust Business Act and the Securities Investment Company Act, was enacted on October 4, 2003 to facilitate indirect investment in capital markets by prescribing requirements regarding the establishment of indirect investment vehicle, asset management, and investor protection.
  
  Under the Act, "indirect investment" means the pooling of capital from investors for investing in various securities, OTC and exchange-traded derivatives, real estate, and commodities and the distribution of proceeds from such investment to the investors
  
  According to the Act, any person who intends to establish and operate an asset management company shall have the equity capital of not less than KRW 10 billion and shall obtain a permit from the Financial Services Commission. For purpose of strengthening asset management capabilities and enhancing investor protection, the Act also requires an asset management company to secure specialists, appoint not less than 3 outside directors, and establish the audit committee.
  
  The legislation contains provisions regarding the:
  
  - prohibition of concurrent business operation of asset management company
  - restrictions on trading securities by officers and employees
  - ban on the use of undisclosed information concerning the business operation
  - types and composition of indirect investment vehicle
  - rules and restrictions on the sale and redemption of indirect investment securities
  - special indirect investment vehicles such as ETF (exchange traded fund)
  - domestic operation of foreign asset management companies and domestic sales of foreign
    indirect investment securities
  - asset management association
  - Regulations on the FSC's supervision and punishment