1. BACKGROUND
After the global financial crisis in 2008, countries around the world strengthened financial regulation and supervision in order to prevent systemic risk in financial markets. The G20 countries agreed on stricter supervision on financial market infrastructures, mandatory clearing of over-the-counter(OTC) derivatives through a central counterparty(CCP) and mandatory reporting of transaction information to a trade repository(TR). To avoid regulatory arbitrage among different jurisdiction, the G20 endorsed the Principles for Financial Market Infrastructures(PFMIs)1 as international standards for payment, clearing and settlement systems.
In line with such a global move, Korea bolstered supervision on financial market infrastructures and is now in the process of implementing international standards into domestic regulatory framework. We strengthened monitoring and investor protection in derivatives markets. Korea also introduced a CCP for clearing OTC derivatives(April 2013) and mandatory clearing of Korean won IRS through a CCP(June 2014).
With the establishment of the ‘Business Guideline for Financial Market Infrastructures,’ the FSC intends to adopt the PFMIs as clear guiding principles in supervision of domestic financial market infrastructures.
2. SUMMARY OF「BUSINESS GUIDELINE FOR FINANCIAL MARKET INFRASTRUCTURES」
*Attached: Full Text of the Business Guideline for FMIs
OVERVIEW
The Business Guideline for Financial Market Infrastructures(hereinafter ‘the Guideline’) is to provide specific standards that financial market infrastructures(hereinafter ‘FMIs’) should comply with in conducting business pursuant to the Financial Investment Business and Capital Markets Act and its subordinate regulations.
Reflecting the PFMIs, the Guideline reorganized provisions related with financial market infrastructure, scattered throughout the Financial Investment Business and Capital Markets Act, into a systemic order.
FMIS SUBJECT TO THE GUIDELINE
The Guideline shall apply to Korea Exchange, Korea Securities Depository and financial investment instrument clearing companies.
HOW TO IMPLEMENT
An FMI shall reflect the Guideline in prescribing its internal rules that require an approval by the FSC in its establishment and amendment. Out of PFMIs, provisions of mandatory nature are being implemented in relevant domestic regulations or will be reflected through regulatory revisions.2
KEY CONTENT OF THE GUIDELINE
The Guideline reorganized 24 key principles of the PFMIS into 14 principles in accordance with domestic circumstances and provides detailed standards to implement.
3. EXPECTED OUTCOMES
The Guideline is expected to strengthen stability in financial market infrastructures by proving clear and detailed business standards for FMIs. It will ensure consistency for similar FMIs in handling business operations and provide guiding principles for newly-entered FMIs in setting up internal rules.
Reaffirming Korea’ strong commitment to global coordination, the Guideline will enhance the international community’s confidence in Korea’s financial market infrastructures.
4. Future Plan
The Guideline will be implemented immediately, and whether FMIs observe the standards will be monitored.
FMIs should self-evaluate on a regular basis whether their internal rules and business operations are in compliance with international standards and disclose the results of self- evaluation. The Financial Supervisory Service (FSS) will adopt the Guideline as supervisory principles in its supervision an inspection on FMIs. The Guideline will serve as guiding principles for new FMI entrants to devise internal rules.
Korea will continue to actively participate in the global regulatory direction to enhance stability and efficiency of FMIs.
* Please refer to the attached PDF for details.