FSCMA Revisions for Improving Rules on PEFs Passed by the National AssemblyMar 24, 2021

The National Assembly of the Republic of Korea passed the amendments to the Financial Investment Services and Capital Markets Act during a plenary session on March 24, with aims to improve the rules on private equity funds. The amendments will go through an approval process at a cabinet meeting prior to the pronouncement and will take effect six months thereafter. The amendments introduce stronger protection measures for retail investors in the PEF market.


The amendments to the FSCMA passed by the National Assembly represent an integrated version of various proposals and are the result of the government’s efforts to improve rules on PEFs and strengthen investor protection with high-risk investment products. The FSC will work on revising lower regulations to achieve the intended goals.


Key Revisions


I. New PEF Classification


The current PEF classification system that places distinctions between the ‘professional investment type’ and the ‘management participation type’ based on the purpose of fund management will be changed. The new classification system will place distinctions depending on the scope of investment entities.

II. Safeguards for Retail Investors


The revised FSCMA contains stronger safeguards for retail investors making investments in general PEFs as follows.

-  PEF sellers will be required to check whether the PEFs they sold are being managed by management firms according to their prospectus requirements.

-  PEF trust agencies, such as banks and prime brokerage service providers, will be subject to tighter monitoring requirements on PEFs.

-  PEFs with certain sizes will be subject to external audits to help improve the fairness in valuation while all PEF management firms will be required to provide quarterly asset management reports to investors.

-  Stronger liquidity management measures will be introduced to prevent maturity mismatches, etc.


III. PEF Management Rules


The rules governing the management of both general PEFs and institution-only PEFs will be identical to the current rules on the ‘professional investment type’ PEFs.


The existing rules that are intended to prevent large companies from expanding their governance clout using PEFs will continue to apply to all PEFs.


IV. Supervision of Professional PEF Management Firms and GPs


A new rule on the cancellation of registration will be introduced for a quick removal of fund management firms that fail to meet requirements over a certain period of time.


In order to facilitate regular supervision over general partners (GPs) by the financial authorities, GPs will be required to report any changes to their business registration status within two weeks and submit financial statements once a year. In addition, the authority to inspect GPs will be newly given to the financial authorities for the purpose of ensuring financial market stability and maintaining order.


V. Rules on the Number of Investment Entities for PEFs


The maximum number of investors allowed for a PEF will be increased from forty-nine to one hundred, although the total number of retail investors will continue to be limited to up to forty-nine. This change will have the effect of facilitating investments by professional investors.




The government expects that the revised FSCMA will bring about a more trusted PEF investment environment, strengthen the role of PEFs in providing venture capitals and make more effective management and supervision of the PEF market possible for the regulator.

* Please refer to the attached PDF for details.