Press Releases - Financial Services Commission

Press Releases

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Apr 02, 2012

Expanding Microfinance for Young Adults and Low-Income Households

The FSC announced a set of plans for further expanding microfinance to help financially difficult young adults and low-income households manage financially-stable lives.EASE FINANCIAL DIFFICULTIES FOR YOUNG ADULTS AND LOW-INCOME HOUSEHOLDS1. Switch their high-interest loans to low-interest loansBanks will jointly raise KRW 50 billion of guarantee funds within the first half of this year to switch young borrowers’ high-interest loans (over 20% interest rates) to low-interest loans, which will amount to a total of KRW 250 billion.2. Extend microcredit loans for emergency useA total of KRW 30 billion out of the Smile Microcredit Fund will be extended to financially difficult young adults, up to KRW 3 million per person.3. Provide financial support for young entrepreneursA fund of KRW 0.5 trillion will be created to support young entrepreneurs and start-up companies.ENSURE MICROFINANCE PROGRAMS WORK AS INTENDED1. Smile Microcredit Program- The volume of microcredit loans for small merchants in traditional markets will be almost doubled from KRW 35.6 billion in 2011 to KRW 70 billion in 2012.Loan ceilings will be temporarily raised for 10 days before and after the national holidays when merchants’ demand for cash is particularly high.- The review process for loan applications will be made more flexible to take into consideration various factors such as borrowers’ will to repay debt and business feasibility.- In order to build a strong bond with local communities, each branch of the Smile Microcredit Foundation will establish an operating committee and hire experts familiar with local communities as business consultants.- Supervision on the Smile Microfinance Foundation and its welfare business operators will be strengthened to ensure transparency and fairness in management and operation.2. Sunshine Loans- Microfinance products such as ‘Sunshine Loans’ will be exempted from regulation on loan-to-deposit (LTD) ratios for mutual cooperatives.- Various credit facto
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Mar 29, 2012

FSC Signs MOU with Vietnamese Finance Ministry for Cooperation in Insurance Supervision

The FSC Chairman Kim Seok-dong and the Vietnamese Finance Minister Vuong Dinh Hue signed an MOU on March 29, 2012 to expand bilateral cooperation and information sharing in supervision of the insurance sector.The MOU covers a variety of cooperative tasks such as cooperation between the two supervisory authorities, information sharing, establishment of cooperation channels between high-ranking officials of the two countries, and training programs.With the signing of the MOU today, Korea and Vietnam have completed signing MOUs covering supervisory authorities in the banking (August 2006), securities (January 2002), and insurance (March 2012) sectors, which will lead to further cooperation in finance between the two countries.The FSC has so far signed a total of 28 MOUs with 31 financial authorities in 18 countries and one international organization. It will continue to expand cooperative partnership in finance with the G20 major economies and emerging countries.*[US] Federal Reserve Board (FRB), Securities Exchange Commission (SEC), National Association of Insurance Commissioners (NAIC)[UK] Financial Services Authority (FSA)[China] China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC)[Turkey] Banking Regulation and Supervision Agency (BRSA), Capital Markets Board (CMB) etc.*Please read the attached file for details.
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Mar 28, 2012

Plan for Improving Loan Guarantee Programs for Tech Firms

The FSC has announced a set of plans for improving loan guarantee programs for small and medium-sized tech companies.1. Introduce a ‘tech value-linked guarantee program’The FSC plans to introduce a ‘tech value- linked guarantee program’ in which the Korea Technology Finance Corporation (KTFC) reflects potential monetary value of technology that a firm owns when deciding how much loan guarantee it would provide.The newly-introduced guarantee program is expected to help potentially profitable tech-based start-ups and SMEs finance their businesses.2. Establish an evaluation system for converged or combined technologiesThe KTFC will develop an evaluation system for converged or combined technologies by June 2012. The existing model has been focused on a single technology or industry. The new model will introduce indices to evaluate synergy effects between converged technologies.In order to respond to the convergence and combination of technologies, the KTFC has restructured the organization for evaluating technology into a hub-and-spokes regional coverage system.3. Improve evaluating ability for new industries and technologiesThe KTFC will widen a pool of experts to evaluate new technologies and its network with outside advisors particularly in regard with culture and content industries.The KTFC will develop two additional evaluation models for young entrepreneurs’ start-up companies and converged industries by June 2012. The new model will be designed to meet specialized needs for evaluating young entrepreneurs’ tech firms.The existing evaluation models will be subdivided into sector-specific models by September 2012.- KTRS model (evaluation for general technology): In addition to the existing 6 models - general, bio, environment, SW, dotcom, and design sectors, new models for the service industry such as medical and education sectors will be created.- KTRS-Startup model: The existing single model that covers all industries will be subdivided into 8 sector-
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Mar 19, 2012

Chungwoo Suh Appointed to the IASB

The Trustees of the IFRS Foundation, the oversight body of the International Accounting Standards Board (IASB), announced today the appointment of Chungwoo Suh as a member of the IASB for an initial five-year term from 1 July 2012 and renewable for a further three-year term.Dr. Suh served as Chairman of the Korea Accounting Standards Board (KASB) and is a Professor of Accounting at Kookmin University, Seoul.With his appointment, Korea became the 13th among 130 member countries that sent its national to the IASB.As a member of the IASB, Dr. Suh will participate in setting and revising IFRS rules, which will be a valuable contribution to improving Korea’s presence in the international rule-setting body.*Please read the attached file for details.
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Mar 12, 2012

Reporting System of High-Volume Short Sales

BACKGROUNDSince the global financial crisis, major economies have adopted a reporting regime for high-volume short sales in line with global discussions* to enhance transparency of short selling.*Principles for Short Selling Regulation proposed by the International Organization of Securities Commission (IOSCO) on June 2009.n Provide ready access to information on short selling to improve insight into market dynamics;n Deter market abuse;n Mitigate the potential disorderly market effects of aggressive short selling;n Provide early warning signs of a build-up of large short positions and alerts to prompt investigation into suspicious activities that may be potentially abusive or disruptive to the orderly functioning or stability of the markets; andn Provide evidentiary proof that aids in post-event investigation and disciplinary action.By introducing a reporting regime for large short positions, Korea will also join the global effort to expand a pool of information for market supervision and maintain the orderly functioning or stability of the markets.We will continue to reflect global discussions and advanced markets’ regulatory reforms in domestic regulations on short selling in order to make them more compatible with global principles.KEY CONTENTIt will become mandatory for investors to report short positions that exceed a certain threshold to both market authorities and KRX.The Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA)*will be revised to lay a legal foundation for mandatory reporting of large short positions*Article 180 of the FSCMA prohibits short sales in principle and exceptionally allows covered short selling in a manner prescribed by the Enforcement Decree.*Please read the attached file for details.
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Mar 06, 2012

Plan for Improving Loan Approval Process for SMEs

BACKGROUNDSmall and medium-sized enterprises (SMEs) primarily rely on indirect financing such as bank loans due to difficulties in funding their business through direct financing sources such as corporate bonds.1. However, one of the most important elements that financial institutions consider in reviewing a company’s loan application is whether the company can provide collateral for loans; therefore, start-up businesses or SMEs which lack such collateral still have difficulties in borrowing money from banks. Bank officials hold on to such collateral-based standards in reviewing SMEs’ loan applications because they want to avoid their responsibility in the event of SME borrowers’ default.2. Banks also complain of insufficient information about SMEs available in a timely manner to evaluate SMEs’ loan applications. SMEs raise the issue of fairness with banks’ evaluation system of real estate collateral, pointing out that each bank’s different standards make it harder to ensure objective and reliable evaluations of collateral assets.3. The government and policy banks already have various programs to support SMEs; however, such programs are not well known to SMEs so they are not fully utilized.Against this backdrop, the FSC has come up with a set of plans to improve the loan approval process for SMEs by reforming the immunity system for bank officials; fostering an SME-specialized credit bureau (CB); and improving banks’ collateral evaluation system.MAJOR TASKSI. Reform the immunity system for bank officials1. Current situation(1) The financial supervisory authorities have made several reforms to the immunity system in order to stimulate bank lending to SMEs; however, such measures fell short of a permanent reform of the system.Since 2006, an average of 145 officials per bank annually has been sanctioned for approving SME loans that later turned into non-performing ones.(2) Currently, conditions for granting immunity set by both the supervisory authorities
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Mar 02, 2012

Measures on Non-Banking Sector's Household Lending

BACKGROUNDThe Korean government announced last year “Comprehensive Measures on Household Debt”(June 29, 2011) and “Measures to Increase Accessibility of Low-income Households to Financial Services”(April 15, 2011) to preemptively manage household debt growth.In 2011, household loans increased by 7.6%, lower than 8.1% in 2011. However, household lending in the non-banking sector increased by 9.9%. Particularly, household loan growth by cooperative financial institutions and insurance companies still remains high.If household lending by non-banking institutions keeps growing at such a rapid pace, it would undermine the overall soundness of the sector and adversely affect our economy and financial market in the long term.Against this backdrop, the government came up with follow-up measures to keep the growth of household loans by the non-banking sector under control.(1) The measures aim to keep household loan growth particularly by cooperatives and insurers at manageable levels and manage household lending in a sound manner. At the same time, the government will ensure the “Comprehensive Measures on Household Debt” (June 29, 2011) are implemented as scheduled.(2) In order to minimize side effects that these measures could bring to the economy and low-income households, these new lending rules will be phased in gradually, applicable to newly extended loans.(3) We will also make sure the “Measures to Increase Accessibility of Low-income Households to Financial Services” are implemented as scheduled.MEASURES TO CURB COOPERATIVE FINANCIAL INSTITUTIONS’ LENDING1. Stricter loan-to-deposit (LTD) rulesCooperative financial institutions will be required to keep their LTD ratios below 80%. Cooperatives with LTD ratios over 80% will be required to bring down the ratios below 80% within two years. For cooperatives whose LTD ratios exceeding the average ratio of the sector, they will be under supervision to keep the ratios to a standstill at the levels of end-2011
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Jan 30, 2012

Approval for HFG's Acquisition of KEB

The FSC approved Hana Financial Group (HFG)’s acquisition of Korea Exchange Bank (KEB) at its regular meeting on January 27, 2012.Under the Financial Holding Companies Act, a potential acquirer is required to meet the following three conditions: (1) The business plan of a company included as a subsidiary shall be appropriate and sound; (2) The financial standing and business management of such financial holding company and its subsidiary shall be sound; and (3) The funding plan for acquisition shall be appropriate.In granting approval, the FSC shall consult in advance with the Fair Trade Commission (FTC) as to whether the merger or acquisition substantially limits competition in the relevant market.In regard with this matter, the FTC notified the FSC on December 29, 2011 that such acquisition would not substantially limit competition in the relevant market.The FSS also notified the FSC on January 27, 2012 that HFG satisfies the requirements under the Financial Holding Companies Act to acquire KEB as its subsidiary.(1) KEB’s business plan is appropriate to keep its operations and maintain the managerial soundness of HFG and KEB.(2) As of end-September 2011, the BIS capital adequacy ratios of HFG (13.05%) and KEB(13.98%) meet the standard set by the FSC.(3) HFG’s acquisition of KEB was partly funded by its own debt; however, there is no concern that it would significantly hurt its managerial soundness.With approval for HFG’s acquisition of KEB, KEB’s 13 subsidiaries will be included as lower-tier subsidiaries of HFG. As a result, the number of HFG’s subsidiaries will increase from 8 to 9; and lower-subsidiaries from 9 to 22.As a result of the acquisition, seven of all domestic banks will belong under financial holding companies.Hana Financial Group1. General Information- Establishment: 2005.12.01- CEOs: Kim Seung-Yu, Kim Jong-Yeol- Head Office: 101-1 Euljiro 1-ga, Jung-gu, Seoul, Korea- Number of Employees: 12,8702. Financial Analysis (units in KRW, %)- To
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Jan 06, 2012

2012 Financial Policy Agenda

FINANCIAL MARKET OUTLOOK FOR 2012 AND KOREA’S POLICY DIRECTIONAs Europe’s ongoing debt crisis is expected to threaten global economic growth and increase volatility in global financial markets next year, Korea is also likely to face an economic slowdown, which will deal a severe blow particularly to SMEs and low-income households.Under such circumstances, the FSC set three main financial policy goals with six key objectives for 2012 as follows:[Policy goal #1: Preparedness against crises]① Take preemptive actions to secure market stability② Make Korea’s financial system further advanced[Policy goal #2: Support for businesses]③ Create a financial services environment for the growth of start-up companies and SMEs④ Develop financial services for sustainable growth[Policy goal #3: Greater financial inclusion]⑤ Support expansion of microfinance programs for low-income households⑥ Promote social contribution of financial institutions and stronger protection for financial consumersKEY POLICY OBJECTIVES FOR 20121. Preemptive actions to secure market stability(1) Create an emergency response mechanism for prompt actions in the event of a financial crisis- The FSC will conduct thorough tests on foreign currency liquidity conditions of domestic banks and closely monitor foreign capital flows.- We will also review and supplement our action plans on a frequent basis to take prompt and bold actions for market stabilization in the event of a crisis.- The FSC-FSS joint emergency response team will be ready to take swift actions against any possible crisis.(2) Keep household debt growth to a manageable level and normalize bad PF loans Household debt- The FSC will curb household debt growth to a balanced pace with real economic growth.- In order to encourage banks to extend more fixed-rate and installment loans, we will help banks secure their long-term funding sources by facilitating their issuance of MBS or covered bonds.- By end-2016, banks will be required to in
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Dec 14, 2011

Early Repayment of Bank Recapitalization Fund

OVERVIEWIn December 2008, the government announced its plan to create the Bank Recapitalization Fund in order to help banks secure more equity capital in response to the global financial crisis. A total of KRW 20 trillion fund was raised with contributions from the Bank of Korea (KRW 10 trillion), the Korea Development Bank (KRW 2 trillion), and institutional and retail investors (KRW 8 trillion) . With the fund, the government purchased banks’ subordinated and hybrid securities and then securitized subordinated debt of KRW 8 trillion into bonds and sold them to institutional investors.UPDATES ON FUND OPERATIONOn March 31, 2009, the government purchased hybrid and subordinated securities worth KRW 4 trillion from eight domestic banks.As of end-November 2011, a total of KRW 1.3 trillion was repaid. The government fully recovered its investment in banks’ subordinated debt by selling a total of KRW 503 billion* subordinated securities in the market. Out of the investment in hybrid securities, KRW 0.8 trillion** was repaid as issuers chose to buy back their debt before maturity.EARLY REPAYMENT SCHEMESome banks expressed their intention to buy back their hybrid securities before maturity as their earnings this year have increased.Such an early repayment requires approval from the Bank Recapitalization Fund Operation Committee and the FSS Governor for selling those securities before maturity.On December 9, 2011, the Committee has approved sales of hybrid securities worth KRW 1.5 trillion that the Bank Recapitalization Fund held in Kookmin (KRW 0.6 trillion), Hana (KRW 0.3 trillion), Woori (KRW 0.2 trillion), and NH Bank (KRW 1.5 trillion).These banks will go through their internal procedure such as approval from their board of directors for early repayment and then apply for approval from the FSS Governor.Through the buy-back scheme, it is expected that KRW 1.5 trillion will be repaid by the end of this year, and the remaining amount of money to be recovered will be l
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Dec 07, 2011

Best Practice Guidelines for Hedge Funds and Prime Brokers

KEY CONTENTSI. Hedge Funds1. Guidelines for internal control and risk managementHedge fund management firms are required to set guidelines for internal control over hedge fund management, which include work manuals for executives and employees, and designate persons in charge of internal control matters.In order to manage risks involved in hedge fund investment, hedge fund management firms are required to create a risk management division within the company.2. Seeding principles for hedge fund firmsFor hedge fund management firms who want to invest their own capital into hedge funds under their management, the best practice guidelines set the following principles:(1) A hedge fund management firm is prohibited from investing more than 10% of its own capital into the same hedge fund.(2) A hedge fund management firm is prohibited from investing more than 50% of its own capital into hedge funds under its management(3) A hedge fund management firm is prohibited from investing its own capital into collective securities that exceed 30% of total securities issued by the same hedge fund.** This principle will not be applied until one year after the inception date of a hedge fund.(4) In the cases above mentioned, the hedge fund management firm can recoup its investment only upon the remaining investors’ consent.Hedge fund managers are restricted from directly investing in hedge funds under their management.3. Conflict of interest preventionThere should be a “Chinese wall” between a hedge fund management division and other business parts of a company. Executives and employees in the hedge fund division are restricted from concurrently working in other divisions.Hedge fund management firms are required to create an internal committee, composed of compliance officers, in charge of preventing conflict of interest.4. Investor protectionHedge fund management firms are required to provide their clients with sufficient information about risks involved in hedge fund investment w
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Dec 06, 2011

Joint FATF/APG Typologies Workshop 2011 Held in Busan

The Korean government will be co-hosting an international conference on Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) in Busan for six days from December 5th to 10th. The Financial Intelligence Unit (KoFIU) of FSC will be representing the Korean government.The Joint FATF/APG Typologies Workshop 2011, jointly hosted by the Financial Action Task Force and the Asia Pacific Group on Money Laundering, groups of Financial Intelligence Units around the world setting the guidelines and implementing supervisory rules on AML/CFT issues. They are made up of 36 OECD nations and 40 Asia-Pacific nations respectively including Korea, Japan, Canada and the U.S.Roughly 250 representatives from 45 countries and 15 international institutions including the UN, IMF, and World Bank will be participating at the conference.Discussions will be around the following four major topic areas: A. Trade Based Money Laundering; B. Illicit Tobacco Trade; C. Guidance on Financial Investigation; and D. Laundering the Proceeds of Corruption.This would be the first time the City of Busan, which has been designated as one of Korea’s official financial hubs, is holding an international conference on AML/CFT of this magnitude and scale, which will raise the city’s international reputation.The FSC Chairman Kim Seok-Dong will be giving the keynote address emphasizing the need to find innovative countermeasures in response to the rising of newest tactics on money laundering as well as the necessity to narrow the compliance gap between FATF and APG member nations.The Congressman and Chairman Huh Tae-Yeol of Korea’s National Policy Committee will give the welcoming address emphasizing the need to strengthen AML/CFT efforts to combat against the risks and treats to international financial system that oppresses universal values such as democracy and human rights, calling for great international cooperation.*Please read the attached file for details.
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Nov 29, 2011

FSC Chairman Visits Financial Regulators in Turkey and UK for Greater Partnership

The Financial Services Commission Chairman, Kim Seok-dong has made a five-day-journey from November 24th to 29th to Turkey and the United Kingdom to visit and strengthen relationships with corresponding financial regulating agencies. The following are some of the results of the meetings with the heads of the regulating agencies:TURKEYChairman Kim met with Chairman Vedat Akgiray of the Capital Markets Board (CMB), Chairman Tevfik Bilgin of the Banking Regulation and Supervision Agency (BRSA) and Chairman Husayin Erkan of the Istanbul Stock Exchange (ISE) to sign MOUs effectively raising the inter-cooperational relationship and informational exchange, including information regarding “fit and proper test” of the financial institutions between two countries, bilateral commitment to hold regular meetings at the top management level, joint studies and seminars on mutual interests, as well as exchanging of innovative financial technologies and information on capital markets.The FSC and the CMB also agreed to establish branch offices in both countries led by joint task force made up of civil and government official members. Their role will be to enhance cooperational ties and assist overseas advancement of financial institutions from both sides.UNITED KINGDOMChairman Kim met with Chairman Adair Lord Turner of the Financial Services Authority (FSA) to strengthen ties by signing a renewed MOU enhancing mutual understanding and partnership through various ways such as regular high-level dialogues, exchanging of examination and supervision techniques and human resources.They exchanged views on the cause and current development of European fiscal crisis and how it might affect the Asian countries including Korea, as well as future plans to counter those problems.The MOUs signed during the meetings with the heads of each organization took effect immediately as they were signed.* Please refer to the attached PDF below.
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Nov 18, 2011

Lone Star Ordered To Sell Down Its Stake in Korea Exchange Bank

I. Sale Order of Lone Star’s Excess Stake in KEBRULINGThe FSC decided to order Lone Star Fund IV (hereinafter “Lone Star”) to sell its stake in KEB that exceeds 10% of the total number of voting stocks within six months by May 18, 2012.** Article 16-4 of the Banking Act (5) Where a limit excess stockholder, etc. who has received an order under paragraph (3) fails to comply with the order, the FSC may order the limit excess stockholder, etc. to dispose of the stocks of a financial institution held by him in excess of the limit as set in Article 15(3)1 within a specified period of not more than six months.The sale order was made on ground that Lone Star failed to redress qualifications as a majority stakeholder in KEB within the deadline (October 28, 2011) set by the FSC, and the situation still remains unfixed.** Lone Star was ordered to redress its qualification as a majority stakeholder under the Banking Act that requires no record of punishment for violation of financial laws and regulations since it was ruled guilty of stock price manipulation and fined KRW 25billion.The FSC concluded that we should not delay our decision any longer, leaving the situation uncorrected.REASON FOR SETTING A SIX-MONTH PERIODThe FSC decided to give Lone Star a six-month period to reduce its stake in KEB, considering the number of stocks to be sold and precedent cases.Lone Star has to sell a total of 265 million shares (41.02%), the largest number of stocks that any shareholder was ever ordered to sell. We also took into our consideration fairness with a precedent case that a majority shareholder in an insurance company was given a six-month period to sell four million shares (41.4%).REASON FOR NOT SPECIFYING DETAILS OF THE SALEThe FSC decided not to specify details of the sale, considering the purpose of eligibility test for majority shareholders and reference cases home and abroad.The eligibility test for majority shareholders and the sale order of shares aim to eliminate unqua
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Nov 14, 2011

FSC Approves Revision of Regulations on Financial Investment Business

The FSC approved a revision of Regulations on Financial Investment Business at its 19th regular meeting held on November 16, 2011. With the approval of revision, the FSC laid the foundation for introducing home-grown hedge funds and prime brokers.From the beginning of this year, the FSC has been closely working with a joint task force composed of the academia, industry, and relevant institutions for revisions of Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) and related regulations.In order to ensure a soft landing of for home-grown hedge fund industry, the joint task force is currently drafting best practice guidelines, expected to be announced and implemented in November.*Please read the FSC press release “Proposed Revision of Regulations on Financial Investment Business” (Oct. 10, 2011) for Details.KEY CONTENTS OF THE REVISIONI. Regulations in regard with hedge funds1. Strengthened mechanism for preventing conflicts of interest arising from operations of hedge funds (Article 4-64)In order to prevent conflicts of interest, fund managers in charge of hedge fund operations, paid contingent remuneration, will be prohibited from operating other funds and discretionary investment assets, and sharing investment-related information.*In addition, it will be restricted for fund managers to directly or indirectly advertize names, investment performance and strategies of private equity funds including hedge funds.2. Criteria for hedge fund management firms and professionals(Companies) Asset management companies with a total of funds and assets under management more than KRW 10 trillion will be allowed to operate hedge fund management business.* “Track Record” criteria for securities and investment advisory firms(i) Securities firms with equity capital more than KRW 1 trillion(ii) Investment advisory firms with assets under management more than KRW 0.5 trillion(Persons in charge of hedge fund operation) Professionals with more
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Nov 08, 2011

FSC Lifts Temporary Ban on Short Selling of Non-Financial Stocks

The FSC decided to lift a three-month ban (August 10 - November 9) on short selling of non-financial stocks from November 10, while maintaining the ban on financial stocks for a while.Stock market volatility has been considerably subdued since August when the financial market turmoil began to unfold.** KOSPI: 2,172 (Aug.1) →1,801 (Aug. 9, short-selling ban) →1,653 (Sept. 26) → 1,919(Nov.7)However, given that potential Eurozone risks still remain such as a possibility of Greek default, growing concerns about Italy’s debt crisis, and upcoming maturity dates of PIIGS sovereign debt,* the FSC decided to maintain the short-selling ban on financial stocks vulnerable to internal and external factors.* PIIGS sovereign debt to be matured (unit: $100 million): 1,843 (4Q2011), 2,832 (1Q2012), 1,769 (2Q2012)In August, Greece, Italy, France, Spain and Belgium also banned short sales; however, Greece is the only country that banned short selling of all listed stocks as we did. The remaining four countries imposed short-selling bans on a few number of financial stocks.*Please read the attached file for details.
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Nov 04, 2011

Revision of Regulation on Investigation of Capital Markets

The FSC approved a revision of Regulation on Investigation of Capital Markets at its 18th regular meeting held on November 4, 2011.KEY CONTENTS1. Standards for punitive measures against violations of public disclosure rules get more streamlined and clarified.- Standards for imposition of penalty surcharges, which used to be too complicated, were revised in order to secure predictability and stability in enforcing such measures.* For example, the process of calculating the amount of penalty surcharges to be imposed has become shortened from six to four stages, and standards for setting the amount of penalty surcharges has become clarified in order to prevent penalty surcharges from being imposed arbitrarily.- Conditions to impose restrictions on securities issuance for those who violated public disclosure rules,* which used to be under the FSS Work Guidelines, will be incorporated into Regulation on Investigation of Capital Markets.* Cases in which the entity in violation of public disclosure was deemed incapable of paying penalty surcharges due to its delisting2. Punitive measures against those who committed a serious violation of public disclosure rules are strengthened.- The Securities and Futures Commission (SFC) can accuse those who committed embezzlement or a breach of trust or repeated and intended violations of serious violations of public disclosure rules.* Please read the attached file for details.
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Oct 21, 2011

Plan for Improved Discretionary Investment Services

BACKGROUNDSince 2010, with socio-economic changes such as the aging population and low-interest rate trends, there has been growing demand for “discretionary investment services,” or customized services in asset management.The growth in demand for discretionary investment services appears to be driven by investors seeking for alternative investments as investors’ sentiment about fund investment was dampened and interest rates have been kept low since the global financial crisis.In particular, advisory wrap accounts have shown a significant increase in contract volumes.*Contract volumes (trillion won): 1.1 (April 2010)→5.2 (Dec. 2010) → 9.1 (June 2011)Despite such growth in size, discretionary investment services still fall short of expectations in terms of providing customized services and investor protection.① (Regulatory arbitrage) The reason discretionary investment service providers are given greater autonomy* in their operations is because of the assumption that they provide customized one-on-one services; however, they are only required to meet the same level of “know-your-client” (KYC) requirements with other regular financial investment products.*Discretionary investment services are not subject to the 10% portfolio investment rule applied to mutual funds.② (Collective management) There is a controversy about collective management as some wrap accounts are managed under one model portfolio and perceived as just a short-term investment product rather than a customized asset allocation service.③ (Investor protection) As discretionary investment services mostly just employ short-term equity investment strategies focused on a few number of stocks, there is a need for investor protection against increased market volatility.Against this backdrop, the FSC has come up with a plan for further improvements in discretionary investment services as one of mid-and-long term asset management services.KEY CONTENTSI. Strengthened requirements for customiz
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Oct 10, 2011

Proposed Revision of Regulations on Financial Investment Business

BACKGROUNDWith the revision of Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) publicly announced on September 30, aimed at introducing home-grown hedge funds (tentatively named “specialized private equity funds”) to Korea’s capital markets, the FSC proposed a revision of Regulations on Financial Investment Business in order to stipulate details mandated under the revised Enforcement Decree.KEY CONTENTS OF THE REVISIONI. Regulations in regard with hedge funds1. Strengthened mechanism for preventing conflicts of interest arising from operations of hedge funds (Article 4-64)In order to prevent conflicts of interest, fund managers in charge of hedge fund operations, paid contingent remuneration, will be prohibited from operating other funds and discretionary investment assets, and sharing investment-related information.*In addition, it will be restricted for fund managers to directly or indirectly advertize names, investment performance and strategies of private equity funds including hedge funds.2. Criteria for hedge fund management firms and professionals(Companies) Asset management companies with a total of funds and assets under management more than KRW 10 trillion will be allowed to operate hedge fund management business.* “Track Record” criteria for securities and investment advisory firms(i) Securities firms with equity capital more than KRW 1 trillion(ii) Investment advisory firms with assets under management more than KRW 0.5 trillion(Persons in charge of hedge fund operation) Professionals with more than two years’ experience in securities investment who complete a training program provided by the Korea Financial Investment Association (KOFIA) regarding hedge fund operations*Persons with more than two years’ experience in operating overseas private equity funds are also qualified for hedge fund operations.3. Improved adjustments in calculating risk estimates (Article 4-54)The methods of calculating estimat
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Sep 27, 2011

Revision of Enforcement Decree of FSCMA Approved at Cabinet Meeting

BACKGROUNDThe proposed revision of the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA), aimed at introducing home-grown hedge funds (tentatively named “specialized private equity funds”) to Korea’s capital markets, was approved at the Cabinet meeting on Tuesday, September 27, 2011.KEY CONTENTS OF THE REVISIONI. Creation of Hedge Funds1. The scope of hedge fund investors will be extended to individuals with risk-taking capability. (Article 271-2①)Currently, investments in private equity funds are allowed only to a limited number of “qualified investors” such as financial firms and pension funds. However, in order to provide more diverse investment opportunities, the revision will allow individuals who can invest KRW 500 million or more to join a hedge fund.2. The revision will bring about greater autonomy and creativity in asset management. (Article 271-2①②, Article 80⑥)(1) The requirement that private equity funds should invest more than 50% of their investments into companies under restructuring programs will be abolished so that hedge funds can invest in a wider range of assets such as securities, derivatives, and commodities.(2) Restrictions on leverage* and derivatives trading** will be eased so that hedge funds can employ more diverse investment strategies such as short selling and leverage.* Limits on leverage will be eased from 300% of fund assets to 400%.**Investments in derivatives, currently limited to 100% of fund assets in estimated maximum losses, will be allowed up to 400%, equivalent to restrictions currently applied to general private equity funds.3. A new category, “hybrid asset funds,” will be created for approval of hedge fund operations. Asset managers, securities firms and investment advisory firms that meet requirements* in equity capital, track record and expert fund managers will be given approval for hedge fund operations.(i) Hedge funds under the category of “hybrid asset funds
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