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Jul 10, 2024
- Household Loans, June 2024
- In June 2024, the outstanding balance of household loans across all financial sectors rose KRW4.4 trillion (preliminary), growing at a slower rate compared with the previous month (up KRW5.3 trillion). In the first half of 2024, household loans rose KRW7.9 trillion (up 0.5 percent), showing a stable trend of growth compared with the end of 2023. * Change (in trillion KRW, m-o-m): +0.9 (Jan 2024), -1.9 (Feb), -4.9 (Mar), +4.1 (Apr), +5.3 (May), +4.4 (Jun)p (By Type) Home-backed mortgage loans rose KRW6.1 trillion, growing at a slightly faster rate compared with the previous month (up KRW5.6 trillion), as the banking sector continued to see expansion of mortgage loans (up KRW5.7 trillion up KRW6.3 trillion). Other types of loans declined KRW1.7 trillion as the banking sector saw a drop of KRW0.3 trillion from the growth of KRW0.3 trillion a month ago and the nonbanking sector saw an expanded level of drop from a month ago (down KRW0.5 trillion down KRW1.4 trillion). (By Sector) Household loans grew at a similar level in the banking sector but fell at a faster rate in the nonbanking sector. In June, banks saw a rise of KRW.6.0 trillion in household loans, which showed a similar level of pace from the previous month (up KRW6.0 trillion), as mortgage loans went up at a faster rate (up KRW5.7 trillion up KRW6.3 trillion) with increased demand for policy mortgage loans and recovery in housing transactions. Other types of loans turned lower slightly compared with the previous month (up KRW0.3 trillion down KRW0.3 trillion). In the nonbanking sector, household loans fell at a faster rate (down KRW0.7 trillion down KRW1.6 trillion) due to the quarterly write-off of nonperforming loans. Mutual finance businesses (down KRW1.0 trillion), specialized credit finance companies (down KRW0.3 trillion), and savings banks (down KRW0.3 trillion) saw declines, while insurance companies saw a slight rise (up KRW0.02 trillion). (Assessment) The financial authorities assessed that the growt
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Jul 09, 2024
- Insider Transactions of Listed Companies Subject to the Prior Disclosure Requirement from July 24
- The Financial Services Commission announced that regulatory changes, which require insider transactions of listed companies to be disclosed 30 days prior to their planned transaction dates, have been approved by the government at a cabinet meeting held on July 9. The revision proposal for the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) and its subordinate regulations will go into effect from July 24. The rule changes being introduced specify (a) the entities that will be exempted from the prior disclosure duty, (b) the volume and type of transactions exempted from the disclosure duty, (c) details regarding the procedure and method of disclosure, (d) specific reasons or cases where insider transactions plan can be withdrawn, and (e) a clearer method for calculating penalty surcharges that can be imposed on rule-breakers. First, the rule changes being introduced exempt pension funds and other financial investors that are expected to have higher levels of internal control standards and are unlikely to misuse material nonpublic informationsuch as collective investment vehicles, banks, insurance companies, specialized credit finance companies, financial investment businesses, venture capital firms, and the Korea SMEs and Startups Agencyfrom the duty to disclose their stock transaction plans in advance for insider transactions. Moreover, an exemption from the prior disclosure duty will also be granted to foreign investors that are deemed to have an equivalent status to the above mentioned domestic financial investors to ensure more equal treatment of both domestic and foreign investors. Second, the rule changes being introduced grant an exemption if the volume of transactions in particular securities typesover the past six months is less than one percent of the total number of shares issued by the company within that particular year and if the total amount of transactions is less than KRW5 billion. Moreover, an exemption from th
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Jul 08, 2024
- FSC Vice Chairman Speaks about Megatrends and Policy Framework at Future Finance Seminar
- Vice Chairman Kim Soyoung of the Financial Services Commission attended a policy seminar on future finance hosted by Korea Institute of Finance and sponsored by the FSC on July 8. Todays seminar was held under the theme of future megatrends and impending changes in the financial sector, which brought together public and private sector experts with diverse backgrounds, to have discussions on the impact of rapidly changing demographic structure, climate change, and technological advance on the financial market and ways to effectively cope with these changes. At the beginning of the seminar, Vice Chairman Kim delivered a keynote address on the topic of megatrends and policy framework for future finance, in which he emphasized the need for the financial industry and the government to prepare measures to secure sustainable ways to grow in a preemptive manner. The following is a summary of Vice Chairman Kims remarks. Against the backdrop of rapidly changing financial environments and market conditions, the authorities have been thus far mostly focused on responding to issues that needed to be addressed urgently. However, since financial policy can have a significant impact on the structural and macro-level changes, it is important that the authorities set their sight on a medium- to long-term horizon when formulating policy responses. In this regard, the authorities are working on policy frameworks for future finance, based on systematic analyses intended to minimize risks and seek opportunities for growth over a medium- to long-run. The taskforce on future finance organized into three sub-groupsdemographic shift, climate change, and technological advancehave been examining both challenges and opportunities in their respective areas, while seeking policy measures with three specific aimsmitigation, adaptation, and innovation. The mitigation policy is aimed at reducing the impact of impending change and shock, while slowing the pace of their occurrence. The adaptation poli
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Jul 04, 2024
- Policy Finance Support Worth KRW3.5 Trillion Planned to Promote AI Development
- The Financial Services Commission held the seventh consultative body meeting on policy finance support with related government ministries and policy financial institutions on July 4. The consultative body on policy finance support was launched at the end of 2022 to more effectively align the supply of policy finance support to national industrial strategies. At the third meeting held in June last year, authorities discussed the creation of the KRW300 billion fund to foster growth of the semiconductor ecosystem, and in December of the same year, authorities introduced plans to provide policy finance support worth KRW102 trillion-plus to the five key strategic industries. As such, major government decisions regarding the supply of policy finance support are being handled and discussed through consultative body meetings. At todays meeting, FSC Vice Chairman Kim Soyoung delivered opening remarks where he discussed the importance of promptly identifying demands for funding on the ground and effectively matching them with the supply of policy finance support. Vice Chairman Kim said that the launching of the semiconductor ecosystem fund in the size of KRW300 billion last year helped to facilitate an expansion of the support program this year to up to KRW1.1 trillion-plus with input from governments fiscal expenditure. In this regard, the semiconductor ecosystem funds launch last year provides a good example where policy financial institutions and related ministries were able to preemptively and effectively respond to the demands on the field. Thus, Vice Chairman Kim urged authorities to continue to closely coordinate to effectively supply policy finance support to propel development of future growth sectors. Supply of Policy Finance Support as of May 2024 Until the end of May 2024, policy financial institutionsKorea Development Bank, Industrial Bank of Korea, and Korea Credit Guarantee Fundsupplied a total of KRW54.5 trillion to the five key strategic sectors. This marks a
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Jul 03, 2024
- SFC Imposes Penalty Surcharges on Global Investment Banks for Violating Short Sale Regulations
- The Securities and Futures Commission, a sub-commission within the Financial Services Commission responsible for overseeing the securities and futures markets, held the thirteenth regular meeting on July 3 and decided to impose penalty surcharges amounting to KRW27.173 billion in total on two former Credit Suisse affiliated investment banks for violating short sale regulations under the Financial Investment Services and Capital Markets Act (FSCMA). The level of penalty surcharge imposed on each of the two former Credit Suisse affiliated entities is the largest (KRW16.94 billion on Credit Suisse AG) and the third largest (KRW10.23 billion on Credit Suisse Singapore Ltd.) ever since the penalty surcharge system began to be implemented on naked short sale activities in April 2021. In the case of Credit Suisse AG (currently UBS AG), from April 7, 2021 to June 9, 2022, the investment bank was found to have engaged in naked short sales in the amount of about KRW60.33 billion (162,365 shares on 20 stock items) without possessing these stocks at the time of placing short sale orders. In the case of Credit Suisse Singapore Ltd., from November 29, 2021 to June 9, 2022, the investment bank was found to have engaged in naked short sales in the amount of about KRW35.28 billion (401,195 shares on five stock items) without possessing these stocks at the time of placing short sale orders. In addition, prior to todays meeting, the SFC decided to impose administrative fines worth KRW284.2 million in total on four domestic financial investment businesses, two foreign financial investment businesses, and an individual investor for violating their net short position balance reporting and disclosure duties under the FSCMA. The financial authorities will continue to strictly deal with naked short selling and other unfair trading activities in capital market to promote soundness in market transactions. * Please refer to the attached PDF for details.
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Jun 27, 2024
- PF Lending Institutions' Consortium Agreement Revised to Seek Soft-landing in Real Estate PF Market
- The Financial Services Commission announced that the project finance lending institutions consortium agreement for all financial sectorsincluding eleven industry associations and national federations and seven related organizationshas been revised as part of the broader plan to seek an orderly soft-landing in the real estate project finance market on June 27. In order to more effectively control lenders from granting maturity extension and deferment of interest payments to the development projects that fail to meet the viability test in a repeated and indiscriminate manner, the project finance lending institutions consortium agreement is being updated to strengthen requirements on the provision of maturity extension and deferment of interest payment. First, when extending maturity for the second time or more, a viability assessment performed by a third-party expert (accounting firm, credit rating agency, etc.) and consent from three-fourths (two-thirds previously) of the lending institutions will be required. When seeking for maturity extension after having a viability assessment performed, there will be an ample period granted to ensure sufficient time for the viability assessment and developers business plan. Second, deferment of interest payments will be allowed only when late interest payments have been repaid in principle. However, when 50 percent or more of late interest payments have been repaid and a schedule for making further payments on the remaining balance is being presented, lenders will consider these factors when making decisions on whether to grant deferment of interest payments. Third, when maturity extension and deferment of interest payments take place, details including their deliberation documents should be submitted to the secretariat of the project finance lending institutions consortium without any delay to ensure effective monitoring of the situation concerning the restructuring or liquidation of unviable projects. The revised consortium ag
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Jun 25, 2024
- New Enforcement Decree on the Protection of Virtual Asset Users Approved by the Government
- The Financial Services Commission announced that the government approved a new legislative bill on the Enforcement Decree of the Act on the Protection of Virtual Asset Users at a cabinet meeting held on June 25. The Enforcement Decree will go into effect on the same day as the Act on the Protection of Virtual Asset Users (the Act hereinafter) on July 19. The Act was enacted on July 18, 2023 with aims to protect virtual asset users and establish a sound order in the virtual asset market. The Act provides definitions on virtual assets and those that are excluded from the scope of virtual assets. The Act mandates virtual asset service providers (VASPs) to safely keep and manage users deposits and virtual assets. The Act also establishes legal grounds to impose penalties and sanctions on unfair trading activities, such as the use of material nonpublic information and price manipulation. In this regard, the Enforcement Decree to the Act approved by the Government today prescribes specific procedures and methods delegated by the Act as follows. Key Details Definition and Formation of an Advisory Committee (Articles 2 to 7) Virtual assets are defined as electronic tokens with economic value, which can be traded or transferred electronically. Electronic tokens that are regulated by another legislation or are deemed to pose no harm to users, such as game money, electronic money, electronic stocks, and central bank digital currency (CBDC) are excluded from the scope of virtual assets. Electronic bonds, mobile gift certificates, deposit tokens linked to the CBDC network, and non-fungible tokens (NFTs) are also added to the listed of excluded tokens. The FSC will organize an advisory committee on virtual assets to seek consultation on related policies and regulations. The committee will be made up of representatives of relevant government ministries and experts from the private sector, and will be chaired by Vice Chair of the FSC. Management of User Deposits (Articles 8 to 10)
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Jun 25, 2024
- FSC Announces Plans for Implementing Stressed Debt Service Ratio Rules in H2 2024
- The Financial Services Commission announced its plan to implement the second phase of stressed debt service ratio (DSR) rules from September 1, 2024, a postponement of two months from the initial plan. Considering that government-wide support measures intended to alleviate the challenges and difficulties of lower income households and self-employed business owners are currently being drawn up and the fact that the viability assessment for the real estate development sites under project finance loans will start from the end of June, the decision to postpone the application of the second phase stressed DSR rules is aimed at facilitating a soft-landing of the stressed DSR regulation in the market. The stressed DSR regulation imposes a certain level of additional stress rate when calculating a borrowers DSR as it takes into account the possibility of the borrower facing heavier repayment burdens in the future with increases in interest rates. Key details of the second phase stressed DSR rules, effective from September 1, 2024, are as follows. First, the additional stress rate of 0.75 percent will be applied, which will be at a 50 percent level of the base stress rate (1.5 percent), an increase from the current level of 25 percent. Second, credit loans from the banking sector and home-backed mortgage loans from the nonbanking sector will be subject to the stressed DSR limits. However, for credit loans, calculation of DSR with the additional stress rate will only take place for borrowers when the balance of credit loans exceeds KRW100 million. Third, when applying individual DSR limits, the maximum loan limits are expected to decrease by about 3 to 9 percent for mortgage loans from banks and nonbanks, depending the type of interest structures (variable, mixed, or periodically changing), and by 1 to 2 percent for credit loans from banks, depending on the type of interest structure and maturity. However, considering that the proportion of borrowers whose maximum loan limits
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Jun 24, 2024
- Reporting Requirement to be Strengthened for Virtual Asset Service Providers
- The Korea Financial Intelligence Unit (KoFIU) announced that a revision of the subordinate regulation under the Act on Reporting and Using Specified Financial Transaction Information will take effect from June 27, 2024. The revised regulation will strengthen the reporting requirements for virtual asset service providers (VASPs). First, the revised regulation provides a regulatory ground requiring VASPs to report details of their own compliance systems and the status of major shareholders. In this regard, VASPs will be required to report their compliance system, which should include information about the organizational, personnel, computer facilities, and internal control mechanisms intended to ensure compliance with relevant laws. In addition, VASPs will be newly required to report the status of their major shareholders, which will allow the authorities to have a clear understanding about their shareholder status. Second, under the revised regulation, different reporting periods will be applied for reporting changes in business status, depending on the particular nature of the change being reported. Any change in major shareholders or business location should be reported within 14 days. Any change in the status of certification for their information security management system (ISMS) should be reported within 30 days. Any change concerning the status of executives, nature of service operation, and information about the real-name verified checking account should be reported 30 days prior to the expected change taking place. Third, under the revised regulation, financial companies issuing real-name verified checking accounts to VASPs will be required to specify their own procedures and methods for assessing risks in their operations manual. This will help to ensure that financial companies are able to more effectively evaluate risks concerning money laundering when issuing real-name verified checking accounts to VASPs. In addition, the revised regulation will newly req
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Jun 21, 2024
- Market Access Improved for Foreign Investors with Abolishment of Investment Registration Certificates
- The Financial Services Commission announced that foreign investors access to Korean capital market has been improved with the abolishment of foreign investors prior registration requirement from December 14, 2023. As it has been repeatedly pointed out in the past that this prior registration requirement was standing in the way of foreign investors access to Korean capital market, the FSC decided to abolish the registration requirement (IRC: Investment Registration Certificate)which had been in place for about 30 years since 1992through a revision of the Financial Investment Services and Capital Markets Act (FSCMA) in December last year. As a result, without first having to register with the Financial Supervisory Service (FSS), foreign investors are now able to use either legal entity identifiers (LEIs, for corporate investors) or passport numbers (for individual investors) to open their investment accounts at financial companies and make investments in domestically listed securities. After monitoring the trend in new account opening, the authorities found that during the six-month period after the abolishment of the prior registration requirement (between December 15, 2023 and June 12, 2024), there were 1,432 new investment accounts opened by foreign investors using either LEIs or passports. Among them, there were 1,216 corporate entities and 216 individual investors with new accounts opened at 36 securities firms and banks. In particular, from March this year, the number of new account opening by foreigners has grown to about 300 to 400 every month. Considering that the average monthly IRC issuance was 105 in the year of 2023, the abolishment of the prior registration requirement appears to be contributing to the enhancement of market access for foreign investors. In this regard, FSC Vice Chairman Kim Soyoung stated that the abolishment of the prior registration requirement has made it more convenient for foreign investors to open an account, and so consequently, t
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Jun 17, 2024
- Financial Cooperation with Africa to be Strengthened
- The Financial Services Commission and the Korea Federation of Banks will invite and host the banking industry associations of three African countries (Nigeria, Botswana, and Mauritius) and the Southern African Development Community from June 17 to 19 to seek stronger financial cooperation between Korea and Africa. Equipped with young and dynamic populations and abundant natural resources, African economies have been developing rapidly, which has also gained increasing attention from domestic financial sectors. Against this backdrop, the invitation programs have been prepared to promote cooperation in the field of finance, building upon the momentum established at the Korea-Africa Summit held earlier this month. On June 17, the Korea Federation of Banks signed memoranda of understanding (MOUs) with the banking associations of Nigeria, Botswana, and Mauritius to seek stronger cooperation and mutual development of the banking industries. Under the MOUs signed today, the Korean banking sector will offer know-hows and experience in the areas of digital finance, mobile payments, and credit data, and the signatories will hold joint training and engage in other collaboration projects. FSC Chairman Kim Joo-hyun attended the MOU signing event and delivered congratulatory remarks where he emphasized the importance of todays agreement as a beginning for seeking stronger cooperation between Korea and Africa. In this regard, Chairman Kim said that he hopes to see Koreas strong advantage and know-hows in the field of digital finance being able to make great contributions to Africas economic development going forward. Chairman Kim added that Koreas financial industry will also benefit and grow from this process. Apart from todays MOU signing event, the three-day programs for Korea-Africa Economic and Financial Cooperation also include a joint seminar held by the banking associations (Jun. 17), a tour of major financial institutions (Jun. 18), and other cultural events. * Please ref
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Jun 13, 2024
- Short Sale Ban Extended Until March 30, 2025
- The Financial Services Commission held an extraordinary session on June 13 and decided to extend the period of enforcing short sale ban currently set to expire at the end of this month until March 30, 2025. However, covered short selling by market makers and liquidity providers will continue to be allowed in the same way as before. On November 5, 2023, the FSC decided to ban short selling in domestic stock markets against the backdrop of growing market uncertainties and the uncovering of large-scale illegal short sale activities carried out by global investment banks, leading to concerns about disruption in fair pricing function and undermining trust in the capital market. Since then, the government and related authorities carried out investigations into the situation and found out cases of naked short sale activities amounting to some KRW211.2 billion. At the same time, the authorities have worked to seek fundamental solutions to overhaul the system to prevent illegal short sale activities. To this end, until the end of March 2025, the authorities plan to set up a completely electronic short sale processing system that can prevent naked short selling. First, the Financial Supervisory Service (FSS) will provide relevant guidelines to ensure that institutional investors can set up their own internal short position balance management system within this year. The Korea Exchange (KRX) plans to finish up developing the Naked Short-selling Detection System (NSDS) by the end of March 2025, which will function as a central monitoring system allowing authorities to compare and scrutinize the balance and over-the-counter (OTC) transactions information of institutional investors. The FSC expects that resuming short selling activities without the establishment of such electronic processing and monitoring systems risks the recurrence of illegal short sale activities in large scale. Therefore, to establish the electronic short sale processing and monitoring systems that can help
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Jun 13, 2024
- Short Sale Reform Measures Introduced to Prevent Illegal Trading Activities and Protect Investors
- The Financial Services Commission announced the finalized version of short sale reform measures on June 13, which include plans to establish a completely electronic short sale processing system until March 2025, limit the length of stock repayment period for both institutional investors and retail investors to maximum 12 months, and strengthen the severity of penalties on illegal short sale activities when the amount of unfairly gained profits is KRW5 billion or more. In November 2023, the FSC decided to ban short selling in domestic stock markets (until the end of June 2024), because authorities became concerned about naked short selling activities taking place routinely, which could potentially disrupt domestic stock markets fair pricing function. Since then, public debates and discussions have taken place to make improvements to the short selling system, and the ruling party and the government held a consultative meeting to announce the finalized set of reform measures on June 13. Background On November 16, 2023, the FSC introduced its plan to seek short sale reform measures at the meeting held with representatives from the private sector, the ruling party of the National Assembly, and related authorities. The issue of developing an electronic short sale processing system, which was discussed multiple times previously, has been thoroughly dealt with in taskforce meetings jointly led by the Financial Supervisory Service (FSS) and the Korea Exchange (KRX). After having active communication with market participants, including foreign investors, the authorities have come up with a set of practical measures for developing an electronic short sale processing system. In addition, the authorities have had a series of meetings and discussions with experts, industry representatives, and the public to collect wide-ranging opinions on the overall stock short sale system before arriving at this finalized set of reform measures. Meanwhile, the authorities have continued to mak
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Jun 12, 2024
- Household Loans, May 2024
- In May 2024, the outstanding balance of household loans across all financial sectors rose KRW5.4 trillion (preliminary), growing at a faster rate compared with the previous month (up KRW4.1 trillion). * Change (in trillion KRW, m-o-m): +0.1 (Dec 2023), +0.9 (Jan 2024), -1.9 (Feb), -4.9 (Mar), +4.1 (Apr), +5.4 (May)p (By Type) Home-backed mortgage loans rose KRW5.6 trillion, growing at a faster rate compared with the previous month (up KRW4.1 trillion), as the banking sector saw a significant growth in mortgage loans (up KRW4.5 trillion up KRW5.7 trillion). Other types of loans declined KRW0.2 trillion as the banking sector saw the slowing pace of growth (up KRW0.6 trillion up KRW0.3 trillion) and the decline continued in the nonbanking sector (down KRW0.5 trillion down KRW0.6 trillion). (By Sector) Household loans edged up at a faster rate in the banking sector, while the pace of the decline slowed in the nonbanking sector. In May, banks saw a rise of KRW6.0 trillion in household loans, which went up from the growth of KRW5.1 trillion a month ago. The rising trend in the banking sector can be explained largely by the growth in mortgage loans (up KRW4.5 trillion up KRW5.7 trillion) led by housing market recovery and by recent changes made in household loan statistics, which began to take into account certain types of housing loans that were excluded previously. Other types of loans also continued to grow due to seasonal factors, but the pace of growth slowed compared with the previous month (up KRW0.6 trillion up KRW0.3 trillion). In the nonbanking sector, household loans dropped KRW0.7 trillion. Mutual finance businesses continued to see a decline (down KRW1.6 trillion), while specialized credit finance companies (up KRW0.7 trillion), savings banks (up KRW0.1 trillion), and insurance companies (up KRW0.1 trillion) all saw household loans edging up. (Assessment) In May 2024, the growth in household loans was caused largely by the increase in mortgage loans in the ban
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Jun 10, 2024
- Authorities Introduce Guidelines for Determining When Non-fungible Tokens Qualify as Virtual Assets
- The Financial Services Commission introduced guidelines on non-fungible tokens (NFTs) on June 10 to provide clear standards and examples on determining when NFTs should be considered as virtual assets. Background A non-fungible tokens (NFT) is a digital token carrying a unique identifier, which makes it irreplaceable (non-fungible). NFTs are issued in limited quantities mostly for trading of digital content, such as videos or images. Due to this tendency, the number of owners for the same NFT is limited as well as the occurrence of secondary market trading, which makes NFTs less prone to large-scale user damages, to which virtual assets are often made vulnerable. In addition, from the perspective of promoting development of blockchain technology and seeking regulatory reforms to this end, NFTs qualify as an advanced digital asset. Against this backdrop, when the Act on the Protection of Virtual Asset Users becomes effective on July 19 this year, the FSC plans to exclude certain types of NFTs that meet qualified standards from the scope of virtual assets that will come under its legal purview. However, digital tokens that are presented in an NFT format but in effect qualify as virtual assets will be subject to this law. As this legislation on the protection of virtual asset users will enter enforcement this year for the very first time, the authorities have prepared a set of guidelines to provide clear standards for determining when and how NFTs are considered as virtual assets to help improve predictability and remove obstacles in the application of law. Regulations in Major Countries In major countries, the legal characteristics of NFTs are determined not based on their format or technology but depending on their content, or their practical characteristics. In the U.S., NFTs are scrutinized in the same way as for virtual assets to determine whether they qualify as a security and whether to apply securities regulations. In effect, in 2023, the Securities and Exchang
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Jun 07, 2024
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Jun 03, 2024
- FSC Proposes Rule Changes to Upgrade Regulations on Treasury Stocks of Listed Companies
- The Financial Services Commission issued a preliminary notice of proposed rule changes concerning treasury stocks of listed companies on June 3. This proposal is a follow-up to the previously introduced plan to upgrade rules on treasury stocks of listed companies, which was unveiled on January 30 this year. The reform proposal will bring about changes to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) and its subordinate regulations on the issuance and disclosure of securities, and it will be available for public comment from June 4 to July 16. The proposed rule changes are intended to (a) restrict allocation of new shares to treasury stocks when companies spin-off business units (also in mergers and acquisitions), (b) strengthen disclosure duties throughout the course of acquiring, holding, and disposing treasury stocks, and (c) close loopholes and remove regulatory arbitrage in the process of acquiring and disposing treasury stocks. First, allocating new shares to treasury stocks will be prohibited when companies spin-off their business units, which will help to better protect the rights and interests of general shareholders. When it comes to treasury stocks, currently, almost all shareholders rights, such as voting rights, dividend rights, and preemptive rights, are non-exercisable. However, due to the lack of clarity in statutory provision and court precedents, there have been cases where new shares were allocated in corporate spin-offs. This strategy was often used by companies to bolster control of largest shareholders, instead of making use of treasury stocks to boost shareholder value, which has been pointed out as a problem. Moreover, this has remained inconsistent from the perspective of global regulatory standards. Therefore, the Enforcement Decree of the FSCMA will be revised to restrict allocation of new shares to treasury stocks in corporate spin-offs of listed companies. Second, disclosure duties on treasury
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May 29, 2024
- Loan Transfer Service Offering Lower Interest Rates to be Made More Accessible and Inclusive
- The Financial Services Commission held a meeting with users of the loan transfer service program and officials from related organizations and financial companies on May 29 to commemorate one-year anniversary of launching the loan transfer service and have discussions on seeking further improvements. At the beginning of the meeting, FSC Chairman Kim Joo-hyun praised the successful introduction of loan transfer servicefirst for credit loans in May 2023 and then expanded to home-backed mortgage loans and jeonseloansduring the first year of its operation. As a result, Chairman Kim said that about 200,000 individuals were able to use this program to switch their existing loans worth about KRW10 trillion in total for lower interest rates, and on average were able to save about KRW1.62 million a year in interest payments. To continue to meet consumer demands, Chairman Kim said that financial companies need to think beyond just offering lower interest rates and take steps to help improve consumer convenience in accessing and operating loan transfer service, for instance, by offering on-site application process for the elderly to make the program more accessible and inclusive for all. During the first year of operation, in cumulative terms as of May 24, 2024, there were 202,461 individuals who took advantage of the loan transfer service and switched to lower interest rate loans. The total amount of loans switched for lower interest rates during this period amounted to about KRW10.1 trillion. For credit loans, which became available on May 31, 2023, 168,254 individuals used the loan transfer service for about KRW3.97 trillion. On average, their interest rates dropped by 1.57 percentage points, and borrowers were able to save about KRW580,000 a year per person. For mortgage loans, which became available on January 9, 2024, 24,721 individuals used the loan transfer service for about KRW4.54 trillion. On average, interest rates dropped by 1.49 percentage points, and borrowers we
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May 27, 2024
- Rule Changes Proposed to Bring About Improvements to the Convertible Bond Market
- The Financial Services Commission issued a preliminary notice of proposed rule changes regarding the issuance and disclosure of securities, which will be open for public comment from May 28 until June 11, 2024. The proposed rule changes deal with strengthening disclosure requirements on the issuance and circulation of convertible bonds (CBs), including bonds with warrants and (redeemable) convertible preference shares, and upgrading the rules and procedure on refixing convertible prices of CBs to make them more reasonable. First, the revised regulation will strengthen disclosure requirements on the issuance and circulation of CBs. Under the current regulation, when issuing CBs, companies are required to disclose information about the entity who shall exercise the call option. However, in most cases, companies provide only a vague statement of company or company-designated entity in their disclosure filing, which makes it difficult for investors to clearly understand about the entity exercising the call option. To improve upon this situation and to help increase predictability for investors, the proposed rule change will require companies to file material information disclosures when designating an entity for exercising the call option or if the right to exercise the call option has been transferred to a third-party. In addition, the practice of converting CBs into stocks after acquiring CBs close to their maturities and reselling them to the largest shareholder has been identified as a concern for unfair trading activities in capital markets. Although the practice of reselling CBs prior to their maturities is in essence similar to issuing new CBs, there has been lack of sufficient information being provided in the market thus far. Therefore, to address this problem, the proposed rule change will require companies to file material information disclosures when acquiring CBs close to their maturities with detailed information, such as reason for acquisition, plans for
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May 27, 2024
- FSC Announces Measures to Support Covered Bond Market to Facilitate Supply of Long-term, Fixed Rate Mortgages
- The Financial Services Commission announced that an agreement signing event was held between Korea Housing Finance Corporation (HF) and five major commercial banks to facilitate payment guarantees on covered bonds on May 27. In accordance with this agreement, HF will begin to provide payment guarantee service on covered bonds issued by banks starting from May 27. This is part of the broader set of government plans intended to support the covered bond market with aims to increase the supply of long-term, fixed interest rate mortgage products by commercial banks. Through HFs payment guarantee service, commercial banks are able to issue covered bonds at lower interest rates and investors are able to invest in safe, long-term assets, which require relatively little capital costs. For instance, with HFs payment guarantee service, covered bonds issued by banks with an AAA rating will have 5 to 21 basis points lower interest rates for issuance, when compared to typical bank bonds with same maturities. Therefore, if banks are incentivized in this way to reduce funding costs, this will encourage them to provide more long-term, fixed interest rate mortgage products at lower interest rates. HF also plans to seek re-securitization of covered bonds. Under this program, HF will purchase 10-yr covered bonds issued by banks, for instance, and through a settlor-trustee trust, issue asset-backed securities and sell them. This program will facilitate the issuance and purchase of long-term covered bonds in the market, and the supply of long-term funds raised this way can be put to use in providing long-term, fixed interest rate mortgages for houses valued more than KRW600 million, which is currently unavailable under the policy mortgage loan program. In line with the introduction of HFs payment guarantee service, there will be other types of incentives for banks and financial institutions. First, when issuing covered bonds with 10-yr or longer maturities, banks will be allowed to use (
