Press Releases - Financial Services Commission

Press Releases

Period: start
~
end

1month 3month Reset

Requirement

Aug 27, 2013

Plan to Reshape Roles of Policy Banks

The FSC announced its plan to reshape policy banks in order to streamline their overlapping functions and reinforce their policy financing roles for start-ups SMEs, new growth industries and overseas projects.MERGER OF KDB WITH KOFCThe Korea Finance Corporation (KoFC)1 will be re-merged with KDB, while its overseas assets worth KRW 2 trillion will be transferred to the Export-Import Bank of Korea (Korea Eximbank).KDB Financial Group Inc. will be merged with KDB, while its subsidiary units2 will be put up for sale. The timing and method of selling KDB subsidiaries will be determined later depending on market demands and conditions.The government will maintain its controlling stake3 in KDB, while portions of minority stake could be divested through an initial public offering (IPO).KDB will continue to offer retail banking services of the current level for the time being to minimize customers’ inconvenience but gradually reduce its retail banking business. KDB will no longer open new branches or attract deposits for retail banking service.The KoFC, KDB Financial Group Inc., and KDB are entities consolidated in financial statements; therefore, the merger will have an insignificant impact on BIS ratios of KDB.4The revision bill on the KDB Act will be submitted to the National Assembly forparliamentary approval this year so that the consolidated KDB could be launched in July 2014.POLICY FINANCING FOR EXPORTERS OVERSEAS PROJECTSKorea Eximbank and the Korea Trade Insurance Corporation (or ‘K-sure’) will continue to provide loan guarantees for exporters and finance overseas projects under the current framework with focus on their core functions.Non-core businesses of Korea Eximbank and K-sure will be gradually curtailed. In principle, K-sure will stop providing guarantees for loans extended by policy banks such as KDB, Korea Eximbank, and the KoFC. Korea Eximbank will gradually reduce its short-term loans5 up to less than 40% until 2017.Short-term export insurance busi
Attachment 1
Aug 01, 2013

Basel III Capital Regulations To Be Implemented To Bank Holding Companies From December 2013

Basel III capital regulations will be implemented to bank holding companies from December 1, 2013 to meet the global capital standards.BASEL III CAPITAL REGULATIONSA. Minimum Capital RatioWith the implementation of Basel III, minimum capital requirements for bank holding companies will be subdivided according to each category of capital: common equity capital ratio (4.5%), Tier 1 capital ratio (6%), and total capital ratio (8%).Minimum Capital Ratio under Basel III Common Equity Ratio Tier 1 Capital Ratio Total Capital Ratio ‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16 ‘17 ‘18 ‘19 Min. Capital Ratio (A) 4.5 4.5 4.5 4.5 4.5 6.0 6.0 6.0 6.0 6.0 8.0 8.0 8.0 8.0 8.0 Min. Capital Buffer (B) - 0.625 1.25 1.875 2.5 - 0.625 1.25 1.875 2.5 - 0.625 1.25 1.875 2.5 (A)+(B) 4.5 5.125 5.75 6.375 7.0 6.0 6.625 7.25 7.875 8.5 8.0 8.625 9.25 9.875 10.5 B. Capital Conservation Buffer1Capital conservation buffer will be introduced to bank holding companies from 2016 in accordance with implementation schedule proposed by the Basel Committee on Banking Supervision (BCBS).Basel III Minimum Capital Ratio Common Equity Ratio Tier 1 Capital Ratio Total Capital Ratio ‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16 ‘17 ‘18 ‘19 Min. Capital Ratio (A) 4.5 4.5 4.5 4.5 4.5 6.0 6.0 6.0 6.0 6.0 8.0 8.0 8.0 8.0 8.0 Min. Capital Buffer (B) - 0.625 1.25 1.875 2.5 - 0.625 1.25 1.875 2.5 - 0.625 1.25 1.875 2.5 (A)+(B) 4.5 5.125 5.75 6.375 7.0 6.0 6.625 7.25 7.875 8.5 8.0 8.625 9.25 9.875 10.5 It is not mandatory for bank holding companies to maintain minimum capital conservation buffer ratios. If their holdings of capital conservation buffer fall short of minimum requirements, however, bank holding companies will be limited in distributing dividends or repurchasing of their shares.Limitations in Income Outflow Common Equity Ratio Tier 1 Capital Ratio Total Capital Ratio ‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16
Attachment 1
Jun 18, 2013

Measures to Improve Financial Institutions' Corporate Governance

The FSC formed a task force team1 to work on ‘measures to improve financial institution’s corporate governance (hereinafter ‘measures’)’ on April 19, 2013 and came up with the draft of measures based on what have been discussed so far.The FSC will proceed with follow-up measures in the nearest future, building upon the opinions gathered from academia and financial industry at the public hearing held on Monday, June 17.TASK FORCE DISCUSSIONSFinancial institution’s corporate governance is nearing the level of international standards thanks to continuous efforts to improve corporate governance since the Asian financial crisis in 1997. Such efforts still fell short of actual changes in practices. Compared to general corporations, financial institutions’ poor governance has a greater risk as it poses direct threat to the financial system. In this respect, financial institutions’ corporate governance needs to have greater accountability and better represent interests of all stakeholders including depositors and financial regulators.Under such awareness, the team has drafted the measures focused on two respects: i) how to bring about actual changes to financial institutions’ governance behavior; and ii) how to make corporate governance of financial institutions better represent public interest.i) The FSC has set a minimum level of standards and adopted the ‘Comply or Explain’ principle to respect diversity of financial institutions within the minimum boundaries of institutional framework in implementing corporate governance rules. Financial institutions will be required to disclose more information on their corporate governance and continuously monitor their own compliance situation.ii) The FSC has raised standards for responsibility and transparency of financial institutions towards their stakeholders so that their corporate governance could well represent both interest of shareholders and the public interest. Boards of directors will be granted grea
Attachment 1
May 24, 2013

'Growth Ladder Fund' to be Launched to Support SMEs and Venture Companies

BACKGROUNDA healthy investment ecosystem for start-ups and investors is an essential foundation for “Creative Economy”1 and “Creative Finance.”2Start-up companies are often faced with funding shortages as the early stages of business start- up growth involve greater risks for investors due to uncertainties and asymmetric information. The expectation gap between start-up owners and investors about commercial value of technology and business profitability often creates a supply-demand imbalance of funds, called “Death Valley” for start-ups.The government and public financial institutions are called to take the role of addressing such imbalance and create a sound and well-functioning ecosystem.CURRENT FUNDING CONDITIONS FOR SMES VENTURE COMPANIESOverall, SMEs and venture companies are provided with sufficient funds and liquidity through supportive measures by the government.3The funding structure of SMEs is, however, highly dependent on loans from banks and public financial institutions with 99% of SME financing from loans, while the proportion of investment remain small.Investors remain risk-averse with most investment disproportionately concentrated towards the latter phase of business cycle which involves less risks compared to the early stage of business start-up. The percentage of venture capital invested in companies with less than 3 years of operation remains a mere 30%.Loan type investments with high interest burden such as convertible bond and redeemable preferred stock are increasing.(unit: %, Korean Venture Capital Association) Common Stock Preferred Stock CB/BW PF Etc. 2012 19.5 39.6 14.9 19.9 6.1 2011 27.4 35.2 16.4 17.8 3.2 ∙ ∙ ∙ ∙ ∙ ∙ 2006 46.2 19.9 12.1 12.7 9.0 2005 36.8 17.2 16.7 16.2 13.2 CREATION OF ‘GROWTH LADDER FUND’The government plans to create a dedicated fund, tentatively named ‘Growth Ladder Fund’, to address such problems in funding conditions of SMEs venture companies and to provide innovative SMEs venture c
Attachment 1
Mar 08, 2013

FSC Emergency Meeting after the Adoption of U.N. Security Resolution against North Korea

As the U.N. Security Council unanimously adopted new sanctions against North Korea’s nuclear test on February 12, the FSC Vice Chairman Choo Kyung-ho convened an emergency meeting this morning to discuss possible impact that the adoption of U.N. resolution would bring to financial markets.As of now, global financial markets seem to be little affected by the adoption of the U.N. resolution. The U.S. Dow Jones Industrial Average index hit a record-high for three consecutive days. The KRW/USD NDF rate slightly fell from yesterday, and Korea’s credit default swap (CDS) spread rose 1basis point from yesterday to 64basis point.Given that the North Korea-related risks in previous cases had temporary and limited impact on domestic and overseas financial markets, market experts forecast that the possible impact of U.N. sanctions against North Korea would be short-lived.However, the Korean government stays alert to a possibility of North Korea’s further provocation as the resolution imposes tougher sanctions against Pyongyang that previous resolutions. If North Korea took further provocative actions, Korea’s geopolitical risks and market volatility would be heightened.The FSC will closely work with the Ministry of Strategy and Finance (MOSF), the Bank of Korea (BOK), and the Financial Supervisory Service (FSS) to monitor financial market conditions and take market-stabilizing actions in a timely manner if needed.*Please read the attached file for details.
Attachment 1
Dec 06, 2012

First Annual Status Report on the Hedge Fund Industry

RECENT TRENDThe total asset size of Korea’s hedge fund market has grown to KRW 1 trillion with 12 active management companies with 19 registered funds in a year since it started from KRW 149 billion with 9 fund management companies with 12 funds. (unit: KRW 1 billion) Dec 2011 Mar 2012 Jun 2012 Sept 2012 Nov 2012 total assets 2,370 5,509 6,546 7,858 10,175 (percentage*) (0.2%) (0.5%) (0.6%) (0.7%) (0.8%) no. of funds 12 17 19 20 19 (no. of mgmt (9) (11) (11) (12) (12) companies) * Percentage of asset size of hedge funds out of the total private equity industryHedge funds’ management strategy and investors have been diversified for the last year. Most of hedge funds still rely on long- short strategies; however, the industry plans to sell funds using a variety of strategies such as arbitrage trading and event-driven strategies.Investors’ pool is widening from prime brokers and affiliated companies with brokerage firms in the early stage to institutional investors and affluent retail investors.EVALUATIONThe hedge fund industry made a soft landing in Korea’s capital markets, dismissing initial concerns that the introduction of hedge funds might increase market risks. Hedge fund managers are building their reputation in the market with differentiated performance. As track records of funds with good performance build up, the size of assets under management for such funds is expected to increase.With improved market perceptions about hedge funds, investors’ pool is expected to be expanded to corporations and pension funds.POLICY DIRECTION AHEADIn order to attract capable managers, requirements for approving hedge fund management were relaxed as announced in July 2012. With the eased requirements, the approval process will be completed for asset managers that submit application in December by the end of this year.It is expected a total of 23 firms including 12 asset management companies, 5 brokerage firms and 6 advisory firms will submit application for hedge fun
Attachment 1
Sep 25, 2012

FSC/FSS to Tighten Rules on Commercial Papers

BackgroundCommercial paper (CP) is an unsecured promissory note issued by companies, based only on corporate credits with no collateral backed. It is widely sold by firms for short-term funding needs as the paper requires simpler selling process than corporate bonds.CP issuance shrank temporarily after the Asian financial crisis and the credit card turmoil, but it resumed its growth trend since 2005.However, loose disclosure regulations and lack of transparency in the CP market boosted concerns over risk management and investor protection, as well as improper CP sales.The financial regulator recognized the need to find vulnerabilities in the CP market and develop measures to improve transparency and investor protection.Tighter Rules on CPThe financial regulator will tighten rules on disclosure requirement for CP in a bid to improve transparency in the CP market. It will also strengthen regulation and supervision of CP issuance and support fully-disclosed electronic trading in CPs.Currently, an asset-backed commercial paper (ABCP) issuer discloses trade data and credit rating on the homepage of Korea Financial Investment Association on the day of issuance.From October, an ABCP issuer will be required to disclose more information on the paper, including financial soundness of issuers, collateral assets and specification on product structuring as well as credit ratings.The regulator will push for amendments to Financial Investment Services and Capital Markets Act, which will make it mandatory to disclose the credit rating summary on the FSS’s DART.Currently, brokerages have no reporting obligations for ABCP transactions and the regulator is limited in its ability to monitor the CP market and respond immediately. From next year, brokerages will be required to report details on ABCP transactions.In addition, one-stop inquiry system for CP issuance will be up and running from October to provide investors information including CP’s credit ratings, collateral assets and
Attachment 1
Sep 06, 2012

Trends in ELS/DLS Markets and Related Measures for Improvement

BACKGROUNDSince the global financial crisis, the issuances of equity-linked securities (ELS) and derivatives-linked securities (DLS) have surged with the trend of low-interest rate and growing demand for customized investment.With the growing popularity of ELS and DLS, there is need to strengthen investors protection accordingly. In particular, ELS and DLS are legally treated same as corporate bonds; therefore, investors remain vulnerable to the issuer’s credit risk.Against this backdrop, the FSC came up with measures to strengthen investor protection and the soundness of ELS/DLS markets as follows:KEY MEASURES1. Monitoring system for the issuance and operations of ELS/DLSThe monitoring system will be established for more effective management and oversight of the issuance and operation of ELS/DLS. Hedged assets will be managed separately from client-owned assets. Securities houses will be required to establish separate electronic systems by issuers to manage hedged assets. The FSC will review ways to legally differentiate hedged assets from client-owned assets and provide effective protection for investors’ assets. The status of ELS/DLS issuances and operation should be reported to the FSS on a monthly basis.2. Strengthened management of issuers’ credit riskThe FSC will discourage securities houses from excessively issuing short -term ELS/DLS with three-month or less maturities in order to prevent overheated competition in the markets. Based on the monitoring of market situation, the FSC will consider whether to directly limit the issuance of ELS/DLS to a certain ratio of issuers’ equity capital.*Please read the attached file for details.
Attachment 1
Aug 22, 2012

Key Improvements to the Short-term Benchmark Rate System

BACKGROUNDThe FSC created a joint taskforce with affiliated agencies, the academia and industry groups on July 19, 2012 to come up with plans to improve the current system of short-term benchmark rate. The taskforce held its fifth meeting on August 21 to announce three major improvements out of various proposals discussed so far.KEY IMPROVEMENTS1. Introduction of short-term COFIXThe Cost of Funds Index (COFIX) was first introduced to replace the certificate of deposit (CD) rate in loan markets. As a benchmark lending rate, COFIX reflects banks’ costs of funding. However, an average maturity of loans linked to COFIX is nine to ten months, and COFIX is announced only once a month. Therefore, for floating-rate loans with shorter maturities less than one or two years, the CD rate is still preferred to COFIX.As a complementary measure, a short-term COFIX will be newly introduced, which will be announced every week. The short-term COFIX reflects banks’ average funding costs for short-term lending with a three-month maturity. The first announcement of the short-term COFIX is scheduled for the first week of November this year, tentatively.2. Stimulation of issuance of brokered CDsBanks agreed to issue brokered CDs to keep an average balance to a level of KRW 2 trillion. In order to enhance validity of the CD rate, 50% of the newly issued CDs worth KRW 1 trillion will be issued in brokered CDs with a three-month maturity.3. Improved calculation of the CD rateThe Korea Financial Investment Association will create basic principles on quote submissions, and improve the way the CD rate is calculated in a more valid and transparent manner.The basic principles and stricter disclosure rules will be in place by September this year. The FSC will pursue amendment to the supervisory regulations on the benchmark rate in the second half of this year.*Please read the attached file for details.
Attachment 1
Jul 09, 2012

Fn Hub Korea Shortens Immigration Process for Foreign Investors

I. OverviewFn Hub Korea, a unit under the Financial Supervisory Service (FSS), and the Financial Services Commission (FSC) have implemented an improved finance investor express card system, effective July 2012 to ensure a shorter immigration process and streamlined procedures, thereby allowing convenient immigration entry privileges for foreign financial investors.The finance investor express card system is a system initially adopted in February 2010 by Fn Hub Korea and the FSC in cooperation with the Ministry of Justice in a bid to shorten the immigration process for the executives and employees of foreign financial companies in Korea. Those who have the financial investor express card are allowed to use an express lane for expedited immigration procedures.The improved card system has expanded the scope of card grantees based on branch offices’ contribution to the Korean financial economy. Previously, the express card was granted only to head(s) and deputy head(s) of branch offices with an operation fund of KRW 7 billion or more. The new system has expanded the previous qualifications to include employee(s) recommended by head of a branch office when its operation fund is in excess of KRW 150 billion. All applicants should hold D-7 (supervisory intra-company transfer) visa or F-5 (permanent residency) visa and have no record of violating the Immigration Control Act.The new system also cut short a review process for those who qualify for the aforementioned requirements. Under the previous system, all applications had to go through the FSC’s review process after their documents were submitted to Fn Hub Korea for verifying their qualifications.II. Detailed Improvements1. Shorter Immigration ProcessThe previous system required an extended period of time for issuing the express card due to the review by the committee comprised of five members from the FSC including Director General and Director for International Cooperation of the FSC, Board Control Division Deputy
Attachment 1
Jun 27, 2012

Short Position Reporting Rules To Be Introduced

BackgroundThe Financial Services Commission (FSC), Financial Supervisory Service (FSS) and Korea Exchange (KRX) are aiming to introduce a rule that will make it mandatory to file a report on short positions with regulators from August 30, 2012. The rule should help regulators to have better access to data on short selling activities in the Korean markets.Short selling provides liquidity through diverse investment strategies and is an efficient price discovery mechanism. However, there were also concerns that short selling would distort market order and be abused for unfair trading in times of unstable stock markets.The proposed rule is designed to have a better picture of the overall short selling activities and a systematic collection of data on outstanding short positions so that regulators can cope with unfair trading in a timely manner.The way to adopt the new reporting requirement has been paved as proposed amendments to Enforcement Decree of Financial Investment Services and Capital Markets Act was approved by the cabinet council on June 26, 2012 and is due to be promulgated on June 26, 2012.Regulators will develop detailed provisions by collecting industry feedback and studying the short position reporting regime in other markets and reflect them in Regulation on Financial Investment Services.Proposed RulesAn investor, as opposed to a brokerage house, who has an open short position[1] resulting from short sales that amounts to or exceeds the threshold of 0.01 % of the issued share capital of a listed company[2] at the end of each trading day has an obligation to report the short position to the regulators.An investor that runs a number of units in pursuit of investment strategies independent from each other would be required to aggregate the short positions in a particular stock of all units ("Aggregation Units").The regulators set the threshold at 0.01%, a level that can help strengthen monitoring of short selling activities and cope with unfair trading acts
Attachment 1
May 31, 2012

FSB Plenary Meeting in Hong Kong

The FSC Vice Chairman Choo Kyungho attended the Financial Stability Board (FSB) plenary meeting held in Hong Kong from May 29 to May 30. At the meeting, financial regulators from 24 FSB member countries and international standard-setting bodies reviewed progress in financial regulatory reform and coordinated their opinions ahead of the Los Cabos G20 Summit to be held from June 16 to June 19.KEY DISCUSSIONS1. Vulnerabilities in the financial systemIn the euro area, the adverse feedback loop between sovereign debt strains, weak economic growth and fragile banking systems has intensified. There has been a pull-back in cross-border financial activity. Against this backdrop, risks of adverse spillovers to global financial markets and economies have increased.The FSB supports the work of European and national authorities to lower short-term risks and foster lasting confidence and stability, including completing the repair and restructuring of some banks as required. In addition, authorities agreed to work together to minimize the downside risks from the ongoing process of bank deleveraging.2. Addressing systemically important financial institutions (SIFIs)The FSB endorsed the International Association of Insurance Supervisors (IAIS) consultation paper that sets out a proposed methodology for assessing the global systemic importance of insurance companies.The FSB evaluated progress in implementing its Key Attributes of Effective Resolution Regimes for Financial Institutions. FSB members reaffirmed the need for further work to establish international guidance on common terms for information sharing and on the handling of client assets in resolution.3. Over-the-counter (OTC) derivativesThe FSB noted that substantial progress has been made in setting international standards, in advancing legislation and regulations by a number of jurisdictions. However, the FSB recognized that the current momentum should be maintained as much work remains to be done to complete the reforms by
Attachment 1
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.
Attachment 1
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
Attachment 1
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.
Attachment 1
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.
Attachment 1
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
Attachment 1
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
Attachment 1
Aug 09, 2011

Temporary Ban on Short Selling

The Korean stock market has declined for six consecutive days since August 2, amid growing concerns over the possibility of U.S. economic recession and spreading of the European fiscal crisis.*KOSPI: 2172.31p (Aug. 1) → 1801.35p (Aug. 9), ∆370.96p (∆ 17.1%)In particular, over two days from August 8 to 9, the KOSPI has dropped 142.4 points, or7.44 % as the aftershock of the downgrade of the U.S. sovereign rating significantly increased volatility in the market.*There were the 5-minute suspensions of trading in the KOSPI market (“sidecars”) and the 20-minute suspensions of the Kosdaq market (“circuit breakers”) for two consecutive days.Short sales are significantly increasing in the falling markets, spreading market anxiety. The amount of short sales, which was KRW100 billion per day on average in the first half of this year, has recently surged over KRW 400 billion, exceeding the previous record high of KRW 234.6 billion since September 2008. Short sellers are mostly foreigners and institutions. From August 2 to 5, they sold an average of KRW 314.7 billion per day in short selling, accounting for 96.7% of the total short-selling transactions.Against this backdrop, the FSC has decided to temporarily ban short selling of all listed stocks in the Korea Exchange and Kosdaq markets for three months from August 10 to November 9.* In response to the global financial crisis in 2008, the FSC banned short selling of all listed stocks, starting October 1, 2008; and lifted the ban on non-financial stocks from June 1, 2009, while keeping the ban on financial stocks.During the same period of the three months, the FSC will temporarily ease restrictions on the amount of equities that securities issuers can buy back their own.* Please read the attached file for details.
Attachment 1
Jul 26, 2011

Revision Bill of the Financial Investment Services and Capital Markets Act

BACKGROUNDThe Financial Investment Services and Capital Markets Act (“FSCMA”) was established in 2007 as a comprehensive overhaul of capital markets regulations in order to promote autonomy and innovation in capital markets.Since the FSCMA took effect in February 2009, however, we had to weather the impacts of the global financial crisis. As a result, we still fell short of bringing about innovative changes that we initially intended with the enactment of the FSCMA such as creation of globally competitive investment banks (IBs).Meanwhile, after the financial crisis, global discussions on strengthening financial regulations and global coordination have been underway; and now is the time for us to domestically carry out what we have discussed at the global level.Against this backdrop, we see this is the right time to lay the foundation for the future of Korea’s financial industry, while coping with current global and domestic financial issues (e.g. Europe’s fiscal crisis, Korea’s household debts).The FSC has drafted a revision bill of the FSCMA, made public for 20 days from July 27 to August 16.KEY REVISIONS TO THE FSCMAI. Development of Korean IBsFor the development of home-grown investment banks capable of financing new growth industries and large overseas projects,1. Securities companies that meet certain statutory requirements such as equity capital and risk* management capability will be qualified as investment banks (or “comprehensive financial investment services providers”).*Given that securities companies can start prime brokerage services just with a revision of the FSCMA Enforcement Decree, the minimum amount of equity capital for a security firm to provide investment banking services will be set at 3 trillion won, which could be further raised later depending on developments after the revision of the FSCMA.2. The revision bill has regulations on corporate lending, internalization of order execution in place in order to help IBs provide a comp
Attachment 1