FSC works to ensure that finance plays a key role in developing innovative businesses and supporting the real economy, thereby fueling Korea’s more vibrant economic growth. Promoting advanced financial industry, stable financial markets, fair market order and reliable consumer protection are among FSC’s key policy agenda. Digital transformation and big data are increasingly playing larger roles in various aspects of financial services. In the era of 4th industrial revolution and digital economy, finance will help boost growth potential and create jobs as the government seeks to advance its Digital New Deal policy.
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Oct 23, 2012
- Legislation Notice of Covered Bonds Act
- BACKGROUNDSince the global financial crisis, there has been growing need for a legal framework to issue covered bonds in order to ensure financial institutions’ stable funding channel and financial markets’ stability.1 Covered bonds are expected to reduce financial institutions’ funding cost and serve as a stable funding channel in the event of financial crises. It is also expected that covered bonds will help improve the structure of household debt by providing financial institutions with a funding source of long-term and fixed rate loans.KEY CONTENTS1. Definition of covered bondsCovered bonds are a type of bonds secured by a cover pool of assets that the issuer provides as collateral. In the event of the issuer’s bankruptcy, investors have a preferential claim to the cover pool and are guaranteed dual recourse to the issuer’s other assets as well.2. Eligible issuers of covered bondsIn order for a financial institution to issue covered bonds, it should satisfy both institutional and eligibility requirements.- (institutional requirement) banks, Korea Housing Finance Corporation, Korea Finance Corporation, and other equivalent institutions designated by Presidential Decree- (eligibility requirement) a financial institution with equity capital of more than KRW 100 billion and a BIS ratio of more than 10 %, capable of ensuring proper funding, operation and risk management.3. Cover poolA cover pool is composed of cover assets, liquid assets and other assets with a minimum coverage ratio of collateral more than 105%.- (cover assets) mortgage loans, debts issued by governments and public institutions, government bonds- (liquid assets) cash, certificates of deposit issued by other banks with a maturity of less than 100 days- (other assets) recovery from cover assets, property earned through management, operation, and sale of assets, derivative contracts for hedging against currency and interest rate risks4. Registration and issuanceAn issuer should register its i
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Apr 16, 2012
- Establishment of Korea New Exchange
- The FSC announced its plan for creating a stock exchange exclusively for SMEs, tentatively named ‘Korea New Exchange (KONEX)’, in order to facilitate direct financing of venture start-ups and SMEs through the capital market.BASIC DIRECTIONS OF THE PLAN- Provide investors with new investment opportunities by facilitating listing of SMEs with high growth potential- Reduce the costs of listing and maintaining the listing for SMEs- Establish a credible market with fair pricing mechanismKEY SCHEMES FOR KONEX1. Broaden the scope of ‘professional investors’- ‘Professional investors’* under the definition of the Financial Investment Services and Capital Markets Act (FSCMA)*financial investment firms (e.g. securities companies), mutual funds, policy banks (e.g. Korea Development Bank, Industrial Bank of Korea, Korea Finance Corporation), banks, insurance companies, pension funds (e.g. National Pension Service)**In principle, retail investors are allowed only indirect investment through mutual funds.- Among investors who are not ‘professional investors’ by the definition of the FSCMA, those with investment expertise in SMEs or risk-absorbing capability will be allowed to invest in KONEX-listed SMEs.i) ‘venture capital’ under the definition of the Support for Small and Medium Enterprise Establishment Actii) retail investors qualified for hedge fund investment more than KRW 500 million2. Set minimum requirements for listing and delisting- (Listing) The audit opinion on a company’s financial statement is proper; a company satisfies listing requirements on a selective basis in regard with equity capital, financial conditions and business performance; and etc.- (Delisting) A company falls into one of conditions for immediate delisting such as the court’s decision of dissolution or refusal of rehabilitation procedures; the audit opinion on a company’s financial statement is adverse or disclaimer of opinion; and etc.3. Designate advisors to assist SMEs’ l
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Mar 19, 2012
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Mar 06, 2012
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Jan 06, 2012
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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 04, 2011
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Oct 10, 2011
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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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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.
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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
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Jun 15, 2011
- Revision of Loan-loss Reserve Requirements on Credit Card Assets
- The Financial Services Commission (FSC) made a resolution at the eleventh meeting held on15 June 2011 to revise the Regulation on Supervision of Specialized Credit Financial Business and the Regulation on Supervision of Banking Business on loan-loss reserve requirements for credit card assets.BACKGROUNDThe ratio for provisioning varies depending on the classification of the loans in question.* Applying equal loan-loss provisioning ratio for sales on credit and card debts (card loans, cash advance, revolving), which differ in delinquency ratio** and loss ratio, could be potentially problematic.*Loan loss provisioning ratio: Pass- 1.5%, precautionary- 15%, substandard- 20% doubtful- 60%, estimatedloss- 100%** Delinquency ratio as of 2010: credit sales (0.9%)/ card loans (2.2%)Total outstanding credit card debt at the end of 2010 marked a sharp increase of 19% from a year earlier, far more than a 6.3% increase in total household debt over the same period. This brings about the need for stronger risk management of credit card assets by differentiating the criteria for loan loss provisioning by card asset.REVISIONConsidering higher loss ratio on card debts than credit card sales, different ratios of loan loss provisioning will apply for each type of assets.Loan loss provisioning ratio will significantly rise for credit sales excluding pass class of assets and card debts, reflecting expected loss ratio.Revised loan loss reserve requirements (Unit: %) Classification # of months delinquent Current Revised Credit sale Credit loan Credit sale Credit loan Pass 1 1.5 1.1 2.5 Precautionary 1~3 15 40 50 Substandard 3 20 60 65 Doubtful 3~6 60 75 75 Estimated loss 6 100 100 100 The FSC expects the revision to effectively enhance credit card companies’ ability to absorb losses and prevent excessive competition to expand card debts as the burden of loan loss provisioning for card debts increases*.* According to an analysis of top five credit card companies, additional loan-loss res
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Mar 11, 2011
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Dec 17, 2010
- Basel III QIS and Its Implications
- The Basel Committee on Banking Supervision (“the Committee”) published the results of its comprehensive quantitative impact study (QIS) on December 16, 2010 to ascertain the impact of the Basel III rules on banks’ capital adequacy, leverage and liquidity ratios. A total of 263 banks from 23 of the 27 Committee member jurisdictions participated in the study.In Korea, 8 banks submitted data for the comprehensive QIS including 5 Group 1 banks (Woori, Shinhan, Hana, KB and IBK) and 3 Group 2 banks (Nonghyup, Daegu and Busan).Capital ratios as of year-end 2009Group 1 banks’ average common equity Tier 1 (CET1) capital ratios under the new regime would have sharply fallen from an average gross CET1 capital ratio of 11.1% to 5.7%.This decline is mainly attributable to the new definition of capital deductions and filters not previously applied at the common equity level of Tier 1 capital. For the Group 1 banks, the reduction in CET1 capital is driven primarily by deductions of goodwill, etc.For larger banks (Group 1 banks), the change in net CET1 capital (with deductions) compared to gross CET1 capital (without deductions) amounts to -41.3%. The reduction in C ET1 capital of Group 1 banks from Korea by deductions amounts to 3.2%.In the meantime, CET 1 capital ratio of domestic banks would remain around 10.3% under the Basel III Framework, exceeding a CET1 target level of 7% (including the capital conservation buffer).Average capital ratios by banking group, in percent CET1 Tier 1 Total Change in CET 1 by deductions Gross Net Current New Current New Group 1 Average* 11.1 5.7 10.5 6.3 14.0 8.4 -41.3 Korean banks 11.3 10.3 11.1 10.4 14.7 13.5 -3.2 Group 2 Average* 10.7 7.8 9.8 8.1 12.8 10.3 -24.7 Korean banks 10.4 9.7 10.7 10.0 15.3 13.4 -1.8 *Average of banks from 23 countries Relative to a 7% CET1 level, the capital shortfall for Group 1 banks in the QIS sample is estimated to be €577 billion (KRW880 trillion) under the Basel III requirements (including the capital
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Dec 14, 2010
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Dec 07, 2010
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Nov 11, 2010
- Global Financial Regulatory Reforms
- 1. Background of the G20 discussions on financial regulatory reformsOn November 15, 2008 in the midst of the global financial crisis, the Leaders of the G20 met for the first time in Washington to enhance international cooperation to restore global economic growth and achieve needed reform in the world’s financial systems. In Washington, the Leaders agreed on five principles for reform and the Action Plan to avoid future crises. The forty seven actions set forth in the Action Plan were mostly targeted to strengthen financial markets and regulatory regimes.Subsequently, at the London Summit on April 2, 2009, the Leaders monitored progress of implementation of the Action Plan agreed in Washington and declared eight major reform agenda. In particular, the Leaders gave a mandate to the Financial Stability Board (FSB) to coordinate global efforts on financial regulatory reforms.At the Pittsburgh Summit on September 25, 2009, the Leaders designated the G20 as the premier forum for international economic cooperation, fully endorsed the implementation standards of the compensation practices proposed by the FSB, and discussed main reform agenda 3 including addressing systemically important financial institutions (SIFIs). The Leaders also agreed on a concrete implementation timeline.At the Toronto Summit in June this year, the Leaders pledged to act together to fulfill the commitment within the timelines agreed to at the Washington, London, and Pittsburgh Summits. In particular, the Leaders agreed to accelerate the original timelines and complete discussions on a new bank capital and liquidity framework and policy recommendations to effectively address problems associated with SIFIs by the Seoul Summit.In accordance with the Leaders’ agreement, the FSB, collaborating with international standard setting bodies such as the Basel Committee on Banking Supervision (BCBS), has developed a detailed financial regulatory reform package with concrete implementation timelines, which
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Nov 10, 2010
- Proposed amendments to the Enforcement Decree of the Banking Act Approved by Cabinet
- BackgroundPrior to the enforcement of the amended Banking Act*, proposed amendments to the Enforcement Decree of the Banking Act have been approved at the cabinet meeting on November 9. The proposed amendments are to be enforced starting November 18, 2010 after the President’s approval and announcement.* The amended Banking Act, announced on May 17, 2010, is scheduled to be enforced starting November 18, 2010.Key Amendments to the Banking Act Key Contents of the amended Enforcement DecreeA. Banks’ overseas expansionIn principle, banks seeking overseas expansion are allowed to submit a report to the authorities afterwards, except for only those who fall into one of the following categories prescribed by the amended Enforcement Decree.① (bank soundness) a bank’s BIS ratio or its CAMELS rating falls short of required criteria.② (investment method) a bank plans to make investment in or pursue an MA with a below- investment-grade local corporation.③ (business scope) a bank wants to engage in business activities other than banking, concurrently-run, and subsidiary business.④ (investment destination) a bank plans to expand into a below-investment-grade country or a country that has no diplomatic tie with KoreaFurther details are stipulated by the Regulation on Supervision of Banking Business**a bank’s BIS ratio is less than 10%, or its CAMELS rating is below 3; credit ratings of local subsidiaries are below B+; and sovereign ratings of the host country are below B+ etc.B. Disqualifications of outside directorsMost of disqualifying conditions for outside directors set by Best Practice Guidelines on Corporate Governance in Banks (announced in Jan. 2010) were prescribed in the Regulation on Supervision of Banking Business previously and are now to be directly regulated under the amended Banking Act. Details such as definitions of a “corporation which has a special business relationship with a bank”* and a “person who cannot carry out his/her duty faithfu
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Sep 20, 2010
- Notice of Changes to Banking Supervision Regulation
- The FSC has issued a notice of changes made to the Regulation on Supervision of Banking Business in preparation of implementing the amended Banking Act taking effect on November 18 and adopting the K-IFRS in 2011.1. Reporting obligations for banks’ overseas expansionBanks seeking overseas expansion are allowed to submit a report to the authority afterwards, except for only those who fall into one of the following categories. They are still required to submit their expansion plan in advance to the authority for consultation.(1) (Bank soundness) a bank’s BIS ratio is less than 10%, or its CAMELS rating is below 3(2) (Business scope) a bank wants to expand its business beyond its core and non-core businesses(3) (Destination) a bank wants to expand into a country whose sovereign rating is below B+* or does not exist in the first place.*** Nigeria, Argentina, Cambodia, Mozambique, etc.**Iran, Iraq, Laos, Ethiopia, etc.(4) (Overseas subsidiary) an overseas subsidiary’s credit rating is below B+2. Consumer protection(1) When bank customers sign or revise a service contract with a bank, the terms of a contract should be submitted to compliance officers for review and reported to the Fair Trade Commission (FTC).(2) Banks are obliged to ①publicly disclose their contract conditions including interest rates, fees, and transaction terms on their website; ②provide their customers with a written document that stipulates contract terms; and ③ensure their customers fully understand terms of the contract.3. Internal governance rules(1) Banks’ internal rules and policies of governance should be publicly disclosed on their own website and the Korea Federation of Banks website.(2) Internal rules and policies regarding governance should be made public immediately upon their creation or revision. Activities of a bank’s board pursuant to internal rules should be disclosed by the end of the following month after a regular shareholders’ meeting.4. Preparations for the K-IFR
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Jul 28, 2010