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May 30, 2019
- FSC Introduces Deregulatory Measures to Boost Korea's Derivatives Market
- The FSC introduced deregulatory measures to make Korea’s derivatives markets more vibrant and competitive. The reforms are intended to strengthen the derivative market’s role for risk hedging and price discovery, as part of the government’s broader efforts to vitalize capital markets and support the real economy.BackgroundKorea’s derivatives trading volume fell sharply from its peak in 2011 but recovered to an extent after 2015 with increased trading of index products.1 Since the introduction of tighter regulations to curb speculative trading in 2011, the derivatives market’s soundness improved with an increase in the number of longer-term open contracts for risk hedging.2By investors, foreigners accounted for 50.4% of derivatives trading in 2018, up from 25.7% in 2011. Over the same period, the share of institutional investors decreased from 48.7% to 36.1%; and retail investors from 25.6% to 13.5%. Excessive entry barriers act as obstacles to retail investors, while strict margin requirements hinder institutional investors’ participation.The derivatives market is disproportionately concentrated in KOSPI200-related products, making it difficult to serve investors’ demand for a variety of derivatives products.Reform Measures► Lower entry barriers for retail investors (Q4 2019/FSC, KRX) Minimum deposit requirement will be abolished for professional investors and eased for non-professional investors: (i) KRW 10million or more for futures and options trading; and (ii) KRW 20million or more for all derivatives trading. One hour of education and three hours of mock trading► Ease margin requirements for institutional investors (Q3 2019/FSC, KRX) Currently, institutional investors are required to deposit an extra margin, 10 % of credit risk limit, in addition to 100% of the volume exceeding the credit limit. The1 Average daily turnover (unit: trillion won): 66.3(2011), 47.9(2013), 37.2(2014), 41.2(2015).45.0(2018)2 KOSPI 200 Futures Open Interest (unit: 10
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May 27, 2019
- FSC to Ease Restrictions on Information Sharing in Financial Investment Business
- The FSC proposed reforms to the Financial Investment Services and Capital Markets Act (FSCMA) to improve business conduct rules on financial investment business.The reformed bill will include easing the current requirement of information barriers, known as ‘Chinese walls,’ to enhance its regulatory effectiveness and flexibility; and making it easier for financial investment companies to entrust their business, or engage in concurrent or incidental businesses to facilitate the emergence of innovative and specialized services. The FSC plans to submit its reform bill on the FSCMA to the National Assembly in the first half of this year.I. EASE RULES ON CHINESE WALLThe ‘Chinese wall’ rules were introduced to prevent conflicts of interests as financial investment companies increasingly expanded their business scope with concurrent businesses. Currently, information barriers are set up to block the exchange of information across business units – e.g. corporate financing business, proprietary investment business and financial investment business. However, the current regulatory regime stipulates details including the subject and implementation methods by law, leaving little autonomy to financial investment companies.Against this backdrop, the types of information, not types of business, will serve as a basis to apply the Chinese wall rules. For example, ‘material nonpublic information’ should be separated from other information related to management of customer property. Also, the FSCMA will be amended to provide only basic principles and leave implementation details to financial investment companies to allow more autonomy and flexibility.The current rules that require physical separation of offices, and prohibit executives and employees from holding concurrent positions across business units or with affiliate companies will be abolished. Instead, companies will be required to strengthen their internal control on ‘material nonpublic information’ and establ
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May 26, 2019
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May 23, 2019
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May 16, 2019
- Regulatory Reforms to Promote Robo-Advisory Services
- The FSC reformed the「Financial Investment Business Regulation」to promote robo-advisory services:1. Robo-advisory firms will be allowed to manage funds and entrusted assets commissioned by asset management firms. (scheduled to be implemented from July 24, 2019)Under the current regulation, asset management firms are not allowed to commission their business of managing funds and entrusted assets to robo- advisory firms. The regulation was revised to allow asset managers to commission such business to robo-advisors on condition that the asset managers are responsible for investor protection.2. Individuals will be allowed to participate in Koscom’s robo-advisor testbed, which will accept applications from June 3, 2019.Currently, the testbed is open only to firms including fintech firms, not to individuals, given that only companies are allowed to provide robo-advisory services. Robo- advisors verified through the testbed are allowed to provide investment advisory and entrusted services. To commercialize robo-advisory services after they pass the test, individuals are required to register as an asset management firm or to form a partnership with asset management firms.3. Capital requirement was eased to make it easier for small fintech firms to provide non-face-to-face services via robo-advisors. (implemented from March 20, 2019)Previously, discretionary investment businesses were required to have additional capital of KRW4 billion besides the minimum capital of KRW1.5 billion to provide non-face-to-face services through robo-advisors. To facilitate the entry of small fintech firms in robo-advisory services, the capital requirement of additional KRW4 billion was abolished.4. Robo-advisors will be allowed direct management of fund assets. (scheduled to be implemented from July 24, 2019)Currently, robo-advisors are not allowed to directly manage fund assets, while they are allowed to manage entrusted assets. The regulation was revised to allow robo- advisors to manag
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May 16, 2019
- FSC Secretary General Holds Meeting on Soundness of Household and Individual Business Loans
- FSC Secretary General, Sohn Byungdoo convened a meeting with the FSS and the KIF on May 15, to monitor the soundness of household and individual business loans.Summary of Secretary General’s remarksSecretary General Sohn stressed the need to exert more policy efforts to manage the soundness of household and individual business loans, and supporting financially vulnerable borrowers.Mr. Sohn said household loan default rate at the end of January 2019 stood at 0.84%(provisional figure), a slight increase compared to the end of last year(0.75%). However, he diagnosed the level of default rates1 is stable in general compared to last year. Individual business loan default rate at the end of first quarter, 2019 (0.75%) showed an increase as well compared to the previous month (0.63%), however, the default rate is yet reached a significant level.2.Mr. Sohn said that the recent increase in default rate is attributed to relatively loose screening on business loans, which has been on the rise in the recent few years; and rise in default rate in regional financial institutions3. But he stressed that since regional banks and non-bank financial firms4 have sufficient loss absorbing capacity, the risk of increased default rate to the financial system in general is restricted.Secretary General said the debt-service-ratio(DSR) will be fully implemented to the non-banking sector starting from June this year, and the financial regulators will thoroughly inspect that non-bank financial firms are appropriately operating the rent- to-interest(RTI) ratio and loan-to-income(LTI) ratio regulations.Mr. Sohn evaluated the financial industry’s voluntary debt reduction program for defaulted household loan borrowers is smooth-sailing, and emphasized that the government will ensure facilitation of debt reduction program tailored to each individual business loan borrower as well.
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May 15, 2019
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May 15, 2019
- Third Batch of Financial Service Providers Designated as 'Innovative Financial Services' for FSC's Regulatory Sandbox
- The FSC designated eight additional financial services as ‘innovative financial services’ to be accepted into financial regulatory sandbox, following the first and second batch of financial services announced on April 17 and May 2. As of May 15, 26 services are approved to be tested in the financial regulatory sandbox.The eight financial services will be submitted to Financial Innovation Evaluation Committee and FSC within June for evaluation.Overview of designated innovative financial services1. A loan brokerage service that provides loan products offered by different financial firms, and credit evaluation service using mobile phone usage record such as service enrollment period, roaming, and bill payment record using mobile phones. (Finnq)2. A 24-hour artificial intelligence (AI) based insurance consultation and sales service.(Persona System)3,4. A payment system using smart-phone-embedded NFC for merchants without fixed stores such as food trucks and street vendors that enables payment of products they sell without credit card payment device or POS terminal. (Paycoq, Korea NFC)5,6,7. A loan brokerage service that provides various loan conditions including fixed interest rates and loan limit of different loan products tailored to each consumer. (MiBank, Finmart, teamwink)8. A P2P money transfer service using QR codes. (BC Card)
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May 02, 2019
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Apr 24, 2019
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Apr 17, 2019
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Apr 01, 2019
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Mar 28, 2019
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Mar 25, 2019
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Mar 21, 2019
- Financial Policy Plans to Support Innovation-led Growth
- The FSC announced financial policy plans to support Korea’s innovation-led economic growth. At a proclamation ceremony, President Moon Jae-in said further growth of innovative start-ups in Korea are held back by banks’ lending practice, still centered on real estate collateral and financial records, resulting in a “financial divide” between large businesses and start-ups. That requires finance to play a more active role in funding innovation and sharing risk. FSC Chairman Choi JongKu laid out a comprehensive policy scheme to create a financial ecosystem for innovation-led growth.I. Overhaul bank’s corporate loan approval systemBanks’ corporate loan approval system will be overhauled to help start-ups - often with limited collateral - secure loans using their innovative ideas, technology and other various assets as collateral. Under the new loan approval system, the FSC aims to enable innovative start-ups and SMEs to secure loans worth KRW100 trillion over the next three year.► A new collateral scheme will be introduced1 in which corporate borrowers are allowed to combine various assets including patent, production equipment and inventories as a single package of collateral.► A comprehensive evaluation model which assesses the potential value of a company’s technology as well as creditworthiness will be introduced as early as 2020.II. Capital market reformsThe FSC will help innovative start-ups raise funds based on their growth potential. By easing listing requirements, the FSC aims for Kosdaq listings of 80 companies in high-growth, high-tech sectors including biotech over the next three years.► The government aims to raise KRW15 trillion over the next five years with public and private investments to support scale-ups in new-growth sectors such as future vehicles, bio-health and fintech.► The FSC will expand a pool of venture capital with regulatory reforms for private equity funds (PEFs), securities firms and professional investors.2► Kosda
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Mar 07, 2019
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Feb 25, 2019
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Feb 11, 2019
- FSC to Propose a Bill on P2P Lending
- The FSC plans to propose a bill on peer-to-peer (P2P) lending to help the P2P sector grow into one of innovative fintech services and provide both investors and borrowers with better protection.Since P2P lending business in Korea kicked off, the sector has been regulated under flexible guidelines, instead of a legal framework. However, the sector has grown fast in recent years, with P2P lending surging to KRW 5 trillion as of the end of 2018, from KRW 600 billion in 2016. The sector’s rapid growth prompted the need for a legal framework to properly regulate the fast-growing sector and better protect investors and borrowers. Currently, five bills proposed by lawmakers are pending at the National Assembly.Against this backdrop, the FSC held a public hearing today jointly with the Financial Supervisory Service and the Korea Institute of Finance to discuss proposals for new legislation. At the hearing, FSC Chairman Choi Jongku laid out key principles that the new bill on P2P lending needs to pursue:i. It is desirable to establish a separate new legislation for P2P lending business, rather than trying to fit into other existing laws, given the sector’s distinctiveness and innovativeness.ii. New legislation will be designed to seek a right balance between the current market practice developed in the P2P lending sector and regulatory need to prevent risks such as excessive concentration to certain assets.iii. New bill will put emphasis on protection for investors and borrowers, with measures in place to prevent P2P platforms from conflict of interest and moral hazard.iv. New bill will consider scalability and flexibility in designing its regulatory framework, in response to fast-evolving developments in P2P lending market.v. New legislation needs to be backed by the sector’s self-efforts to enhance investor trust.Based on proposals under discussion so far, the FSC will propose a draft bill on P2P lending in March for further reviews and discussions at the National As
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Jan 30, 2019
- Korea Next Exchange (KONEX) to be Revitalized
- FSC Chairman Choi JongKu announced a plan for revitalizing KONEX at a meeting with young entrepreneurs and venture capital investors. The plan was intended to facilitate fundraising by SMEs venture companies; boost liquidity in the KONEX market; strengthen its role of nurturing SMEs venture companies to help them move to KOSDAQ; and enhance investors’ trust in the KONEX market.BACKGROUNDKONEX was launched in July 2013 as an exchange for SMEs too small to list on the KOSDAQ market. Since then, KONEX achieved a significant growth. Its market capitalization increased almost 13 folds, from KRW 0.5 trillion to KRW 6.3 trillion as of the end of 2018. Over the same period, the number of KONEX-listed companies also increased from 21 to 153. Its daily trading value increased 12 folds, from KRW 390million to KRW 48billion. Despite the growth in size, low liquidity and the lack of price discovery function prompted the need to reform the KONEX market. Against this backdrop, the FSC intends to revitalize the role of KONEX as a springboard for SMEs venture companies to grow further and a platform for venture capital investors to exit and re-invest.Key Changes1. FACILITATING FUNDRAISING THROUGH KONEX► KONEX-listed companies will be allowed to raise funds through crowdfunding, currently limited only to non-listed SMEs, and small public offerings, which will be newly introduced as part of capital market reforms.1► Regulations that cap discount rates on newly-issues shares will be eased for KONEX-listed companies:- (public offering) If an underwriter prices new shares based on demand forecast, new share offerings will be exempted from caps on discount rates.- (third-party allocation) new shares allocated to third-parties will be allowed to offer at a further discount exceeding the current cap of 10%.► External audit standards will be eased or tailored for KONEX-listed companies to reduce their regulatory burdens.1 For further details about ‘small public offerings’, refer
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Jan 21, 2019
- Follow-up Measures for Capital Market Reform
- FSC Chairman Choi JongKu announced follow-up measures for capital marketreform on his visit to a venture company in the Geomdan Industrial Complex, Incheon. As part of the capital market reform proposal1 announced last November, the follow- up measures include new schemes of introducing a specialized brokerage company to facilitate investment into unlisted securities of SMEs and venture companies; and expanding a pool of professional investors.I. SME-SPECIALIZED BROKERAGE COMPANY TO BE INTRODUCEDThe FSC will introduce a new category of brokerage companies specialized in capital raising business for SMEs venture companies.Scope of businessThe new type of brokerage firms will mainly engage in brokering transactions of private and unlisted securities. They will be also permitted to engage in a broader range of corporate financing for SMEs venture companies – e.g. advisory services for securities issuance and evaluation of corporate value in regard with MAs.However, given that the business involves high investment risks, they will only be allowed to professional investors.Entry requirementTo facilitate the establishment of new specialized brokerage companies, the FSC will lower barriers to entry: newcomers will be allowed to enter the business with registration only, with the minimum capital of KRW500 million and professional workforce of two or more.Applicable regulation investor protectionThe FSC will reduce regulatory requirements, given their limited scope of business and limited impact in financial markets: they will be exempted from prudential regulations – e.g. NCR or leverage ratios; and will be allowed to submit their reports on management and financial performance on a quarterly, not monthly, basis. To protect investors, however, they will be required to have appropriate internal controls which prevent conflict of interest.ScheduleA proposal to amend the Financial Investment Services and Capital Market Act (FSCMA) will be submitted to the National Assembly
