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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
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Jan 16, 2019
- Fintech Policy Direction for 2019
- FSC Chairman Choi JongKu outlined the FSC’s policy priorities for fintech innovation in 2019 at a meeting with fintech entrepreneurs, executives of financial institutions and investors. Chairman Choi said this year would be an opportune time for Korea’s fintech industry to take a step forward, as the groundwork for regulatory, budgetary and institutional support has been laid down. “The FSC will spare no effort to support fintech companies to come with globally competitive services and spread fintech innovation across the financial sector,” said Chairman Choi.Financial Regulatory SandboxThe financial regulatory sandbox, scheduled to be launched in April 2019, will allow fintech companies to test their innovative services with regulatory exemptions for a certain period of time. Preliminary applications for participation will be open in the end of January. The FSC will provide KRW4 billion to support the regulatory sandbox program.Investment in FintechThe FSC will remove regulatory uncertainty that restricts financial companies from investing in fintech companies. In principle, financial companies are prohibited from investing in non-financial companies, except ones closely related to financial services. Currently, financial companies are allowed to invest in fintech companies, based on the FSC’s legal interpretation that fintech falls into a category of businesses closely related financial services. To facilitate investment in fintech, the FSC will amend relevant regulations for clarification on the scope of business in which financial companies are allowed to invest. The FSC will also boost investments by venture capital and PEFs in fintech.Financial Regulatory ReformThe FSC will overhaul formal and informal regulations that hinder fintech innovation. Currently, more than 200 regulations are under review for regulatory reforms. The result of reviews will be announced in the first quarter of 2019. The FSC will also hold a weekly meeting with fintech busines
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Dec 24, 2018
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Dec 19, 2018
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Dec 11, 2018
- Financial Innovation Support Act Passed in the National Assembly
- National Assembly passed a legislation called the Financial Innovation Support Act on December 7, 2018. The bill, which will take effect in March 2019, is intended to lay the legal foundation to introduce a regulatory sandbox for innovative financial services, where fintech firms are allowed to test their new services with regulatory exemptions for a certain period of time.Under the new legislation, fintech firms or financial institutions may apply for participation in the regulatory sandbox with financial services acknowledged as differentiated from existing services in its content, method and form.A review committee will be established under the FSC with financial officials and experts in technology, finance, laws and consumer rights to review applications and designate an “innovative service” provider.The designated service providers are allowed to test their new services for a maximum two years in an environment where certain regulations are to be exempted. If there is a concern about irreversible damage to consumers or undermining financial stability, regulatory exemptions should not be allowed.Those who apply for designation of innovative financial service provider are required to submit their plans for consumer protection and risk management. Only those who have sufficient measures to protect consumers are to be accepted to the regulatory sandbox.In a lawsuit against an innovative financial service provider, the burden of proof falls on the business provider to prove that there was no intention or negligence for damages.* Please refer to the attached PDF for details.
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Nov 26, 2018
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Nov 14, 2018
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Nov 01, 2018
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Oct 29, 2018
- FSC Holds Meeting on Financial Market Conditions
- FSC Vice Chairman Kim Yongbeom convened a meeting with representatives of financial institutions this morning to examine financial market conditions and make sure that Korea’s economic and financial conditions are well prepared to deal with the recent market turmoil.SUMMARY OF VICE CHAIRMAN’S REMARKS:► KOREA’S ECONOMIC AND FINANCIAL CONDITIONSKorea’s economic fundamentals remain strong, despite recent downward revision of growth outlook and concerns on global economic conditions.From the macroeconomic perspective, Korea’s economic growth is expected to stay well above 2%. Its current account has recorded a straight 78-month surplus. It maintains sound fiscal balance with 2.3 % of GDP in fiscal surplus. Korea’s currency exchange and CDS premium are stable compared to those of major emerging markets.From the microeconomic perspective as well, Korea’s economic and financial indices have improved since the financial crisis of 2008. Banks’ short-term external debt ratio decreased, while BIS capital adequacy ratio increased. Banks have sufficient buffer against external shocks since they had turned net creditors in 2016.The self-assessment above is in line with evaluations by credit rating firms. Moody’s, SP and Fitch maintain good credit ratings with Korea, highly evaluating its external and fiscal soundness.► POLICY RESPONSESOverall, Korea has strong fundamentals to weather the recent turmoil in domestic and global financial markets. Given its characteristics of a small open economy, however, Korea may not be immune to the effects from external and internal uncertainties. In particular, readjustment of asset prices with monetary normalization in major economies may increase volatility in financial markets.Against this backdrop, the FSC will take measures to stabilize the stock market:First, the FSC will create a KRW500 billion fund with securities-related institutions to support the stock market. Out of the fund, KRW300 billion will come from ‘Ko
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Oct 18, 2018
- Debt Service Ratio(DSR) to be Introduced as Household Debt Management Standard
- BACKGROUNDKorea’s household debt growth has slowed down in recent years. It is unlikely that household debt would pose a systemic risk to the Korean economy in the near future; however, the government needs to stay alert from a longer-term perspective. The sheer size of household debt would continue to grow, and its growth pace still remains high. In the mid-to-long term, the government aims to keep household debt growth rate at a level close to nominal GDP growth rate. The FSC expects the introduction of debt service ratio (DSR) rules in conjunction with other lending standards will help reduce household indebtedness and curb rapid growth of household debt.DEBT SERVICE RATIO (DSR) RULESThe DSR was introduced on a trial basis first with banks last March and subsequently across the financial sector. Based on the test operation with banks for the past six months, DSR rules will be officially introduced as standards for banks to manage their household loans starting from October 31, 2018.Banks will be required to manage “high-risk” loans below a certain percentage of their total loans. To define high-risk loans, the FSC set two-tier DSR standards: loans with a DSR exceeding 70% will be considered as “risky”; and those with a DSR of 90% or above as “highly risky.” Currently, commercial banks are better positioned than local banks and specialized banks to cut back on the proportion of high DSR loans. Loans with a DSR exceeding 100% take up 14.3% of total loans in commercial banks, compared to 30.1% in local banks and 27.9% in specialized banks. The average of DSR is also different: 52% with commercial banks, 123% with local banks, and 128% with specialized banks. Considering the gaps in compliance burden, different levels of targets will apply:► Commercial banks will be required to manage the proportion of loans with a DSR exceeding 70% (hereinafter ‘risky loans’) below 15%; and those with a DSR exceeding 90% (hereinafter ‘highly risky loans’) bel
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Oct 17, 2018
- Enforcement Decree of the Special Act on the Establishment and Operation of Online-only Bank
- The FSC enacted the「Enforcement Decree of the Special Act on the Establishment and Operation of Online-only Bank」(hereinafter referred to as ‘enforcement decree’). The special bill, scheduled to take effect on January 17, 2019, raised a ceiling of shareholdings by non-financial companies in an online-only bank from 10% to 34%. As delegated by the special act, the enforcement decree is to specify non-financial companies qualified for an exception to the ownership cap of 10% in an online-only bank. The enforcement decree is open for public comments from October 17 to November 26.KEY PROVISIONS► Non-financial companies qualified for an exception to the ceiling of 10% on shareholdings in an online-only bankConglomerates subject to cross-shareholding restrictions under the「Monopoly Regulation and Fair Trade Act」are not allowed to own a stake in an online-only bank in excess of 10%. However, the enforcement decree allows an exception to the 10% cap for a conglomerate whose assets of ICT business accounting for 50% or more of assets of the group’s non-financial business.► Exception to restriction on credit granting to same borrowerThe special bill limits credit granting by an online-only bank to the “same borrowers” to 20% of its equity capital, stricter than the restriction of 25% under the Banking Act. The enforcement decree provides that exceptions are allowed when such exceptions are deemed important for the national economy or would not affect the bank’s soundness.► Exception to restriction on transaction with large shareholdersThe special bill basically prohibits online-only banks from extending credit to large shareholders and acquiring stocks issued by large shareholders. The enforcement decree allows exceptions when credit granting or acquisition of stocks, originally irrelevant with large shareholders, later became transaction with large shareholders through MAs, exercise of rights to collateral, or transfer of business.► Exception to
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Sep 14, 2018
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Sep 03, 2018
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Aug 07, 2018
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Jul 17, 2018
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Jul 12, 2018
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Jun 27, 2018
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Jun 27, 2018
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Jun 18, 2018
- Draft Bill Proposed for Introduction of Regulatory Framework for Financial Benchmarks
- BACKGROUNDThe FSC proposed a draft bill to introduce a regulatory framework to financial benchmarks. The new legislation was enacted in response to global regulatory moves in which major countries including the UK, EU, Australia and Japan adopted IOSCO’s Principles for Financial Benchmarks into their benchmark regulations. The extra-territorial effect of the EU Benchmark Regulation (BMR), which requires third party country administrators to be authorized by either one of the following three ways – endorsement, recognition or equivalence, prompted the need for Korea to introduce a corresponding regulatory regime in compliance with international standards. Domestically, there is a need as well for Korea to create a new regulatory regime for improving the accuracy and credibility of financial benchmarks and better protect financial consumers.Against this backdrop, the draft bill is intended to:• empower the FSC to designate financial benchmarks recognized as having a significant impact on financial markets as “significant benchmarks” to be subject to the new regulatory and supervisory framework;• stipulate conduct requirements for setting, publishing and using “significant benchmarks”; and• provide legal grounds for the FSC to impose corrective orders or penalties against any activities that could harm the accuracy and credibility of “significant benchmarks.”The proposal, open for public comments from June 18 until July 30, will be submitted to the National Assembly in September 2018.KEY PROVISIONS► Definition of a “financial benchmark”A financial benchmark is defined as a reference index used to determine the amount of payable to a counterparty of a financial contract or the value of a financial instrument; or an index used to calculate such amount or value.► Designation of a “significant benchmark”The new legislation is to empower the FSC to designate financial benchmarks recognized as having a significant impact on financial markets
