Press Releases - Financial Services Commission

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Oct 16, 2015

Measures to Boost Competitiveness of Financial Investment Business

1. STRENGTHEN CORPORATE FINANCING FUNCTIONS ‘Comprehensive Financial Investment Business Entities,’ will be allowed to lend up to 100% of their equity capital in corporate credit offering. For credit loans with a maturity of less than one year, prudential regulatory requirements will be eased to levels applied to commercial banks. Brokerage firms specialized in SME financing will be designated to facilitate fundraising activities of SMEs and venture companies such as listings on KONEX or KOSDAQ, bond issuance and public placement of securities. Regulations on private placement of securities for qualified institutional investors (QII) will be eased to allow all companies whose total asset value of less than KRW 2 trillion to issue securities in the private placement. Current regulations permit private placement only to companies with total asset value of less than KRW 500 billion, while prohibiting listed companies, financial institutions and public corporations from issuing securities in the private placement. 2. EXPAND BUSINESS SCOPE OF SECURITIES COMPANIES Comprehensive Financial Investment Business Entities will be allowed to open stock markets for non-listed shares and non-competitive trading markets using prices at KRX for listed stocks. With the implementation of the revised FSCMA, securities firms will be allowed to register as hedge fund managers on condition that they have measures to prevent conflict of interest in place. The FSC will facilitate utilization of securities provided as collateral by securities firms in repo transactions and securities lending to offer more opportunities for profits. 3. ALLEVIATE REGULATORY CONSTRAINTS TO ENCOURAGE DIVERSE SERVICES Requirements for individuals and institutions to qualify for professional investors will be eased to enable more investors with sufficient knowledge to make investments within their own responsibilities. More exemptions will be permitted to the separation of investment banking and brokerage busi
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Sep 07, 2015

China's Economic Slowdown and Its Impact on Korea's Economy

CHINA’S ‘NEW NORMAL’The IMF recently downgraded China’s economic growth forecast in 2015 and 2016 to 6.8% and 6.3% respectively, slower than the stable growth of 7% in three years since 2012. The growth rate of around 6% is still high, given the size of China’s GDP; however, the actual impact of such slowdown from 7% to 6% could be felt far more profound. China’s slowdown is attributed to excessive and inefficient investments by its massive economic stimulus plan. Inventory adjustments and deleveraging will weigh on China’s economy for a considerable period of time. It will be difficult to resolve oversupply in property market in a short period. To manage a soft landing of Chinese economy, the Chinese government set out a new economic model, so-called ‘Xin Chang Tai(新常態, new normal)’ since President Xi Jinping came to power in 2013. The new growth model is aimed to shift Chinese economy from export-driven rapid growth to consumption-led stable growth. It also includes structural reform, diversification of growth drivers and liberalization of financial markets. The effectiveness of the Chinese government’s stimulus plan to downward pressure is key to a soft landing of Chinese economy as it would take time for structural reform to achieve results. The Chinese government still has capability to prevent a hard landing of Chinese economy. However, emerging economies also need to be prepared in response to the spill-over effect of China’s new normal. IMPACT ON KOREA’S FINANCIAL MARKET There is a possibility that volatility might increase due to worries over China’s economic slowdown and potential spill-over effects of its structural reform. However, market participants view that it is unlikely for Chinese slowdown to cause a serious financial crisis. Since the 2008 global financial crisis, Korea’s economic fundamentals have been steadily improved. Its current surplus has grown to USD 89.2 billion in 2014 from USD 3.2 billion in 2008; its
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Aug 21, 2015

FSC Holds Meeting over Recent Global Financial Market Condition & Its Impact on Korea's Stock Market

The FSC held a meeting with the FSS, KRX, and KCIF at 8 a.m. on August 21 to discuss recent global financial market condition and its impact on Korea’s stock market.GLOBAL FINANCIAL MARKET CONDITIONGlobal stock markets recently went down with heightening global risk factors such as China’s stumbling stock market, its currency devaluation and speculation about the Fed’s rate hike. - Stock markets in major economies mostly went on a downward trend since June this year. Emerging markets slumped further compared to advanced ones. - Global stock funds are flowing into advanced market out of emerging markets amid growing uncertainty over global financial condition. IMPACT ON KOREA’S STOCK MARKETVolatility in Korean stock market has increased recently as foreign investors began to sell and stock prices stumbled with growing external uncertainty. - Foreign investors have turned net sellers of KRW 4.3 trillion KOSPI shares since June this year as external uncertainties heightened.- The KOSPI and KOSDAQ indexes have slumped recently. * KOSPI: 1,916(end-2014) → 2,173(April 23, 2015) → 1,915(August 20, 2015) KOSDAQ: 543(end-2014) → 783(July 20, 2015) → 657 (August 20, 2015) Recent adjustments in stock market prices are seen largely due to external factors such as diminishing global market confidence, rather than domestic market factors. - While foreign investors are selling shares in most of Asian stock markets, the amount of net sales by foreigners in Korean stock market is relatively small.- Korea’s stock market indexes did not fall sharply, compared to those of Asia’s major markets. Market fundamentals in Korea are sound, and global financial markets remain stable in comparison to previous market turmoil in 2011 and 2013. We see market participants do not have to react excessively to recent market developments. - Korean stock prices are relatively undervalued. Korea’s foreign exchange reserves stood at USD 374.7 billion, the world’s sixth largest as o
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Jul 22, 2015

Household Debt Management Measures

The government announced today a package of measures to manage household debt. A consultative body was formed among relevant government agencies in March this year to discuss and come up with comprehensive and preemptive measures to manage household debt in response to potential internal and external risks. The measures are focused on accelerating the improvement of household loan quality, strengthening the assessment of a borrower’s repayment ability, tightening household debt management in the non-banking sector, and strengthening banks’ ability to respond to internal or external shocks. CURRENT STATUS OF KOREA’S HOUSEHOLD DEBTThe household debt has grown fast recently after years of stabilized growth around 6%. Particularly, mortgage lending from banks has been rising fast since the second half of last year , which is attributed to multiple factors such as eased mortgage restrictions and growing demand for loans with interest rate cuts. Mortgage lending by banks which amounted to KRW 375 trillion at the end of March 2015 maintains its financial soundness with a delinquency rate of 0.39% at the end of March 2015. Banks have sufficient capability to absorb potential losses with a BIS capital adequacy ratio of 13.9% at the end of March 2015. Since the government-led KRW 32 trillion program was launched in March this year to help mortgage borrowers switch to fixed-rate and amortized loans, the shares of such mortgages continue to increase and hit 30%, initially targeted by the end of 2016, in the first half of this year. In addition, 70% of household debt is held by households in the highest income brackets – fourth and fifth quintiles. Household financial assets are more than twice household financial liabilities. Given the soundness of household debt, the possibility is limited that household debt risks would cause a systemic risk.As household debt continues to grow faster than income with a slow economic recovery, however, the government needs to take pree
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Jan 29, 2015

Financial Policy Direction for 2015

The FSC announced its financial policy direction for the year of 2015 with three key policy goals and nine tasks.Creative FinanceInitial achievements in creative finance spread widely across all financial sectors- Facilitate the convergence of IT and financial sectors to promote the ‘Fintech’ industry- Strengthen the intermediary role of finance to support the real economy by encouraging investments by venture capital- Continue financial regulator y reform to strengthen competitiveness of Korea’s financial sectorConsumer TrustConsumer trust in the financial sector for further growth of the financial services sector- Improve the financially-marginalized’ access to financial services and expand supportive programs- Strengthen financial consumer protection by improving inconvenient practice in financial services- Restore consumer trust in the financial sector with establishment of ethics guidelines of the sectorFinancial StabilitySecure financial stability to support a strong recovery of Korea’s economy- Preemptively respond to potential risks of household debt- Conduct corporate restructuring in a preemptive manner on a year-round basis- Ensure financial stability against risk factors home and abroadKEY POLICY ACHIEVEMEN TS IN 2013 AND 2014For the last two years since the launch of the Park Geun-hye administration, the FSC has been committed to laying the groundwork for creative finance to promote innovation and competition in the financial sector.Technology financeThe FSC established infrastructure for tech finance such as technology data base(TDB) or technology credit bureau(TCB )1 to support financing of innovative tech fims. For six months since the ‘tech finance’ initiative took off, provision of technology-secured loans amounted to a total of KRW 8.9trillion in 14,413 cases. Interest payment burden reduce d 0.4%p with tech loans. Financial regulatory reformAs part of the government’s regulatory reform initiative, the FSC reviewed all statutory an
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Nov 26, 2014

Plan to Revitalize Korea's Stock Market

OVERVIEWThe FSC announced a set of measures to revitalize the Korean stock market, which has been in a slump in recent years. The benchmark index KOSPI has been hovering around the 2,000-point level since it hit 2,000 points for the first time in 2007. There is not enough supply of newly listed stocks to boost trading. The market infrastructure and trading system are not attractive to investors, compared to the advanced markets.The measures are aimed to address such structural problems of the stock market. First, the FSC will boost stock market trading by allowing the listing of more blue-chip stocks and new derivatives products and by encouraging more active role of institutional investors. Second, the FSC will enhance efficiency of the market infrastructure and trading system. Third, the FSC will strengthen investor protection and trust by improving disclosure rules.MEASURES TO REVITALIZE THE STOCK MARKET1. EXPAND INVESTMENT PRODUCTRevise listing regulation(Revision to the Capital Markets Act in the first half of 2015)In order to encourage the listing of more blue-chip stocks, the FSC will revise listing regulations to incentivize companies to go public such as allowing the issuance of bond with separable warrants and simplifying procedures for dividend payout.Introduce new derivatives products(Revision to the KRX regulation in 2015~2016)The FSC will allow the listing of new derivatives products such as Mini futures and RMB futures in one to two years. The listing of V-index options or ETF futures will be also considered depending on commodity market situation.2. ENLARGE PARTICIPATION OF INSTITUTIONAL INVESTORSCreate a common investment pool for small pension funds (in the first half of 2015)A common investment pool will be set up for smaller private pension funds. Korea Securities Finance Corp and asset management companies will jointly attract and manage investments from universities’ funds and private pension funds of corporations.Enlarge stock investments by
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Jul 15, 2014

Plan to Improve License System for Financial Investment Business

The FSC announced its plan to ease regulations on license system for financial investment business, which includes integrating business units for license, currently overly subdivided, and simplifying license process.KEY DIRECTION1. Improve License System for Financial Investment BusinessIn principle, financial investment businesses will be required to apply for a business license for only when it first enters the sector. The number of business units for regulatory approval will be cut from the current 42 to 13(see the table below). Once a financial institution is granted a regulatory approval for business(①~⑬), the company will be allowed to add new business within the same sector simply through add-on registration, without any additional procedure for approval.How business units for regulatory approval will change* Please refer tothe chartin the attached PDF. Regulations regarding majority shareholders will be also revised. - (Current) Person not allowed to participate in business management due to spinoff is classified as a “specially related person” under the Financial Investment Business and Capital Markets Act(FSCMA ), which unreasonably restricts such person from becoming a major shareholder. - (Revision) If the Fair Trade Commission confirms the person not participating in management due to spinoff, the person will not be classified as a “specially related person”. - (Current) A financial firm issued with sanctions equal to or stronger than institutional warning within the ‘recent three years’ is banned from becoming a largest shareholder of a financial investment company. - (Revision) For institutional warning, the period will be shortened to from the current three years to the recent one year.Other procedural regulations on license or registration will be eased or improved. - (Current) Under the current practice, a financial investment company issued with sanctions equal to or stronger than institutional warning is suspended from applying fo
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Jul 10, 2014

FSC Announced Its Plan for Financial Regulatory Reform

BACKGROUNDThe FSC announced its plan for financial regulatory reform to create new opportunities and growth drivers for Korea’s financial industry and economy.The global financial industry stands at a crossroads between decline in growth and another takeoff in the aftermath of the global financial crisis. Korea’s financial industry also has difficulties in seeking for clear vision, developing new profit models, and restoring public trust in the financial sector. The financial sector is now called for reinventing itself to support the real economy, to generate high-added value, and to bring more satisfactory services to financial consumers.The FSC identified both statutory and implicit regulations which constrained the growth of the financial industry. Since March 2014, we held dozens of meetings with stakeholders – e.g. financial institutions, consumers, etc. – and conducted a survey of stakeholders to get their views on existing regulations and recommendations for improvement. We also conducted a series of reviews on a total of 3,100 financial regulations, 1,700 regulations of which were shortlisted for further reviews. Out of them, 700 regulations were finally chosen to be reformed.KEY DIRECTION FOR FINANCIAL REGULATORY REFORM1. Build a financial regulatory system for ‘better regulation’A two-track approach will be taken for financial regulatory system: 1) a rule-based approach for regulations needed to maintain systemic stability, protect financial consumers, and ensure personal data security; and 2) a principle-based approach for regulations on approving financial institution s’ entrance into business, sales channel and business operation.2. Strengthen support for the real economy and reduce financial consumers’ inconvenienceRegulations on corporate lending, guarantee, and listing will be improved to facilitate the technology credit bureau(TCB) system. For financial consumers, excessive document requirement will be eased to enhance access to fina
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Mar 11, 2014

Comprehensive Measures to Protect Personal Data in the Financial Sector

OVERVIEWThe FSC and relevant ministries jointly announced a package of measures to prevent a recurrence of personal data leaks in the financial sector, as part of the government’s follow-up measures to ensure market discipline under its three-year plan for Korea’s economic innovation.The measures announced today were drawn up based on the following basic principles, further developing a series of measures previously announced since the data leakage from the three credit card companies were revealed last January. 1. Financial firms will be asked a greater responsibility in handling their customers’ personal data at each stage that they collect, retain, use and discard customers’ information. 2. Financial consumers’ right to their personal information will be ensured so that they can decide for what, when and how their own personal data are being used by financial firms. 3. Financial firms will be held more accountable for personal data protection and strictly sanctioned in the event of personal data security breach. 4. Cyber security measures will be strengthened across the financial sector in response to cyber crimes such as hacking. 5. The government will make sure financial consumers’ personal data previously provided or illegally-circulated not to be misused by financial scammers.1. STRENGTHEN PERSONAL DATA PROTECTION AT EACH STAGE THAT FINANCIAL FIRMS COLLECT, RETAIN USE A ND DISCARD CUSTOMERS’DATAFinancial firms will be asked a greater responsibility in handling their customers’ personal data at each stage that they collect, retain, use and discard such information .‘COLLECT’ STAGEFinancial firms will be allowed to collect necessary information at a minim um level from their customers. Currently, financial firms are collecting 30 to 50 items of information from their customers. The list of collected information will be shorted up to 6 items necessarily required for financial transactions.3Additional information should be collected only with
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Feb 27, 2014

Measures to Improve Structural Soundness of Household Debt

BACKGROUNDAs of the end of 2013, Korea’s household debt amounted to KRW 1,021 trillion. The government has been taking a series of measures so far to improve the quality of household loan and to rein in the pace of household debt growth. As a result, the government significantly lowered a possibility that household debt issue might be worsened into a systemic risk.Morgan Stanley(Oct. 2013) evaluated that Korea’s household debt risk is manageable, citing grounds such as financially stable structure of household assets and mortgage rules on loan-to-value(LTV) and debt-to-income(DTI) ratios. The IMF stress test result (Jan. 2014) also shows Korea’s household debt has a low possibility to pose a systemic risk in the event of economic shock.Despite such achievement, the household debt issue still exposes vulnerability in some parts. The share of floating-rate and interest-only mortgages remains high. Low-income households’ ability to repay debt deteriorated.The FSC and relevant ministries jointly announced today a package of measures to improve the structural soundness of household debt, as part of the government’s follow-up measures to push forward the three-year plan for the next phase of Korea’s economic growth.KEY CONTENTS1. The government will set the ratio of households’ debt to income as a key target indicator in managing household debt and lower the ratio by 5%p until the end of 2017.2. The government will set new targets for banks to increase the proportion of fixed-rate and amortizing loans out of total mortgages, up to 40% by the end of 2017.3. The government will prompt banks to offer a variety of loans tailored to consumers’ debt repayment ability such as loans with a cap on floating rates or loans amortized over a mid-term maturity, for example, 5 to 10 years.4. Borrowers with fixed-rate and amortizing loans will be granted a bigger tax exemption up to KRW 18 million, up from the current ceiling of KRW 15 million. For loans with a long-term
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Nov 27, 2013

Plan to Strengthen Competitiveness of Korea's Financial Industry

The FSC announced its ‘Plan to Strengthen Competitiveness of Korea’s Financial Industry’ or the so-called ‘10-10 Value-Up Plan’ aimed at raising the added value that the financial industry generates up to 10% of the GDP over the next 10 years.BACKGROUNDThe financial industry greatly contributed to Korea’s rapid economic growth. Since the global financial crisis in 2008, however, Korea’s financial industry has lost its growth momentum and vitality. Moreover, repeated security incidents and fraud scandals in the financial sector significantly undermined financial consumers’ confidence in the industry.At the same time, the financial industry faces new challenges as Korea’s economy is shifting to slower growth, searching for a new growth model based on innovative technology and creative ideas. The population is also rapidly aging. Faced with such paradigm-shifting changes, it is time for both the government and the financial industry to seek new growth drivers.The FSC proposed the ‘10-10 value-up’ as a vision for Korea’s financial industry for the first time when Chairman Shin Je-Yoon met CEOs of financial holding companies in May this year. For the last six months since then, the FSC held 68 meetings with those in the financial industry to gather their opinions.Based on such a bottom-up approach, the FSC drew up the ’10-10 value-up’ plan focused on its feasibility. As a rolling plan, the ‘10-10 value-up plan’ will continue to be reviewed and updated on a regular basis in order to respond to market developments in a timely and flexible manner. OVERVIEWThe ‘10-10 value-up’ plan is to provide a blueprint for the financial industry’s development. The financial industry will be developed into a high value-added service sector as a new growth driver and generate decent jobs. To this end, the plan set three missions and nine objectives.KEY CONTENTS1. Promote competition and innovation in the financial sectorRegulatory barriers will be sig
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Nov 13, 2013

Plan to Improve Regualtions on Short Selling

BACKGROUNDShort selling is one of investment techniques that investors sell either securities they do not own or ones they borrowed. Short selling can contribute to enhancing market efficiency as it provides liquidity and serves as a hedging tool for investors when stock prices fall. However, it has side effects as well. Naked short selling involves a risk of unfulfilled settlement.Speculative short selling prevents fair price forming the market.The Korean government has been strictly regulating short selling, compared to other countries.1 Naked short selling is prohibited. Since October 1, 2008, covered short sales of all stocks were banned. Short sales of financial stocks have been banned since then, while ban on short selling of non-financial stocks was lifted in June 1, 2009 except for the period from August 10 to November 9, 2011 when the ban was temporarily reinstated due to concerns about the European debt crisis.As the stock market have stabilized since the second half of 2013, however, there is a need to shift the government’s regulatory approach to short selling from direct regulations, which has been in place since the financial crisis in 2008, to indirect ones.After reviewing short-selling regulations in other advanced countries and problems raised about the current regulations, the FSC announced today its plan to improve regulations on short selling so that we can minimize side effects of short selling, while boost trading activities.KEY CONTENTS1. Lift ban on short sale of financial stocksBan on short sales of financial stocks, which has been in place since October 2008, will be lifted from November 14, 2013.2. Introduce disclosure requirements of investors’ short-selling positionsInvestors whose short-selling position in a stock exceeds 0.5% of total shares will be required to disclose their position on the KRX website.3. Improve effectiveness of the current regulations on disclosure of short-selling positionsThe FSC will establish a legal ground
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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
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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
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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
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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
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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.
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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
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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
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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