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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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Jul 02, 2013

Basel III Capital Regulations To Be Implemented From December 2013

Basel III capital regulations will be gradually implemented to the banking sector from December 2013 as the revised Regulation on Supervision of Banking Institutions is scheduled to take effect.A. Minimum Capital Ratio- Before revision: Total capital ratio (8%)- After revision: Minimum common equity capital ratio (4.5%), minimum Tier 1 capital ratio (6%), minimum total capital ratio (8%) (effective from Dec. 1, 2013)B. Capital Buffer- Banking institutions must accumulate 2.5%p of capital buffer in addition to the minimum capital ratio. (effective from Jan. 1, 2016)C. Prompt Corrective Action- The financial authorities will take prompt corrective action against financial institutions which fail to satisfy minimum level of total capital ratio, Tier 1 capital ratio, and common equity capital ratio. (effective from Jan. 1, 2015)Basel III Implementation Schedule Dec.1, 2013 2014 2015 2016 2017 2018 2019 ▪ Minimum Common Equity Capital Ratio (A) 3.5 4.0 4.5 4.5 4.5 4.5 4.5 ▪ Minimum Tier 1 Capital Ratio 4.5 5.5 6.0 6.0 6.0 6.0 6.0 ▪ Minimum Total Capital (C) 8.0 8.0 8.0 8.0 8.0 8.0 8.0 ▪ Capital Conservation Buffer (B) 0.625 1.25 1.875 2.50 - Minimum Total Capital Plus Conservation Buffer (B+C) 8.0 8.0 8.0 8.625 9.25 9.875 10.5 - Suhyup bank (National Federation of Fisheries Cooperatives) will implement Basel III capital regulations from December 20161 after three years of grace period.*Please read the attached file for details.
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Jun 14, 2013

Revision to Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA)

BACKGROUNDThe revised Financial Investment Services and Capital Markets Act (FSCMA) was promulgated in May 28, 2013, which includes vitalizing investment banking (IB) business, introducing alternative trading systems (ATSs), and amending the current regulatory framework of asset management businesses.In line with the revision to the FSCMA, the FSC plans to revise the Enforcement Decree of the FSCMA to stipulate specific terms on matters delegated by the Act and further improve the current capital markets system.KEY CONTENTS1. Stimulate investment banking (IB) business(Requirements to be registered as an IB) A securities firm will be required to hold equity capital worth KRW 3 trillion or more and have the mechanism of risk management and internal control.(Prime brokerage service) The scope of customers with whom IBs can provide prime brokerage service will be expanded to financial companies, pension funds, overseas hedge funds as well as Korea-based hedge funds stipulated in the revised Act.(Credit extension for companies) The Enforcement decree specifies the scope of credit extension that IBs can provide companies as loans, payment guarantee, and bill discount. It also details types of credit extension exempted from the rule which limits a total amount of credit extension by an IB not to exceed its equity capital.2. Improve capital market infrastructure(Introduction of ATS) To be registered as an ATS, a securities firm will be required to hold equity capital worth KRW 20 billion or more. The Enforcement Decree specifies types of products that can be traded through ATSs as stock certificates and depository receipts (DR).ATSs will be subject to the same rules applied to exchanges in regard with measures on market surveillance and market stabilization such as daily price limit or trading halt, while it will be granted greater autonomy and flexibility in regard with trading business.Securities firms, however, can execute customers’ orders as customers want if there w
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May 31, 2013

Basel III Capital Regulations to be Implemented from December 2013

BACKGROUNDKorea has already finalized preparation of relevant rules for the implementation of Basel III. However, authorities postponed the initially scheduled date for implementation (Jan.1, 2013) considering the uncertainty of adoption status of other member countries and decided to adjust Basel III implementation schedule after closely monitoring the progress of other member countries.CURRENT TRENDAs of April, 23 among 27 Basel Committee on Banking Supervision member countries finalized the implementation schedule. Basel III implementation Schedule (as of April 30, 2013) Region Implementation Schedule Member Countries Asia Not finalized(2) Korea, Indonesia Finalized(7) Japan, Singapore, Hong Kong, China, India, Saudi Arabia, Australia Europe Not finalized(1) Turkey Finalized(11) Switzerland, Russia, EU(UK, France, Germany, Italy, Belgium, Netherlands, Luxemburg, Spain, Sweden) Americas, Africa Not finalized(1) USA Finalized(5) Canada, Mexico, South Africa, Brazil, Argentina IMPLEMENTATION OF BASEL IIIThe FSC, in close coordination with the MOSF, FSS, BOK, and other relevant authorities, came to a decision to implement Basel III on December 1, 2013. The decision was made as major Asian economies have already implemented Basel III capital regulations in 2013 and the banking industry requires time to prepare for the adoption.EXPECTED EFFECTSThe Basel III regulation to take effect this year will be limited to bank capital requirements. Since the capital of most domestic banks consists of common equity, the impact of Basel III capital regulations will not be significant unlike banks in the US and Europe.FUTURE PLANThe authorities will gather additional opinions on the revisions to the ‘Regulation on Supervision of Banking Institutions’ and ‘Enforcement Rules for Banking Supervision’ from May 31 to June 19, 2013. Final decision will be made by the FSC in June.Basel I, II, III Comparison Region Implementation Schedule Member Countries Asia Not finalized(2) Korea
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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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Apr 03, 2013

Financial Policy Agenda for 2013

The FSC set three missions for 2013 with nine key policy tasks. *Please read the attached file for details.
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Mar 04, 2013

Revision Bill on the FSCMA Approved by the Legislation and Judiciary Committee of the National Assembly

The Legislation and Judiciary Committee of the National Assembly approved the revision bill on the Financial Investment Services and Capital Markets Act (FSCMA) on March 4, 2013, which includes the creation of a central counterparty clearing house (CCP) and reflects related changes in the Commercial Act amended in April 2012.KEY CONTENTS1. Introduction of a CCP for OTC transactionsA new business sector will be created to deal with clearing of financial investment contracts. Clearing business operators will be approved depending on types of financial products they deal with.Over-the-counter (OTC) derivatives whose default could deliver significant impact to the market will be mandatorily cleared through a CCP.2. Changes in line with the amendment to the Commercial ActThe revision also reflects the related amendments to the Commercial Act which already went into force last year. With the amendment to the Commercial Act, some provisions in the original FSCMA are abolished under which listed companies might be further restricted in clearing off their profits than non-listed companies. In the same context, listed companies will be exempted from disclosure obligations under the Commercial Act as they are supposed to disclose important facts on-line when they allocate new shares.EXPECTATIONS WITH THE INTRODUCTION OF CCPThe creation of a CCP for OTC derivatives is expected to significantly reduce counterparty risk and establish effective risk management system for OTC transactions.In particular, if IRS, which takes up the largest portion of OTC derivative market, were mandatorily cleared through the CCP, the settlement safety of OTC derivatives will be significantly improved.Creating a CCP in Korea as soon as possible will help prevent flight of clearing demands to overseas competitors and survive growing competition among global CCPs.With the introduction of CCP, Korea will be able to implement the G20 agreements and bring OTC derivative regulations in line with global sta
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Dec 21, 2012

Implementation Plan for Basel III

GLOBAL TRENDS IN BASEL III IMPLEMENTATIONOut of 27 BCBS members, 11 countries have published the final set of Base III regulations effective s from January 2013 as initially scheduled, while 15 members including 9 EU countries and Korea have issued draft regulations for Basel III implementation. Turkey will unveil draft regulations in early 2013. Implementation No. of countries Countries status Draft not yet 1 Turkey announced Draft announced 15 Korea, Indonesia, EU (UK, France, Germany, Italy, Belgium, Netherlands, Luxembourg, Spain, Sweden), Russia, Brazil, Argentina, USA Implementation 11 Japan, Singapore, Hong Kong, China, India, Saudi Arabia, Australia, plan finalized Switzerland, Canada, Mexico, South Africa The US already announced on November 9, 2012 that it would be difficult to implement BaselIII starting January 2013 as initially agreed. The EU has not yet reached an agreement to finalize the implementation plan for Basel III.With such global situations taken into account, the BCBS announced in its press release on December 14, 2012 that “it is expected that as remaining jurisdictions finalize their domestic regulations during 2013, they will incorporate all the remaining transitional deadlines in line with the original global agreement, even where they have not been able to meet the 1 January 2013 start date.”DOMESTIC IMPLEMENTATION PLANKorea has been preparing for Basel III implementation from early 2011 and now almost completed its preparatory work for implementing Basel III starting January 2013.1However, there is a need to reflect global trends in setting a timeline for domestic implementation of Basel III.Therefore, the FSC will set a specific timeline for domestic implementation after closely monitoring progress on Basel III implementation in other countries, while maintaining our basic principle to apply Basel III to domestic banks and bank holding companies.*Please read the attached file for details.
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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

Chungwoo Suh Appointed to the IASB

The Trustees of the IFRS Foundation, the oversight body of the International Accounting Standards Board (IASB), announced today the appointment of Chungwoo Suh as a member of the IASB for an initial five-year term from 1 July 2012 and renewable for a further three-year term.Dr. Suh served as Chairman of the Korea Accounting Standards Board (KASB) and is a Professor of Accounting at Kookmin University, Seoul.With his appointment, Korea became the 13th among 130 member countries that sent its national to the IASB.As a member of the IASB, Dr. Suh will participate in setting and revising IFRS rules, which will be a valuable contribution to improving Korea’s presence in the international rule-setting body.*Please read the attached file for details.
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Mar 06, 2012

Plan for Improving Loan Approval Process for SMEs

BACKGROUNDSmall and medium-sized enterprises (SMEs) primarily rely on indirect financing such as bank loans due to difficulties in funding their business through direct financing sources such as corporate bonds.1. However, one of the most important elements that financial institutions consider in reviewing a company’s loan application is whether the company can provide collateral for loans; therefore, start-up businesses or SMEs which lack such collateral still have difficulties in borrowing money from banks. Bank officials hold on to such collateral-based standards in reviewing SMEs’ loan applications because they want to avoid their responsibility in the event of SME borrowers’ default.2. Banks also complain of insufficient information about SMEs available in a timely manner to evaluate SMEs’ loan applications. SMEs raise the issue of fairness with banks’ evaluation system of real estate collateral, pointing out that each bank’s different standards make it harder to ensure objective and reliable evaluations of collateral assets.3. The government and policy banks already have various programs to support SMEs; however, such programs are not well known to SMEs so they are not fully utilized.Against this backdrop, the FSC has come up with a set of plans to improve the loan approval process for SMEs by reforming the immunity system for bank officials; fostering an SME-specialized credit bureau (CB); and improving banks’ collateral evaluation system.MAJOR TASKSI. Reform the immunity system for bank officials1. Current situation(1) The financial supervisory authorities have made several reforms to the immunity system in order to stimulate bank lending to SMEs; however, such measures fell short of a permanent reform of the system.Since 2006, an average of 145 officials per bank annually has been sanctioned for approving SME loans that later turned into non-performing ones.(2) Currently, conditions for granting immunity set by both the supervisory authorities
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Jan 06, 2012

2012 Financial Policy Agenda

FINANCIAL MARKET OUTLOOK FOR 2012 AND KOREA’S POLICY DIRECTIONAs Europe’s ongoing debt crisis is expected to threaten global economic growth and increase volatility in global financial markets next year, Korea is also likely to face an economic slowdown, which will deal a severe blow particularly to SMEs and low-income households.Under such circumstances, the FSC set three main financial policy goals with six key objectives for 2012 as follows:[Policy goal #1: Preparedness against crises]① Take preemptive actions to secure market stability② Make Korea’s financial system further advanced[Policy goal #2: Support for businesses]③ Create a financial services environment for the growth of start-up companies and SMEs④ Develop financial services for sustainable growth[Policy goal #3: Greater financial inclusion]⑤ Support expansion of microfinance programs for low-income households⑥ Promote social contribution of financial institutions and stronger protection for financial consumersKEY POLICY OBJECTIVES FOR 20121. Preemptive actions to secure market stability(1) Create an emergency response mechanism for prompt actions in the event of a financial crisis- The FSC will conduct thorough tests on foreign currency liquidity conditions of domestic banks and closely monitor foreign capital flows.- We will also review and supplement our action plans on a frequent basis to take prompt and bold actions for market stabilization in the event of a crisis.- The FSC-FSS joint emergency response team will be ready to take swift actions against any possible crisis.(2) Keep household debt growth to a manageable level and normalize bad PF loans Household debt- The FSC will curb household debt growth to a balanced pace with real economic growth.- In order to encourage banks to extend more fixed-rate and installment loans, we will help banks secure their long-term funding sources by facilitating their issuance of MBS or covered bonds.- By end-2016, banks will be required to in
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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

Revision of Regulation on Investigation of Capital Markets

The FSC approved a revision of Regulation on Investigation of Capital Markets at its 18th regular meeting held on November 4, 2011.KEY CONTENTS1. Standards for punitive measures against violations of public disclosure rules get more streamlined and clarified.- Standards for imposition of penalty surcharges, which used to be too complicated, were revised in order to secure predictability and stability in enforcing such measures.* For example, the process of calculating the amount of penalty surcharges to be imposed has become shortened from six to four stages, and standards for setting the amount of penalty surcharges has become clarified in order to prevent penalty surcharges from being imposed arbitrarily.- Conditions to impose restrictions on securities issuance for those who violated public disclosure rules,* which used to be under the FSS Work Guidelines, will be incorporated into Regulation on Investigation of Capital Markets.* Cases in which the entity in violation of public disclosure was deemed incapable of paying penalty surcharges due to its delisting2. Punitive measures against those who committed a serious violation of public disclosure rules are strengthened.- The Securities and Futures Commission (SFC) can accuse those who committed embezzlement or a breach of trust or repeated and intended violations of serious violations of public disclosure rules.* Please read the attached file for details.
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Oct 10, 2011

Proposed Revision of Regulations on Financial Investment Business

BACKGROUNDWith the revision of Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) publicly announced on September 30, aimed at introducing home-grown hedge funds (tentatively named “specialized private equity funds”) to Korea’s capital markets, the FSC proposed a revision of Regulations on Financial Investment Business in order to stipulate details mandated under the revised Enforcement Decree.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 than two years’ experience in securities investment who complete a training program provided by the Korea Financial Investment Association (KOFIA) regarding hedge fund operations*Persons with more than two years’ experience in operating overseas private equity funds are also qualified for hedge fund operations.3. Improved adjustments in calculating risk estimates (Article 4-54)The methods of calculating estimat
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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

Amendment to Depositor Protection Act Passed at the National Assembly

The National Assembly approved an amendment to the Depositor Protection Act on March 11, 2011.Key Contents1. Creation of a special-purpose account for savings banksThe revision is to create a special-purpose account within the Deposit Insurance Fund that will be only used for the restructuring of savings banks.2. Funding SourceThe special fund for savings banks will be financed by part of the deposit insurance fees andthe government contribution. Under the revised Depositor Protection Act, each financialsector is required to contribute 45% of their insurance fees to the special account for savings banks, while savings banks are required to deposit 100% of their insurance contribution to thespecial account. The revision has also laid a legal ground for the government to inject publicfund into the special account for savings banks.3. DurationThe special account will be run temporarily until troubled savings banks would be stabilized. Taking into account the period of repayment, the special account will remain valid by December 31, 2026.4. SupervisionThe Korea Deposit Insurance Corporation (KDIC) is required to annually report plans on how to manage the special fund and the results to the Standing Committee of the National Assembly, and publish a white paper on the operation of the special fund.5. LiquidationWhen liquidating the special account, government contribution out of the remaining balance would belong to the national treasury, and the remainder would go to each sector’s insurance deposit accounts (except for savings banks’) by the proportion of contributions they made.6. The revised Depositor Protection Act enters into force on April 1, 2011.*Please read the attached file for details.
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