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Newsletter | August 2015, Issue 2
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CORPORATE
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Capital Market Reform – FSC Issues Private Equity Funds (PEF) Regulation Improvement Plan
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On February 10, 2015, the Asset Management Division of the Financial Services Commission (the “FSC”) issued the “PEF Regulation Improvement Plan (the “Plan”).” The Plan significantly improves regulatory standards for option-based investments by PEFs, and clarifies several rules which had confused market participants.
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Specifically, the Plan replaces the previous principle of general prohibition against option-based investments by PEFs with new authoritative interpretations to generally allow such investments. Under the Plan, the scope of prohibited option investments by PEFs is now limited to “guaranteed profit put options,” and it also clearly delineates the scope of permitted options.
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As a result, unlike previous regulations which only allowed PEFs to make option investments to guard against abuse of majority shareholder power, the new regulations allow PEFs to creatively make option investments under various transaction structures.
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Separately, the FSC published authoritative interpretations in response to certain recurring questions on the establishment and management of PEFs. This effort appears to be a part of recent deregulation efforts by the Korean government to stimulate M&A activities and promote growth of the PEF industry.
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