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Newsletter | August 2015, Issue 2
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SECURITIES
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FSC Promulgates an Amendment to the Enforcement Decree of the FSCMA
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On March 3, 2015, the Financial Services Commission (the “FSC”) promulgated an amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (the ″FSCMA″) to become effective immediately (“FSCMA Amendment”). On the same day, the FSC also promulgated an amendment to the Financial Investment Business Regulations, which also became immediately effective (“FIBR Amendment” and together with FSCMA Amendment, the “Amendments”) and codified the FSCMA Amendment in detail.
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Among others, the Amendments cover the following main issues:
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relaxing the regulation of operating a branch that can cross sell various financial products from different financial sectors (the "Converged Finance Branch");
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permitting a securities company undergoing M&A to temporarily manage principal-guaranteed personal pension trusts;
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restricting the scope of call money transactions that can be brokered by a brokerage firm; and
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providing the basis to deny or cancel foreign investor registration of Korean nationals from using names of foreign companies for the foreign investor registration purpose.
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Relaxed Physical Segregation Requirement for Operating a Converged Finance Branch
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To alleviate consumer inconvenience of having to visit multiple sales offices to purchase different types of financial investment products offered by a financial institution (e.g., a bank, a securities company, etc.), the FSC has introduced the concept of a Converged Finance Branch. Per the revised Financial Holding Company Supervisory Regulations, which took effect on December 1, 2014, affiliates under a financial holding company, such as a bank or a securities company, can share their business meeting and consulting rooms without physical separation(i.e., affiliates can have a Converged Finance Branch where they sell products in the same space). In practice, some financial holding company affiliates have already started operating their Converged Finance Branches.
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The Amendments go further by allowing affiliates of all financial investment companies, even if they are not part of a financial holding company, to operate a Converged Finance Branch by sharing a common customer consulting space and entrance. However, as in the past, the affiliates are still subject to the same level of restrictions against information sharing and concurrent position holding.
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Securities Company Undergoing M&A Permitted to Manage Personal Pension Trusts, in Which Principal Amounts Are Guaranteed
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In order to strengthen the global competitiveness of the Korean financial industry and promote M&A activity, the Amendments permit a securities company with a trust business license to manage principal-guaranteed personal pension trusts if the securities company acquires or merges with another securities company by March 31, 2018.
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Specifically, if a securities company, through M&A, (a) increases its equity by at least 20%, resulting in the equity of KRW 100 billion or more, or (b) increases its equity by at least KRW 300 billion, then the securities company can introduce and sell personal pension trust products and manage them for three years from the date of the M&A. Even after the three-year period, the securities company can continue soliciting new customers and managing the trust assets set during the three-year period.
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Restriction on the Scope of Call Money Transactions That Can Be Brokered by a Money Brokerage Firm
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Consistent with the FSC’s policies to lower excessive reliance on call money in the short-term funding market, the Amendments substantially limit the scope of call money transactions that a brokerage firm can broker. Under the Amendments, the brokerage firm can broker call money transactions with respect to only certain financial companies such as banks, securities companies acting as a primary dealer of government/public bonds or subject to open market operation, or asset management companies.
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Consequently, small to medium-sized securities companies, insurance companies, credit card companies, credit specialty finance companies, savings banks, general finance companies, and other secondary financial market players can no longer participate in the call market.
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As this new restriction can pose difficulty to financial companies in their short-term funding, the FSC plans to vitalize alternative markets, such as those based on repurchase agreement (“RP”) and short-term electronic bonds.
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Providing the Basis to Deny or Cancel Foreign Investor Registration Obtained by Korean Nationals Using Names of Foreign Companies
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In order to regulate Korean nationals from making investments into Korea from offshore accounts under the guise of a foreigner (by using names of special purpose companies set up overseas), the Amendments provide the basis for denying an application for foreign investor registration if a Korean national submits the application in the name of a foreign company, which does not conduct substantial offshore business.
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The Amendments also provide the basis for retroactively canceling existing foreign investor registration if the ground for denial arises after the foreign investor registration was granted.
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After the Amendments take effect, the Financial Supervisory Service (“FSS”) plans to monitor foreign investors who are suspected of being so-called ″black-haired foreigners″ (i.e., Korean nationals disguised as foreign investors), and cancel their foreign investor registration.
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Other Notable Points
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Besides the above, the Amendments set forth the procedures for canceling the registration of a foreign fund, if the foreign fund is no longer sold in Korea after it is registered.
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Also, if a securities company conducts derivatives transactions as proprietary trading, it must establish and abide by, a daily loss limit of only up to 50% of its net operating capital.
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Back to Main Page
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