Further details have now been announced regarding the framework for business development companies (“BDCs”), which the new administration has been pursuing to facilitate investments by the general public in venture and innovative companies.
On August 27, 2025, the National Assembly passed an amendment to the Financial Investment Services and Capital Markets Act (the “FSCMA”), which provides the legislative framework for the introduction of BDCs and will take effect on March 17, 2026. The proposed partial amendment to the Enforcement Decree of the FSCMA (the “Enforcement Decree Amendment”) and the proposed partial amendment to the Regulations on Financial Investment Business (the “Regulations Amendment”), which set out detailed rules for the introduction of BDCs, were pre-announced on December 4, 2025. The principal provisions are summarized below.
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1.
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Licensing Requirements for BDC Managers
Entities intending to establish and operate a BDC must obtain the relevant license. The key requirements for this license are as follows:
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(1)
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Minimum equity capital requirement: As BDCs primarily invest in securities such as shares and equity-linked notes, the minimum equity capital required for their operation is set at KRW 4 billion, aligning with the current requirement for the securities collective investment business (3-11-1).
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(2)
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Requirements for large shareholders: When applying for the license, the eligibility of major shareholders is assessed based on the requirements for a license amendment (including, among others, the condition that the largest shareholder must not have received a criminal fine of at least KRW 500 million, or a more severe penalty, in the past five years), rather than those for a new financial investment business license.
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(3)
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Personnel requirements: A BDC must employ at least four securities management experts, as well as at least one expert each in risk management, internal control, and IT. Up to two individuals with at least three years of experience in managing venture investment associations and/or new technology investment associations (provided that they have completed training courses at the Korea Financial Investment Association) may be recognized as securities management experts.
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Meanwhile, under the Enforcement Decree Amendment, a person who has already obtained a public collective investment business (3-1-1) license is deemed to have obtained a license to operate BDCs.
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BDC Operating Regulations
A BDC must invest at least 60% of its total assets in main investment target companies. These include (i) unlisted venture and/or innovative companies, (ii) venture investment associations and/or new technology investment associations that have completed their investments, and (iii) companies listed on KONEX and/or KOSDAQ (for KOSDAQ-listed companies, only those with a market capitalization of less than KRW 200 billion). For the calculation of the minimum 60% investment ratio, investments in (ii) and (iii) above may each account for up to 30% of the BDC’s total assets, in order to prevent excessive concentration in any particular sector.
Loans to main investment target companies are limited to 40% of the total investment in such companies, and any extension of credit must be supported by an internal control system that can assess and manage feasibility and changes in credit risk.
Additionally, at least 10% of the BDC’s total assets must be invested in safe assets (e.g., government & public bonds and cash) in light of the investment risks. Another 30% of the BDC’s total assets may be managed at the BDC’s discretion, in accordance with the regulations governing the management of public funds.
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Enhanced Investor Protections
To ensure responsible management of BDCs, BDC managers are required to (i) contribute 5% of the total number of BDC collective investment securities (including additional units and new issuances) for offerings of KRW 60 billion or less, and 1% of the amount exceeding KRW 60 billion, and (ii) hold such fund interests for the longer of five years or one-half of the BDCs’ maturity (up to a maximum of ten years).
Moreover, BDC managers must establish an investment deliberation committee to ensure that BDC investment decisions are objective and fair. Investments should be made only after the investment deliberation committee has first reviewed the growth potential, credit risk, and other relevant factors of the main investment target companies, based on assessments prepared by an external professional institution, such as an accounting firm.
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Lastly, considering that BDCs are open to retail investors, BDC managers are required to make timely disclosures through the securities market regarding (i) any changes in investments exceeding 5% of the BDC’s total assets, (ii) any material business events (e.g., bankruptcy, suspension of business, dissolution, capital changes, mergers, or transfers of important assets) concerning main investment target companies in which more than 5% of the BDC’s total assets are invested, and (iii) loans and other material events.
Stakeholders are advised to keep track of any changes that may arise as authorities review comments submitted during the public comment period for the Enforcement Decree Amendment and the Regulations Amendment (open until January 13, 2026), as well as related developments. Entities contemplating the establishment and/or management of a BDC should carefully review the details of the Enforcement Decree Amendment and the Regulations Amendment in advance to ensure compliance with all licensing requirements and effectively implement investor protection mechanisms.
[Korean Version]
