On January 15, 2019, the amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (the “Amendment”) was promulgated to promote competition in the asset management market and improve inadequacies in the current system.  

1.  Relaxed entry requirements and strengthened maintenance requirements
 

• Entry Requirements

In the case of private asset managers which are required to be registered with the Korean regulator, the Amendment relaxes the minimum capital requirement for the registration from KRW 2 billion to KRW 1 billion and the minimum capital requirement for maintaining such registration from KRW 1.4 billion to KRW 0.7 billion.  

For investment advisory (“IA”) business and discretionary investment management (“DIM”) business, the registration regime provided for numerous classifications depending on target clients and investment targets.  This was considered to be unnecessarily complicated and the Amendment simplifies the classification into two types for each of IA and DIM while also lowering the minimum capital requirements for each of the classifications.  The minimum capital requirement for IA registration is now KRW 250 million (covering both retail and professional investors and all types of assets), and KRW 100 million if advising only on funds and equity-linked securities (covering both retail and professional investors).  For DIM registration, the minimum capital requirement is now KRW 1.5 billion for servicing retail and professional investors (covering all asset types) and KRW 500 million for servicing only professional investors (covering all asset types).  

Existing private asset managers, investment advisors, or discretionary investment managers are deemed to be registered pursuant to the Amendment without any application. 
 

• Maintenance Requirements 

Once registered as a private asset management, IA or DIM business entity the registered entity is subject to ongoing requirements to maintain such registration, including but not limited to maintaining minimum equity.  Previously, the regulators would review on a yearly basis whether these entities are in compliance with the equity requirement and other maintenance requirements.  Under the Amendment, such review will be conducted on a monthly basis.  Moreover, in case of a branch of a requirement, the grace period to cure the breach has been shortened from one year to six months.  Failure to cure the breach within the grace period may result in cancellation of the registration.  

2.  Changes to regulation on publicly offered funds

Under the Amendment, fund distributors shall be required to give monthly notice to investors via text messages or other means, of actual yield rate and estimated redemption amount after deducting tax and other expenses.  

The Amendment also diversifies the channels through which IA companies and DIM companies may distribute reports, including text messages and smartphone applications.

3.  Discretionary investment managers permitted to exercise voting rights on behalf of pension funds and mutual benefit associations

Previously, DIM companies were restricted from exercising voting rights as a proxy for shares under management, except for certain limited exceptions.  The Amendment, however, allows DIM companies to exercise voting rights on behalf of pension funds and mutual benefit associations.  Such change is expected to facilitate the exercise of voting rights by institutional investors who are managing assets under the discretionary basis in accordance with their stewardship codes. 

While most of the provisions in the Amendment came into effect on January 15, 2019, the date of promulgation, some will be enforced one month (exercise of voting rights by discretionary investment managers) or six months (monthly notice to public fund investors) from the date of promulgation.