In June 2019, the Financial Services Commission (“FSC”) announced its Plan for Reform of Financial Investment Business Licensing Regime to Support Innovation and Growth (the “Plan”).  Through this reform, the FSC is seeking to encourage the entry of new financial investment companies¹ into the market and to facilitate business expansions by existing entities. 

Key Features of the Plan 

1.    Expansion of scope of licenses 

The FSC will now grant new licenses to conduct comprehensive securities businesses, which means new market entrants will be able to immediately offer a full range of securities business services.  To date the FSC had generally only approved new licenses for narrowly designated businesses such as the brokerage of fixed income securities rather than granting all-encompassing licenses to allow the brokerage and dealing of all types of securities. 

The Plan will also eliminate the FSC’s policy of granting one securities business license per corporate group², thereby allowing a single corporate group to have multiple securities companies within its corporate group.  Asset management companies will also benefit from this relaxation in policy and will be able to set up multiple asset management companies managing publicly offered funds. 

2.    Facilitation of add-on businesses by securities companies 

At present, securities businesses are classified into 23 investment brokerage license units and 38 investment dealing license units.  Securities companies wishing to add new businesses to their existing licenses are required to undergo the same process as applying for a new license.  The FSC plans to streamline the application process for add-on businesses by revamping the license unit structure.  The current investment brokerage license units will be restructured into a single license unit and 13 registration units whilst the current investment dealing license units will be restructured into five license units and 19 registration units.  Once the new license unit structure is put into place, securities companies will only need to register a new business so long as the proposed business is within the same license unit as its current license. 

3.    Streamlined review of organizational changes 

Foreign financial investment companies are required to undergo a lengthy review process when effecting organizational changes such as converting a branch into a local subsidiary and vice versa or changing the overseas head office of a Korean branch.  This is in part due to the current two-step approval process that requires a preliminary approval followed by a final approval.  To alleviate the burden of this process, the FSC will abolish the preliminary approval stage with respect to organizational changes.  Furthermore, the additional approvals required for business transfers and business closures will be streamlined by delegating approval authority to the Chairman of the FSC or the Governor of the Financial Supervisory Service (“FSS”).  Currently, approvals are required from FSC commissioners. 

4.    Simplified standards for review of qualification of major shareholders 

Under current regulations, if there is a change in any major shareholder of a financial investment company, all major shareholders of the company are required at that time to demonstrate to the financial regulators that they meet certain statutory qualifications.  This requirement applies equally to foreign shareholders of a Korean subsidiary with a financial investment business license.  Under the Plan, only new major shareholders will need to undergo a full review by the regulators and existing major shareholders will be exempted unless new qualification requirements were adopted from the time of their previous review. 

5.    Shorter cooling-off period for re-entry into business after return of license 

Current law requires a financial investment company to wait at least five years before it can re-apply for a financial investment business license after the return of its licenses.  Under the Plan, this cooling-off period will be shortened to one year.  However, license re-issuances may be prohibited for those applicants that have returned their licenses multiple times within a specified period of time. 

6.    Other changes 

• Under the current license regime, if an applicant becomes subject to an examination or investigation by a supervisory authority during a pending license or registration review, the review is suspended until the examination or investigation is concluded.  Going forward, examinations or investigations by the FSS commencing after the filing of a license or registration application will not cause an immediate suspension of the review.  In the case of investigations by other authorities such as the Korea Fair Trade Commission, the National Tax Service or the Prosecutors’ Office, the license or registration review process will resume if no action is taken by the relevant government authority within six months of commencing the investigation. 
• When applying for a financial investment business license, applicants must designate a target customer classification.  The two possible target customer classifications are: (i) professional investors only; or (ii) professional and general investors.  Different minimum required capital requirements apply depending on the classification.  Under the new regime, minimum capital requirements will not be differentiated by target customer classification.  New minimum capital requirements will be set at the levels currently required for businesses targeting professional investors only, which is half of the level required for businesses targeting both professional and general investors. 
• Financial investment business applicants are required to have a certain number of qualified experts with relevant professional experience.  Under the Plan, the statutory required minimum number of years of relevant professional experience will be reduced to one year if three years are currently required and to three years if five years are currently required. 

Items 1 and 4 above, which do not require any regulatory amendments, have already been enforced.  As a result, in July 2019, Woori Financial Group Inc.’s acquisition of Tongyang Asset Management Corp. and ABL Global Asset Management was approved, resulting in the first case of a single corporate group holding multiple asset management companies.  Items 2, 3 and 5 will be implemented after applicable laws and regulations are amended following the necessary legislative procedures.