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  • [금융/투자/외환] Amendments to the Regulations on Financial Investment Business
    • Competent Ministry : Financial Services Commission
    • Advance Publication of Legislation : 2018-06-05
    • Opinion Submission Deadline : 2018-07-16

(1) Reasons for Proposal

This Amendment aims to reflect major policy issues such as the capital regulation reform plan (January 2018), the entry barrier reform plan (May 2018), and KOSDAQ venture fund improvement plan (May 2018) to the Regulations on Financial Investment Business.

(2) Major Provisions

A. Improve the regulations on the soundness of securities companies

If an SME-specialized securities company makes a loan to a SME or venture company, the amount is not deducted from the operating net capital but is reflected in the total risk amount according to the credit rating of a borrower.

Clarify the method of calculating the real maturity of subordinated bonds eligible for early redemption and prepare a basis to reflect hybrid capital securities with a maturity of 5 years or more in the same way as subordinated bonds.

B. Introduce an interim checking system of examination for authorization
Minimize the delays in examination by establishing procedures to check the progress of examination for authorization at a certain point during the examination period.

C. Deregulate the incorporation of QIB bonds into public offering funds
Add the case of incorporating QIB bonds into KOSDAQ venture funds to those exceptions that exempt the obligation to receive two or more credit ratings when the bonds are incorporated into public offering funds.

D. Expand the scope of countries subject to FX margin trading
Add the EU, which has an adequate regulatory system, to the scope of countries subject to FX margin trading by investment brokers.

E. Modify the administrative guidance for ARS (Absolute Return Swap)*
Reflect ARS* related matters that are currently regulated through administrative guidance in the Regulations on Financial Investment Business since the index calculation lacks transparency, and the possibility of incomplete sales is high due to investors’ limited understanding.

F. Enhance the risk management for OTC derivatives
Require a financial investment company that deals with OTC derivatives with general investors to provide them with transaction evaluation reports at least once a month to enhance the provision of information to investors.

(3) Amendment Details

Partial amendments to the Regulations on Financial Investment Business

The Regulations on Financial Investment Business shall be revised as follows.
Subparagraph 3 shall be newly inserted in Article 1-3 as follows.
3. Foreign exchange trades conducted at the OTC market in accordance with the Markets in Financial Instruments Directive of the European Union.
Other than the title of Article 2-4, the text shall become Paragraph 1, and Paragraph 2 shall be newly inserted in the same Article as follows.
(2) When the Governor of the Financial Supervisory Service conducts an examination for authorization, registration and approval under the Act on the Structural Improvement of the Financial Industry or the Act on Corporate Governance of Financial Companies, he/she shall report to the Financial Services Commission the progress of the examination for authorization and the prospects for concluding the examination by the time (not considering the period of exclusion from each examination period) specified in the following Subparagraphs from the date of receipt of each application. However, this shall not be applied if the examination for authorization, registration, and approval are suspended under this Act, the Act on the Structural Improvement of the Financial Industry, or the Act on Corporate Governance of Financial Companies.
1. The authorization under Article 12 of the Act (if not taken the preliminary authorization): 45 days from the date of receipt of the authorization application and 3 months
2. The authorization under Article 12 of the Act (if taken the preliminary authorization): 1 month from the date of receipt of the authorization application
3. The preliminary authorization under Article 14 of the Act: 1 month from the date of receipt of the authorization application and 2 months
4. The registration under Article 18, Article 117-4 or Article 249-3 of the Act: 1 month from the date of receipt of the registration application and 2 months
5. The designation under Article 77-2 of the Act: 1 month from the date of receipt of the designation application and 2 months
6. The authorization under Article 360 of the Act: 45 days from the date of receipt of the authorization application and 3 months
7. The authorization under Article 4 of the Act on the Structural Improvement of the Financial Industry: 1 month from the date of receipt of the authorization application and 2 months
8. The approval of a change in majority shareholders under Article 31 of the Act on Corporate Governance of Financial Companies: 1 month from the date of receipt of the application for change and 2 months
9. The authorizations, registrations, and approvals not falling under Subparagraphs 1 to 8: 1 month from the date of receipt of each application and 2 months
In Article 2-24 (1) 4 (a), “this Subparagraph shall be replaced with "this Subparagraph and Subparagraph 6," and Subparagraph 6 shall be newly inserted in the same Paragraph as follows.
6. Matters concerning the following Items related to the issuance and fund operation of derivatives-linked securities having an index, comprehensively showing the results of funds operating under the investment advisory contract or the discretionary investment contract.
(a) Matters concerning the verification and calculation of underlying assets through bond assessment companies.
(b) Matters concerning confirmation with the investment advisory business entity or the discretionary investment business entity (hereinafter referred to as "the investment advisory business entity, etc.") for the underlying assets, and reporting monthly to the internal control department and the person in charge of derivatives business.
(c) Matters concerning information on how to calculate underlying assets, the operating asset selection criteria and operating results of the investment advisory business entity, etc., to be recorded and explained to investors.
(d) Matters concerning providing the investors with periodic information such as operational items, operation results, cost, calculation results of underlying assets, investment status and investment strategy of funds raised through the issuance of derivatives-linked securities.
In the text of Article 3-10 (1), "the business report pursuant to Article 33 of the Act" shall be replaced with "set out pursuant to the accounting standard of Article 32 of the Act" and Paragraph 7 of the same Article shall be newly inserted as follows.
(7) The net capital ratio shall be calculated as of the date of provisional settlement and the settlement date and shall be included in the business report set forth in Article 3-66.
In Article 3-12 5 (c), "shall be" is replaced with “shall be and not be redeemed within 5 years.”
In Article 3-13 (1) 6, "shall be” is replaced with "shall be and not be redeemed within 5 years.”
In Article 3-13 (2) 2, "includes the case that acquisition is made" is replaced with "includes a case where an acquisition is made but sales are not generated.”
The term "remaining period" in the latter part of Article 3-13 (3) shall be replaced with "the remaining period (If the issuer holds the early redemption right, the remaining period shall be until the executable date of the next early redemption right. The same shall be applied in this following Paragraph.).”
Article 3-13-2 shall be newly inserted as follows.
Article 3-13-2 (Capital Securities) (1) Capital securities that satisfy all of the following requirements shall be excluded from deduction pursuant to Article 3-14-10 2.
1. The conditions, that the relevant liabilities shall be paid only if other liabilities are paid in preference and there is residual property in the case of a bankruptcy of a financial investment entity, shall be specified.
2. There should be an agreement that the right of set-off of creditors is not allowed until other liabilities are paid in the case of a bankruptcy of a financial investment entity.
3. There should be an agreement that the principal and interest will not be repaid even if the redemption date under the contract is due if a financial investment entity falls under Attached Table 10-2 (a) or Attached Table 10-4 3 (a).
4. There should be an agreement that a financial investment entity will not repay at the discretion of creditors at any time before maturity.
5. There should be an agreement that a financial investment entity shall not provide security in connection with the issuance of capital securities.
6. The maturity shall be 5 years or more at the time of issuance and it shall not be redeemed within 5 years.
7. There should not be any other agreements that might impair the essence of subordinated borrowings.
(2) Any capital securities falling under any of the following Subparagraphs shall not be added to the operating net capital.
1. If there is no substantial inflow of funds from financial investment entities, such as cross-borrowing funds mutually with others.
2. In the case of borrowing from another financial investment entity (including the case where the other financial investment entity acquires but does not generate sales when issuing the public offering).
 (3) The capital securities excluded from deduction pursuant to Article 3-14 10-2 shall not exceed 50% of the net assets combined with the added amount pursuant to Articles 3-12 2 and 5 and the amount excluded from deduction pursuant to Subparagraph 10. If the remaining period (If the issuer holds the early redemption right, the remaining period shall be until the executable date of the next early redemption right. The same shall be applied in this following Paragraph.) is less than 5 years, the amount of issuance of capital securities multiplied by the ratio corresponding to the following Items shall be excluded from the deduction amount, and if the remaining period is less than one year, the total amount shall be deducted.
1. The remaining period is over 4 years but less than 5 years: 80%
2. The remaining period is over 3 years but less than 4 years: 60%
3. The remaining period is over 2 years but less than 3 years: 40%
4. The remaining period is over 1 years but less than 2 years: 20%
(4) If a financial investment entity intends to issue capital securities, the entity should report it to the Governor of the Financial Supervisory Service beforehand, and when the entity repays them, it should report the relevant contents to the Governor of the Financial Supervisory Service immediately.
Item (j) shall be newly inserted in Article 3-14 4 as follows.
(j) Loans, satisfying all the following requirements, handled by a financial investment entity specified in accordance with the Guidelines on Management of Small and Medium Enterprises Specialized Securities Company.
(1) Loans for small and medium enterprises pursuant to Article 2 of the Framework Act on Small and Medium Enterprises, which are dealt with in the course of operating the businesses of Article 68 (2) 1 to 4 of the Enforcement and for venture companies pursuant to Article 2 of the Act on Special Measures for the Promotion of Venture Business.
(2) To establish and operate the internal control system and post-management system to appropriately evaluate and manage credit risk before and after credit risk-inducing transactions.
(3) To prepare internal control standards to efficiently establish and operate the internal control system and post management system and operate an organization capable of performing the relevant work.
(4) To prepare and comply with the risk management standard in accordance with Article 3-24-2 (2).
Subparagraph 10-2 shall be newly inserted in Article 3-14 of as follows.
10-2. Funds issued by capital securities, however, provided that those which meet the requirements of Article 3-13-2 shall be excluded.
The term "capital" in Article 3-16 (1) 5 shall be replaced with "equity instruments."
In Article 3-23 (1) 1, "the end of the month before last from the base date" shall be replaced with "the base date" and a proviso shall be newly inserted in Subparagraph 2 of the same Paragraph as follows.
However, provided that if a comprehensive financial investment business entity engages in a short-term financing business, it shall be calculated by adding the minimum statutory capital amount for the short-term financing business.
"Investment deposit" in Article 3-35 (1) 2 shall be replaced with "investor’s deposit."
Article 3-66 (2) shall be deleted.
"Investment deposit" in the title of Article 4-38 shall be replaced with "investor’s deposit," and "net liabilities limit in accordance with Article 15" in Paragraph 1 of the same Article shall be replaced with "net transfer limit.”
The proviso of Article 4-63 4 is like the following, and each Item shall be inserted respectively in the same Subparagraph as follows.
However, provided that this shall not be applied to any of the following Items.
(a) When incorporating non-guaranteed bonds that have been rated for credit within three months retroactively from the issue date into the collective investment property.
(b) When incorporating non-guaranteed bonds falling under Article 2-2 (2) 4 of the Regulations for Issuance and Disclosure of Securities into the collective investment property of the venture business investment trust under Article 16 (1) 2 of the Restriction of Special Taxation Act.
Paragraph 4 shall be newly inserted in Article 5-50 as follows.
(4) If a financial investment entity, who engages in investment trading business for OTC derivative instruments, trades the OTC derivative instruments with general investors, the entity should provide general investors with the transaction evaluation statement including the evaluation of OTC derivative instruments at least once a month under Article 166-2 (2).
"Financial assets at fair value through profit or loss or Available-for-sale financial assets" in Article 8-9 (1) 2 shall be replaced with "Financial assets at fair value through profit or Financial assets at fair value through other comprehensive income."
The sections for short-term financing business and investment management account business shall be inserted next to the section of comprehensive financing business in Attached Table 9, the section for any other cases are set out as follows.

Descriptions

Business types

Risk values

Short-term financing business

Short-term finance

Short-term financial services of a comprehensive financial investment business entity

18%

Investment management account business

Investment management account

Investment management account services of a comprehensive financial investment business entity

24%

 

Any other cases

Any other businesses that are difficult to distinguish, the business of a company subject to consolidation under Article 3-10 (1)

15%

"Excluding the amount and reserve for bad debts pursuant to Article 8-9 (1)" of the underlying capital section in Attached Table 20 shall be replaced with “excluding the amount.”
"Available-for-sale securities" in the complementary capital section of Attached Table 20 shall be replaced with "Securities at fair value through other comprehensive income," and "Available-for-sale securities" in the deductible items section shall be replaced with "Securities at fair value through other comprehensive income."

Addenda

Article 1 (Enforcement Date) This Regulation shall enter into force from the date of notification.
Article 2 (Applicable Examples of the Progress Report of Examination for Authorization) Article 2-4 shall also apply to the procedure of the examinations for authorization, registration, and approval that are received after the implementation of the Regulations.


Regulatory effect assessment
  • e규제영향분석서_금투업자 등에 대한 건전성 규제 정비 등(금투업규정).hwp [download]
Legislative proposal (draft)
  • 180605_금융투자업규정 일부개정규정안.hwp [download]