session 2 fiscma_mofe_2007.ppt

Legislation of the

March 29, 2007March 29, 2007

MINISTRY OF FINANCE AND ECONOMYREPUBLIC OF KOREA

■ Current status

■ Measures to Upgrade capital market

■ Basic framework

■ Shift to functional regulation ■ Introduce a comprehensive system■ Expand business scope■ Upgrade investor protection mechanism

I. B ackground for le g is la tion

II. M a jor change s

III. E xpe cte d e ffe cts

IV. T ime line

MINISTRY OF FINANCE AND ECONOMY

4

I. – Ba ckground for le gis la tion Curre nt s ta tus MINISTRY OF FINANCE AND ECONOMY

■ Curre nt s ta tus of capita l marke t

▶ Corpora te fina ncing through capita l ma rke t continue s to s hrink

Financing through e quitie s

▶ Ca pita l m arke t fa ils to grow com m e ns ura te with re a l e conom ic growth

8778

6250 48

2001 2002 2003 2004 2005

1412

911

87

2000 2001 2002 2003 2004 2005

( )Trillion won( )Trillion won53.9 54.0

52.3

52.451.6

52.2

1999 2000 2001 2002 2003 2004

(%, )Financing balance

87.3105.3 106.4

131.8145.6

Korea Japan U.S U.K. Taiwan

Equity marke t by country( / )Marke t capita liza tion GDP

83.5 87106.5

163.2189.4

Korea Germany France U.S Japan

Bond marke t by country( / )Bond re s e rve s GDP

Fina ncing thro ugh corpo ra te bonds

(%, 2005) (%, 2003)

Ratio of capita l marke t to financia l marke t

Capita l marke t & its re la te d financia l s e rvice s are ye t to be fully de ve lope d Capita l marke t & its re la te d financia l s e rvice s are ye t to be fully de ve lope d

1 . Curre nt Sta tus1 . Curre nt Sta tus

5

■ Curre nt s ta tus of ca pita l m a rke t re la te d fina ncia l s e rvice s ▶ Lagging be hind comme rcia l banks , in te rms of re s tructuring bus ine s s s ize and profitability

▶ Subs tantia lly we ak compe titive ne s s Subs tantia lly we ak compe titive ne s s in qua lity and quantity compare d to the 3top

inte rna tiona l inve s tme nt banks

* 1 , 2 , 3 4 4 ( )and are the major dome s tic companie s ne t worth bas is* : * : * : G Goldman Sachs Me Me rrill Lynch Mo Morgan Stanle y

Re s tructuring by s e ctor[ ]Numbe r of ma rke t pla ye rs

31 38

4433

1923

1999 2005

Commmercial

bank

Asset management company 0.4

0.4

1.54.0

1999 2005

Commercial

bank

Securities

company

5.57.1

14.5

5.4

12.8

19.6

2001 2005.1/2

Commercial

bank

Securities

company

Asset

m,anagement

comapny

Bus ine s s s ize by s e ctor [ ]Ave rage ne t worth

Profitability by s e ctor[ ]Re turn on e quity(%)

- Broke ra ge o rie nte d bus ine s s mo de l ( , 2 0 0 4 )Ne t re ve nue

Small bus ine s s s ize [ ]Ne t worth

Low profitability [ ]Re turn on e quity

0.9 1.9

-11.7

4.6

19.515.0 16.9

1 2 3 4 G Me Mo

(%, 2004)

1.8 1.7 1.3 1.2

25.131.4

28.2

1 2 3 4 G Me Mo

<4 major domestic >securities companies

<3 >global IBs

Others Others

Principalinvestment

Principa linvestment I B

I B

Assetmanagement

Assetmanagement

Securitiesservices

Securitiesservices

( , 2005)Trillion won Mar

I. – Ba ckground for le gis la tion Curre nt s ta tus MINISTRY OF FINANCE AND ECONOMY

Securities company

6

iiii To enhance capital market transparency

To expand demand basis of Marketii

To set up the advanced legal framework of capital marketiviv

iiiiii To improve capital market efficiency

I. - Ba ckground for le gis la tion Me a s ure s MINISTRY OF FINANCE AND ECONOMY

■ , to s tre ngthe n the ro le s of Ins titutiona l Inve s tor including, PEF

, pe ns ion funds and le ad to long te rm inve s tme nt

■ - , to improve inte rna l de c is ion making proce s s to s tre ngthe n ’ s hare holde rs rights and to cre ate marke ts for corpora te

control

■ (2 0 0 5 )cons olida te d the thre e e xchange s into KRX ■ to introduce e le ctronic s e curitie s s ys te m

■ to e nact Financia l Inve s tme nt Se rvice s and Capita l Marke tsAct

2 . Ke y Me as ure s to upgrade Capita l Marke t2 . Ke y Me as ure s to upgrade Capita l Marke t

7

I. – Ba ckground for le gis la tion Ba s ic fra me work MINISTRY OF FINANCE AND ECONOMY

Shift to functional regulationShift to functional regulation

○ - ,Re clas s ify fina ncia l inve s tme nt s e rvice s

fina ncia l inve s tme nt products and inve s tors

( )according to the ir e conomic s ubs tance nature

* Financial function = Services + Products + Investors

○ Fina ncia l function of the s ame na ture s ha ll be

gove rne d

, by the s a me re gula tion re gardle s s o f the fina ncia l

ins titutions e ngage d in the tra ns action

Introduce comprehensive systemIntroduce comprehensive system

○ - Us e a broa d bas e d de finition of “fina ncia l inve s tme nt products ”

, to e mbrace the m all into the ne w re gime s o as to ke e p pa ce

with

rapidly de ve loping financia l inve s tme nt products

* Expand the scope of permissible products for financial investment companies and the coverage of investor protection regulations

Expand business scopeExpand business scope

○ Allow inte gration of a ll fina ncia l inve s tme nt s e rvice s → , , , De aling arranging as s e t ma na ge me nt - dis cre tionary & non dis cre tionary inve s tme nt , advis ory s e rvice s as s e t cus todia n mana ge me nt

○ Allow a ll acce s s ory s e rvice s ○ - Adopt an introducing broke r s ys te m ○ Allow fore x s e rvice s in conne ction with financia l

inve s tme nt s e rvice s

Upgrade investor protection mechanismUpgrade investor protection mechanism

○ Put in pla ce adva nce d inve s tor prote c tion me chanis m

* Ma nda te product guide line s to inve s tors

* Introduce the principle of s uitability

○ Es ta blis h a s ys te m to pre ve nt conflic t of inte re s ts

○ Expand the s cope of s e curitie s s ubje ct to re gis tra tion

/ , s ta te me nt re gula tion including indire c t inve s tme nt

s e curitie s a nd be ne fic ia ry ce rtifica te s

Consolidate capital market laws into a single law

Create a financial big bang in capital marketCreate a financial big bang in capital market- Promote financial innovation and competition through advanced Promote financial innovation and competition through advanced

regulatory reform and stronger investor protection regulatory reform and stronger investor protection

9

1 . Shift to functiona l re gula tory re gime1 . Shift to functiona l re gula tory re gime

II. – Ma jor cha nge s Shift to functiona l re gula tion MINISTRY OF FINANCE AND ECONOMY

■ Shift from curre nt ins titutiona l re gula tion to functiona l re gula tion

Curre nt Propos e d Diffe re nt re gula tions are applie d to the s ame fina ncia l

function if it is carrie d out by diffe re nt type s of fina ncia l

ins titutions

The s ame re gula tion will be a pplie d to the s ame fina ncia l function re gardle s s o f the type s of fina ncia l

ins titutions providing the s e rvice

Re gulate d by the

Se curitie s & Exchange

Act

Re gulate d by the

As s e tMa nage me nt

Act

Re gulate d by the

Future s Trading Act

Re gulate d by the Re alEs ta te

Inve s tme ntCo mpany

Act

Re gulate d by the

ShipInve s tme nt

Manage me ntCompany

Act

Re gulate d by the

Trus t Act

Se curitie scompany

As s e tmanage me nt

company

Future scompany

Re al e s ta teinve s tme nt

co mpany

Shipinve s tme nt

manage me ntco mpany

Trus tcompany

De aling ArrangingDe a ls

Colle ctiveInve s tme nt

Trus tSe rvice

Dis cre tionary inve s tme nt

advis ory s e rvice s

De aling ArrangingDe als

Colle ctiveInve s tme nt

Dis cre tionaryinve s tme nt

advis orys e rvice s

-Nondis cre tio nary

inve s tme ntadvis orys e rvice s

Trus tSe rvice

Single cons olidate d law

Re gulatingde aling

Re gulatingArranging

de als

Re gulatingColle ctive

Inve s tme nt

Re gulatingdis cre tionary

inve s tme nta dvis orys e rvice s

Re gulating-non

dis cre tionaryinve s tme nt


Re gulating Trus t s e rvice

, Re s pe ctive re gulations for e ntry s oundne s s & bus ine s s activitie s , for e ntry s oundne s s & bus ine s s activitie s , for e ntry s oundne s s & bus ine s s activitie s

1 0


■ 6 cate gorie s of financia l inve s tme nt s e rvice s

▶ , , , - De aling a rranging as s e t m anage me nt dis cre tionary & non dis cre tiona ry inve s tme nt a dvis ory

, s e rvice s a nd trus t s e rvice s: Curre nt Each law e nume rate s financia l s e rvice s pe rmis s ible for e ach financia l company Re vis e d: 6 s tre am line d ca te gorie s by e conomic s ubs tance

Cus to-dian

Cus todian

- Cus todian

Cus to- dianTrus

– te e

Trus t

Dis cre tionary

Inve s tm e nt

a dvis ory

Bus ine s s ofpartne r

As s e tmana ge me nt


As s e tmanag

e me nt


Arranging

Broke rag, e

, arrangea ge ncy

Future s tra ding

Indire c t

inve s t me nt

s e curit ie s

s a le s

De a lingUnde rw

ritingDis coun

ting

De a lingUnde rwri

tingSale s

Pe rm itte d

Financia l

s e rvice s

Corpo ra te re s tructuring ve hic le

Inve s tme nt

co rporatio n

As s e t-cus to

dian

Shipinve s t

me ntmngm

As s e t-cus to

dian

As s e tmngm

As s e t-cus

todian

As s e t

mngmt

Cus to- ,dia n

trus t.co

-No n-dis cre

tionary .inv

-advi

s ory

-Dis cre

tiona ry

advis ory,co

As s e t

m ng m.co

Trus t-Me r

chantbank

-Se curi

tie s

.co

Future s.co

Com

- panytype

Indus try De ve lopm e nt Act

Spe c ia l Act on Ve nture Sta rtups

Support for SME Es ta blis hme nt Act

Ship Inve s tm e nt Ma nage me nt

Act

Re a l Es ta te Inve s tme nt

Act

Corpora teRe s tructu

- ring Ve hic le Act

As s e t Manage me nt Act Trus tAct

Me r- chant

Ba nkAct

Se curi- t ie s

Tra dingAct

Future s Tra ding

ActLaw

Trus t s e rvice

- Non dis cre tionary inve s tme nt a dvis ory

s e rvice s

Dis cre tiona ry inve s tme nt a dvis ory

s e rvice s

Colle ctive Inve s tme nt

Arranging De a ls

De a ling

Financia l

s e rvice s

Financia l inve s tme nt

company ( )“FIC”

Com pa nytype

Financia l Inve s tme nt Se rvice s &

Capita l Marke t ActLaw

[1 ] Clas s ify FINANCIAL INVESTMENT SERVICES FINANCIAL INVESTMENT SERVICES 6 into ca te gorie s by e conomic nature

1 1


[2 ] Stre a m line prude ntia l re gula tions

■ The s ame financia l function will be s ubje ct to the s ame prude ntia l re gula tion

■ The s a me re gula tions gove rn bus ine s s a ctivitie s o f the s am e financ ia l function ( Unive rs a l re gula tions for a ll financia l inve s tme nt s e rvice s + individual re gula tions for e ach financia l

)inve s tme nt s e rvice Unive rs a l re gulations on

a ll financia l bus ine s s activitie s

Duty of good fa ith

Prohibition of los s compe ns ation

- - Know your cus tome r rule

Prohibition of unwante d s olic ita tion

Suitability principle

Duty of lawful product guidance

+ Individual re gulations on

e ach financia l inve s tme nt s e rvice(e xample s )

-Prohibition of s e lf contra ctingDe a ling

Arbitrary de a ling prohibite d Arra nging De a ls

Re gula tions on manage me nt of

CIS a s s e t

Colle ctive

Inve s tme nt

Loans prohibite d Dis cre tionary

inve s tme nt advis ory s e rvice

’ ’ FICs own as s e t & clie nts a s s e tin

cus todian cle arly s e pa rate d Trus t s e rvice

[3 ] Re vis e re gula tion on bus ine s s a ctivitie s

■ : Followings are the prude ntia l re gula tion me chanis ms applie d to a ll FICs

▶ ( Capita l ade qua cy ra tio to e ns ure ade qua te e quity ca pita l a ga ins t the unde rlying

)ris k ▶ Re s tric tion on trans actions with m ajor s ha re ho lde rs

▶ Dis c los ure of financ ia l a nd ma na ge me nt s ta tus

1 2

II. – Ma jor cha nge s Introduce a com pre he ns ive s ys te m MINISTRY OF FINANCE AND ECONOMY

■ Pe rm is s ible s e curitie s and de riva tive s for tra ns a ction are s pe c ifie d by la w

FICs m a y de a l with financia l inve s tm e nt products s pe cifie d ,by la w

a nd only to which inve s tor prote ction is applie d

2 . Introduce a compre he ns ive2 . Introduce a compre he ns ives ys te ms ys te m

■ - Introduce a broa d ba s e d de finition to e ncom pa s s a ll fina ncia linve s tme nt products with inve s tm e nt va lue

Allow FICs to s tructure and de a l with a ll fina ncia l inve s tm e nt products

a nd a pply re gula tions on inve s tor prote ction to a ll o f the s eproducts

All financia lproducts

De pos itsIns urancecontracts

,Se curitie sDe riva tive s

Ne w financia lproducts

De pos its Ins urancecontracts Financia l inve s tme nt

products

All financia l products

1 3

II. – Ma jor cha nge s Shift to functiona l re gula tory re gim e MINISTRY OF FINANCE AND ECONOMY

■ The pos s ibility of los s on the principa l diffe re ntia te s financia l inve s tme nt - , products from non financia l products s uch as de pos its

Financia lproduct

Financ ia l inve s tm e nt product

- Non fina nc ia l inve s tme nt product

Ye s

No Pos s ibility of los s on principa l

Se curitie s

De riva tive s

Ye s

No Pos s ibility of los s e xce e ding principa l

- Exchange trade dde rivative s

OTC de riva tive s

Ye s

No Tra de d on the e xcha nge hous e

■ : The de gre e of unde rlying ris ks divide s financia l inve s tme nt products into two ( ) ( )s e curitie s ge ne ra l financia l products and de rivative s ris ky financia l products

▶ - De rivative s are s ubdivide d into e xchange trade d and OTC de rivative s by trading channe l

1 4

II. – Ma jor cha nge s Introduce com pre he ns ive s ys te m MINISTRY OF FINANCE AND ECONOMY

■ - 3 Introduce a broad bas e d de finition for e ach of the cate gorie s of financia l - , - inve s tme nt products s e curitie s OTC de rivative s & e xchange trade dde rivative s

Se curitie s

OTC de rivative s - , , Introduce a broad ba s e d de finition for forwa rd s wa p a nd option

- Exchange trade dde riva tive s

De rivative s tra de d in e xcha nge s

■ Ma ximize the s cope of unde rlying a s s e ts of s e curitize d de riva tive s andde riva tive s

, , - ELS ELW FX linke d, , .s e curitie s re ve rs e FRN e tc

Rights unde r contract for the purpos e of ga ining profits or avoiding los s e s linke d to

fluc tuations of unde rlying as s e t price s Se curitize d de riva tive s

, Indire ct inve s tme nt s e curitie s unre gula te d indire ct

, , inve s tme nt s e curitie s s tocks , .contribution quota e tc

- Inve s tme nts ma de in a common public bus ine s s

with e xpe cta tion of profits- 3Compe ns ations de pe nd upon a rd ’ party s e fforts

Inve s tm e nt co ntra ct

, , KDR GDR ADR Se curitie s of is s ue rs tha t ha ve re ce ive d the de pos it of e quity s e curitie s

De po s ito ry Re ce ipt

( )DR

, Trus t be ne fic iary ce rtifica te s inve s tme nt trus t be ne fic iary, .ce rtifica te s e tc

Re pre s e nting be ne fic ia l inte re s ts Be ne fic ia ryce rtifica te

, , Stocks s ubs cription right , s ubs cription ce rtifica te , .contribution quota e tc

Re pre s e nting e quity contribution s hare Equitys e curitie s

, Gove rnme nt bond municipa l, , bond corpora te bond

, .comme rcia l pape r e tc Re pre s e nting de bt liability De bt

s e curitie s

-Co n

ve ntio na l

s e curitie

s

Exa m pleDe finitionType

, , Se curitie s Curre ncie s, Commoditie s and Cre dit ris k

Curre nt

, , Financia l inve s tme nt products Curre ncie s, , , Commoditie s Cre dit ris k and othe r natura l

e nvironme nta l and e conomic ris ks

Propos e d

1 5

II. – Ma jor cha nge s Expa nd bus ine s s s cope MINISTRY OF FINANCE AND ECONOMY

■ , , Curre ntly fina nc ia l inve s tme nt s e rvice s are com pris e d of s e curitie s s e rvice s , , , - future s s e rvice s as s e t m anage me nt trus t and dis cre tionary & non dis cre tiona ry

inve s tm e nt . .a dvis ory s e rvice s The ir bus ine s s te rritorie s are s tric tly s e pa rate d 6 Allow FICs to conduct bus ine s s e s e ncom pa s s ing fina nc ia l inve s tm e nt s e rvice s

( , , , - de a lng a rra nging de a ls co lle c tive inve s tme nt dis cre tiona ry & non dis cre tiona ry , ) inve s tm e nt advis ory s e rvice s trus t s e rvice

■ Es tablis h a Chine s e Wall to pre ve nt the conflic t o f inte re s ts caus e d by re nde ring multiple s e rvice s

Se curitie scom

Future scom

As s e tmngmcom

Non dis cre tionary

inve s tme nt advis ory

s e rvice s

Trus tcom

Se curitie sbroke ra ge

Princ ipa l inve s tme ntUnde rwriting

Future sbroke ra ge As s e t manage me nt As s e t manage me nt

: Curre nt m ultiple s e rvice s re s tric te d

FICs

De a ling

Arra n ging

de a ls

Colle c tive

Inve s tme nt

Dis cre ti onary-inve s t me nt


-Non-dis cre tionary

-inve s t me nt


Trus ts e rvice s

Inve s tme nt banking Principa l inve s tme nt

( )Se curitie s s e rvice s broke rage As s e t manage me nt

: Propos e d Chine s e Wa ll to be e s ta blis he d

-Dis cre tionary

-inve s t me nt a dvis ory

s e rvice s

3 . Expa nd bus ine s s s cope3 . Expa nd bus ine s s s cope

[1 ] Re move the boundarie s a mong diffe re nt fina ncia l Inve s tme nt s e rvice s

1 6

[ 1 ] Re fe re nce Se le c tive Exam ple s of Authoriza tion a nd Re gis tra tion MINISTRY OF FINANCE AND ECONOMY

Applica tion for Authoriza tion &Re gis tra tion

Indire c t inve s tme nts e curitie s - Exchange tra de d de rivative s

S tocks

OTC de rivative s

- Non profe s s iona l inve s tor Se curitie s Dis cre tionary inve s tme nt

advis ory s e rvice s □ Profe s s iona l inve s tor Bonds

OTC de rivative s

- Non profe s s iona l inve s tor Se curitie s As s e t mana ge me nt

Profe s s iona l inve s tor □ Re al e s ta te

□ Spe cia l As s e ts

□ Mixe d As s e ts

□ Mone y ma rke t products

- Exchange tra de d de rivative s

□ Indire ct inve s tme nt s e curitie s □ Stocks

Profe s s iona l inve s tor Bonds

- Non profe s s iona l inve s tor □ Se curitie s Arra nging de a ls

□ OTC de rivative s □ - Exchange tra de d de rivative s □ Indire ct inve s tme nt s e curitie s Stocks

□ Profe s s iona l inve s tor □ Bonds Unde rwriting

- Non profe s s iona l inve s tor □ Se curitie s □ De aling

Inve s tors Fina ncia l products Fina ncia l s e rvice s

1 7


■ , , * Shift to a s ys te m that pe rmits in principle a ll inc ide nta l s e rvice s withs ome e xce ptions* Non-financial services incidental to financial investment services

Curre nt Propos e d

[ In cas e of s e curitie s ] company

2 2 s e rvice s including ,s e curitie s e va luation

M&A/ /broke rage arrange me nt

,age ncy s e rvice s

cons ulting s e rvice on corporate manage me nt and

, re s tructuring s e curitie s, .s a fe guarding e tc

Se rvice s s cope

- Pos itive lis t s ys te mMe thod

( )Principle

- Allow all non financia l

inc ide nta l s e rvice s

( )Exce ptions

Se rvice s tha t may have

ne ga tive e ffe ct on the

s oundne s s of FICs or

inve s tor prote ction

Se rvice ss cope

Compre he ns ives ys te m

Me thod

[2 ] Allow inc ide nta l s e rvice s

1 8


■ - Apply introducing broke r s ys te m to offe r various channe ls of acce s s to financia l inve s tme nt products to inve s tors

■ Make inve s tor prote ction me chanis m

▶ ‘ ’ Employ the s a me inve s tme nt s o lic ita tion re gula tion a pplie d to FICs in orde r to pre ve nt

s a le s

, of ris ky products by de ce iving mis le ading or not fully e xpla ining the e xte nt o f

unde rlying ris ks▶ -Curre ntly cons ide r re que s ting a re le va nt ce rtifica te to gua ra nte e the introducing

’broke r s bas ic qua lifica tions s uch a s s e curitie s inve s tm e nt cons ultant lice ns e ▶ - FICs to ta ke re s pons ibility for re g is te ring introducing broke rs with the FSC

a nd s upe rvis ing the m - FICs s ha ll be lia ble for a ny los s e s of inve s tors incurre d by ille ga l a ctivitie s o f - introducing broke rs e ntrus te d by the m

■ Inve s tors ha ve to vis it branche s in pe rs on to purchas e financia l

, inve s tme nt products ca us ing

inconve nie nce

Curre nt■ - Apply introducing broke r s ys te m to a llow broke rs to s e ll financia l inve s tme nt products e ntrus te d byFICs

▶ The broke r will s o lic it inve s tme nt and conne ct inve s tors with FICs

Propos e dPropos e d

[3 ] - Expa nd s a le s ne twork through introducing broke r s ys te m

1 9


■ Expand CIS ve hicle s to the e xte nt pe rmis s ible unde r the Kore an Civil or Comme rcia l Code s

. ( )A Expand ve hicle s for co lle ctive inve s tme nt s che me CIS

■ - Re de fine CIS manage d as s e ts in a compre he ns ive manne r and thus e xpand the - s cope of CIS manage d as s e ts tha t are curre ntly e nume rate d for pe rmis s ion

. - B Expand the s cope of CIS manage d as s e ts

- , Inve s tme nt trus t com pa ny lim ite d

( & lim ite d pa rtne rs hip priva te)offe ring

Curre nt - , Inve s tm e nt trus t company limite d ( & lim ite d pa rtne rs hip priva te

)offe ring- , Lim ite d lia bility com pa ny ( ), limite d partne rs hip public offe ring , a nonym ous pa rtne rs hip ge ne ra l pa rtne rs hip

Propos e d

, , , Se curitie s future s re a l e s ta tetangible

, , , prope rty CP ins ura nce c la im s

, .fis hing & m ining rights e tc

Curre nt As s e ts with any form of inve s tme nt

va lue , s uch a s inte lle c tua l prope rty rights

.e tc

Propos e d

[4 ] Expand the s cope of a s s e t m a nage m e nt s e rvice s

2 0


■ / Re m ove re s tric tions on the s cope type of as s e ts to be ma nage d by funds to e nha nce a utonom y of the as s e t m anage me nt indus try a nd s a tis fy dive rs e de ma nds of inve s tors

[5 ] Allow “Mixe d As s e t Funds ”

○××××××Spe c ia l

a s s e ts

×××○×××Tang ibl

e

a s s e ts

××××○××Re a l

e s ta te

○○×○○○○-De rivative s

○○○○○○○-Se cu

ritie s

Spe c ia l

as s e tsfunds

Fund of

fundsMMF

Tang ible

as s e tsfund

Re a l

Es ta tefund

-De riva

tive sfund

-Se cu

ritie sfund

■ As s e ts for inve s tme nt de te rminethe ’ s cope of e ach fund s ope ra tion

▶ , , Se curitie s fund de riva tive s fund , re a l e s ta te fund tangible a s s e t

,fund , , MMF fund of funds s pe c ia l as s e tfund

■ Funds a re cla s s ifie d ba s e d on the inve s tme nt as s e ts

Curre nt

○○×○○○Spe cia l

a s s e ts

○○×○○○Tang ible

as s e ts

○○×○○○Re a l

e s ta te

○○×○○○-De riva

tive s

○○○○○○-Se curitie s

Mixe dMixe d

as s e t fund as s e t fundMMF

Spe c ia l

a s s e ts

Re a l

e s ta te

-Se cu

ritie s

Cla s s ifi

-ca tion

■ Es ta blis h “m ixe d a s s e t funds ” which ca n be ope rate d fre e ly without be ing limite d to s pe c ific a s s e ts

■ - Re cla s s ify the curre nt fund ca te gorie s

, into four bas e d on inve s tm e nt a s s e ts while lifting re s tric tions on the ir ope ra tion

Propos e d

2 1

II. – Major change s Upgrade inve s tor prote ction me chanis m MINISTRY OF FINANCE AND ECONOMY

■ ‘ En bloc applica tion of re gula tions for inve s tor prote ction in the Financia lSe rvice s ’ , , and Capita l Marke t Act s ha ll be made cove ring a ll including OTC de rivative s .trading curre ntly in abs e nce of inve s tor prote ction me chanis m

Eliminate loophole s in inve s tor prote ction

4 . Upgrade inve s tor prote ction4 . Upgrade inve s tor prote ctionme chanis mme chanis m

[1 ] Re move loophole s in inve s tor prote ction

■ Obliga te FICs to provide inve s tors with de ta ile d e xpla na tion on the conte nts and unde rlying ris ks of the products whe n s olic iting

inve s tme nt

. A Introduce the duty of product guidance in full s ca le

■ Expa nd s pe cia l lia bility rule to a ll financia l products unde r which FICs a re he ld lia ble ’ for los s e s and dama ge s incurre d to inve s tors from FICs incomple te product guida nce

▶ Unde r re vie w is a pla n to e nhance inve s tor prote ction by e s tima ting the los s on princ ipa l

a s the am ount of dam age in cas e of any los s on princ ipa l

[2 ] Introduce re gula tion on inve s tm e nt s o lic ita tion - Ins titutiona lize inve s tor prote ction m e cha nis m in line with globa l s ta nda rds

2 2


■ The principle of s uitability s ha ll be introduce d for inve s tme nt s olic ita tion

ta ilore d to inve s tor profile s

. : - C Adopt the principle of s uitability Applicable to non profe s s iona l inve s tors

■ , , Prior to s olic ita tion gras p inve s tor profile s s uch as we a lth s ta tus

inve s tme nt

, , ., purpos e e xpe rie nce e tc through inte rvie ws with pote ntia l inve s tors

? Applicable only to non-professional investors who are relatively weak in risk taking and hedging

■ Uns olic ite d ca lls via unwante d phone ca lls and othe r me thods may infringe

on privacy and pe ace ful life of pote ntia l inve s tors

. D Make a ne w re gula tion on uns olic ite d ca lls

▶ , - The re fore inve s tme nt s olic ita tion through re a l time me thods

’ like vis iting and ca lling s ha ll be pe rmitte d only a t the inve s tor s

invita tion

. - - B Introduce the know your cus tome r rule

2 3


■ De finition of conflic t of inte re s ts ▶ Act of purs uing the inte re s ts of FICs or othe r inve s tors a t the e xpe ns e of the inte re s t o f ce rta in inve s tors

■ Me a s ure s to pre ve nt conflic t of inte re s ts ① Prohibit conflic t of inte re s ts by law and e nforce it with s anctions

② Oblige FICs to s e t up an inte rna l contro l s ys te m

③ Make FICs dis c los e any conflic t o f inte re s ts to inve s tors

④ / Make orga niza tiona l s e para tion and or prohibition of e m ploye e s ho lding more tha n one pos ition m a ndatory if s e rious conflic t of inte re s ts is de e m e d to e xis t

[3 ] Es ta blis h a s ys te m to pre ve nt conflic t of inte re s ts

■ Se e k ways to apply the curre nt dis clos ure and re gis tra tion re quire me nts ( ) re gis tra tion s ta te me nt to a ll s e curitie s that ne e d inve s tor prote ction

▶ Propos e d re gula tion confine s e xe mption from re gis tra tion obliga tion only to bondsis s ue d - by gove rnm e nt a nd quas i gove rnme nt e ntitie s■ (Se e k ways to lowe r e xpe ns e ratio on s e curitie s is s uance 1 .8 , s tock at bp bond a t5 ~ 9 bp ) a t pre s e nt in orde r to pre ve nt a s ha rp ris e in is s ua nce cos t from the e xpande d a pplica tion . of dis c los ure and re gis tra tion re quire me nts

[4 ] Expa nd the s cope of dis c los ure a nd re gis tra tion re quire m e nts

2 4


’ Comparis on with othe r countrie s le gis la tions ’ Comparis on with othe r countrie s le gis la tions

■ Regulations of the Korean FISCMA are comparable to the those of advanced markets’ laws such as England, USA, Australia, etc., and somewhat excel Japan’s recent legislation

▶ Based on the England’s FSA 1986/FSMA 2000 and Australia's FSRA 2001, and ▶ also referred to the USA’s Securities Regulations

1) Comprehensive system : referred to the Financial products’ definitions of England, Australia, USA, Singapore, etc., and introduced comprehensive system of securities and depravities => advanced than the new legislation of Japan

2) Functional regulation : Comparable to England, Australia, USA, Singapore, etc.

3) level of Investor protection : Comparable to England, Australia, USA, Japan, etc.

4) Scope of businesses of financial institutions : Same with England, Australia, USA, Japan, etc.

comprehensivePositive list systemcomprehensivecomprehensivecomprehensivecomprehensive

Korea (FISCMA)

JapanSingaporeUSAAustrailiaEngland

Korea (FISCMA)JapanSingaporeUSAAustrailiaEngland

Functional regulation

(no reserve)

Cross sectional regulation

(where special articles exist)


(no reserve)


(no reserve)


(no reserve)


(no reserve)

Korea (FISCMA)JapanSingaporeUSAAustrailiaEngland

All financial Investment

Services allowed


Services allowed


Services allowed


Services allowed


Services allowed


Services allowed

2 6

III. Expe cte d e ffe cts MINISTRY OF FINANCE AND ECONOMY

■ : Bus ine s s s cope The s a me bus ine s s s cope a s that of a dvance d IBs will be re a lize d

[1 ] Se t up a bus ine s s m ode l in line with a dva nce d IBs

Princ ipa linve s tm e nt

< >IB

Corporatefina nc ing

Se curitie ss e rvice s As s e t ma na ge m e nt

Se curitie scom

Future scom

As s e tMana ge m e nt

com

- Non dis cre tionaryinve s tme nt

Advis ory com

Dis cre tiona ry Inve s tme nt

advis ory com Trus t com

De aling

FICs

Arra nging As s e tm ana ge m e nt

- Non dis cre tionary inve s tme nt


Dis cre tionary inve s tme nt


As s e tcus todian

manage me nt

( ) Em e rge nce of a dva nce d inve s tm e nt ba nks IBs with globa l ( ) Em e rge nce of a dva nce d inve s tm e nt ba nks IBs with globa l

com pe titive ne s scom pe titive ne s s is e xpe cte d through conve rge nce a nd cons olida tion in the financia l is e xpe cte d through conve rge nce a nd cons olida tion in the financia l

indus tryindus try

Princ ipa linve s tme nt

Corporatefinanc ing

Se curitie ss e rvice s As s e t ma na ge me nt

Advance d IBs

Curre nt

Afte r cons olida tion

2 7


■ Financia l inve s tme nt products

) e x Mixe d a s s e ts funds tha t ca n change inve s tme nt ve hic le s fre e ly , , ,am ong s tocks bonds re a l e s ta te , .curre nc ie s e tc

Es ta blis h funds not re s tric te d by the ta rge t inve s tme nt a s s e t

) e x Public ly offe re d indire ct inve s tme nt s e curitie s us ing jo int s tock com pa ny , unde r the Com me rc ia l La wa nonym ous , .pa rtne rs hip type d funds e tc

Structure co lle c tive inve s tme nt s che me by us ing va rious CIS ve hic le s

) e x Inve rs e floa te r ( , .)Dual inde xe d note s CMT e tc Range a ccrua l note s CPPI bas e d note s Digita l option e mbe dde d note s - Cre dit linke d note s - Fund linke d note s CAT bonds

De s ign s e curitie s tha t a dopt a ll kinds of de riva tive te chnique s ( )Se curitize d de riva tive s

Se curitie s

) e x De riva tive s whos e unde rlying as s e tsa re , , ca tas trophe crim e ra te we a the r

s uch as , , , .pre c ipita tion s nowfa ll s unlight e tc

Structure de riva tive s ba s e d on dive rs e ris ks me a s urable

OTCde riva tive s

) e x Future s a nd options re la te d to

( e nvironme nt a nd e ne rgy carbon

, )e m is s ion cre dits e le c tric powe r

Any de riva tive s ca n be tra de d on the e xcha nge hous e if prope rlys truc ture d

-Excha nge tra de d

de riva tive s

2 8


De a ling

Principa linve s tme nt

Ne w type ofde rivative s

Ne w type ofs e curitie s

Exis tingde riva tive s

Exis tings e curitie s

Trus t As s e tm anaging

-Nondis cre tionary

-Dis cre tio

nary ArrangingAdvis or-Unde r

writingInve s ting

As s e t manage me nt Se curitie s

s e rvice Corporate

fina ncing

Se le ct a bus ine s s m ode l in line with a dvance d IBs

De a ling

Principa linve s tme nt

Ne w type ofde riva tive s

Ne w type ofs e curitie s

Exis tingde rivative s

Exis tings e curitie s

Trus t As s e tm anaging

-Non dis cre tionary

-Dis cre

t ionary ArrangingAdvis ory-Unde r

writingInve s ting

As s e t manage me nt Se curitie s

s e rvice Corporate

fina ncing

.Se curitie s co .Future s co

Me rcha nt ba nk As s e t .manage me nt co

Trust

.Co

FICs

Cha nge s in the bus ine s s mode l o f FICs a fte r the e na ctme nt o f the ne w Act

2 9


■ Cre ate s yne rgy e ffe ct by e nabling a s ingle FIC to conduct a ll IB bus ine s s e s

[2 ] Cre a te s yne rgy e ffe ct from s e rvice inte gra tion

① Syne rgy e ffe ct from s e curitie s and future s bus ine s s e s combine d

Provide com pre he ns ive s e rvice s to inve s tors as the FIC ca n trade and

a rra nge a ll fina nc ia l inve s tme nt products

② , Syne rgy e ffe ct from corpora te financing as s e t manage me nt

and principa l inve s tme nt combine d

Corporate financ ing bus ine s s s uch a s M&A arra nge me nt will re quire le s s cos t a nd

’ tim e for the de a l a nd ge ne ra te highe r profits through dire ct inve s tme nt o f FIC s

own a s s e ts from s a le s of fina nc ia l products a nd funds ra is e d from as s e t

ma nage m e nt

③ Syne rgy e ffe ct from inte gration of various as s e t manage me nt

bus ine s s e s - Full s ca le a s s e t m anage me nt s e rvice will be ava ilable by dire ctly s tructuring and

offe ring a varie ty of fina nc ia l inve s tme nt products s uch a s s truc ture d s e curitie s

( . ., ), , , i e s e curitize d de riva tive s a ll kinds of indire ct inve s tme nt products wrap a ccounts

a nd s pe cia lize d trus t products

3 0


■ Compe titive ne s s of the FICs will be ra is e d on the back of the ir ability to s tructure

, and manage a ll financia l inve s tme nt products s uch as corpora te financing principa l

, . inve s tme nt and as s e t manage me nt as and whe n de e me d ne ce s s ary

[3 ] Stre ngthe n com pe titive ne s s by s tructuring and offe ring a m ultitude

of

ne w fina ncia l products

① ’ IB s Corpora te Financing bus ine s s

Expande d bus ine s s s cope a llows IBs to s upport the s tructuring of and unde rwrite

, ne w s e curitie s on top of the conve ntiona l s tocks a nd bonds boos ting fundra is ing

.ca pa c ity o f corpora tions

② As s e t Manage me nt bus ine s s

- It will be pos s ible to s tructure and offe r a varie ty o f cus tom ma de s e curitize d

, .de riva tive s indire ct inve s tme nt products a nd de riva tive s

3 1


■ Compe titive ne s s of inve s tme nt banks is e xpe cte d to s tre ngthe n on the back of

the re a liza tion of e conomy of s ca le as a re s ult of e xpande d bus ine s s s cope .as large as comme rcia l banks or ins urance companie s

[4 ] Achie ve e conom y of s ca le a fte r cons olida tion

Comme rcia l Bank

▶ ’ , Se cure FICs own a s s e ts ne e de d for princ ipa l inve s tm e nt e s s e ntia l to inve s tm e nt ba nking s e rvice s

▶ Expa nd bus ine s s opportunitie s by s ha ring cus tome r inform ation from e ach re s pe ctive bus ine s s a re a s uch as as s e t ma nage me nt a nd s e curitie s s e rvice s

Me rchant ba nk

.Se curitie s co

Future s.co

As s e t mngm

.co Trus t

.co

.Ins urance co .Cre dit finance co

Financ ia l

ins titution

for com m ons

Fina ncia l Se rvice

Comme rcia l bank .Ins urance co .Cre dit Fina nce co

Financia l ins titution

for com m ons

FICs( )Inve s tme nt Bank

▶ Re duce cos ts borne from as s e t m ana ge me nt fo llowing the e nla rge me nt o f ma na ge d a s s e tpoo l▶ Improve ma nage me nt e ffica cy through s haring e le c tronic e quipm e nts and back office s

Structura l cha nge in the financ ia l indus try fo llowing the e na ctme nt o f ne w Act

Fina ncia l Se rvice

3 2


■ 4 0 % 1 0 0 About of re gula tions conce rning ca pita l m a rke t to be s cra ppe d or m itiga te d

1 0

Ne wlye s ta blis h

1 00

Curre nt Unde r re form

7 054 0

Afte r re form Eas eScrap

■ :Major re gula tions to be s cra ppe d a re on the fo llowing

▶ , Prohibition of concurre nt e ngage me nt in s e curitie s future s and as s e t manage me nt s e rvice s

▶ Re s triction on financia l inve s tme nt products

▶ Re s triction on type s of ve hicle s for colle ctive inve s tme nt s che me and cla s s e s of indire ct inve s tme nt s e curitie s

▶ Re s triction on manage me nt of proprie tary as s e ts owne d by as s e t , manage me nt company trus t company and me rchant bank

▶ Obliga tory re gis tra tion with the Financia l Supe rvis ory Commis s ion by s e curitie s is s ue rs

[5 ] Bring re gula tory re form

3 3


[6 ] Tra ns pare ncy in pe na ltie s

■ Spe cifica tion of re gula tions for the bas is of pe na ltie s

▶ * Pre vious la ws conta ine d c la us e s that did not c le a rly s ta te the e xact vio la tion for which

s pe c ific

, pe na ltie s we re give n but ra the r lis te d the type s of pos s ible pe na ltie s re s ulting from

vio la tions

* “ , , Where any officer of a financial institution intentionally violates this Act or any regulations orders

or instructions under this Act ~” ( ) ( ) The re as ons for pe na lty vio la tion a nd the type of pe na lty s a nction a re lis te d in

de ta il

thus le a ding to trans pa re ncy & e na bling a dva nce knowle dge of the e xa ct pe na lty

re s ulting

from a s pe c ific vio la tion

3 5( ~ 2007.6)

Promulgation/Promulgation/Preparation of sublawsPreparation of sublaws

IV. Tim e line MINISTRY OF FINANCE AND ECONOMY

[1 ] Expe cte d Tim e line

Trans fe r to the

Gove rnme nt

National AssemblyNational Assembly

■ Sta nding Committe e

▶ -De bate a t Sub committe e

▶ Public he aring

▶ Sugge s tions by the Standing Committe e

■ Le gis la tion & Judicia ry Committe e

▶ - - Artic le by article e xamination

■ Re s olution at the ple nary s e s s ion

1 year later(~ 2008.6)

Declaration ofDeclaration ofbusiness activitybusiness activity

EnforcementEnforcement

6 months later(~2008.12)

Submis s ion to the Nationa l As s e mbly(2 0 06 .1 2 )

3 6


■ - Propos e d le gis la tion s ubm itte d to the Na tiona l As s e m bly ye a r e nd of2 0 0 6

▶ : Fe b Announce me nt of plan for propos e d bill on FISCMA

▶ ~ : 7 - 4 Mar May Financia l s e ctor le ve l Information Se s s ions and Publiche arings

▶ : Jun / Cons ulta tion with othe r conce rne d minis trie s Public Notice conce rningle gis la tion

▶ ~ : Aug De c Scre e ning by Re gula tory Re form Committe e a nd the Minis try ofLe gis la tion

▶ : De c , Afte r de libe ration by the Sta te council bill s ubmitte d to the Na tiona lAs s e mbly

[2 ] Pre vious De ve lopm e nts

[3 ] Future De ve lopm e nts

■ 2 0 0 7Efforts will be ma de to re ce ive a pprova l within the firs t ha lf of

▶ Extraordinary s e s s ions of the Nationa l As s e mbly are planne d for April and June during the firs t ha lf of this ye ar

▶ , Afte r public he aring re vie w by the Standing committe e and the Le gis la tion & , Judic iary Committe e the bill will re ce ive a re s olution a t the ple nary s e s s ion

▶ Be ing the product of the conve rge nce of nume rous opinions co lle cte d on thepropos e d

, e na ctme nt utmos t e fforts will be made to pas s the law within the firs t ha lf of thisye a r

3 7


■ 1 8 A gra ce pe riod of m onths until e nforce me nt fo llowingprom ulgation

of the ne w la w

▶ Suffic ie nt grace pe riod will be grante d until e nforce me nt da te to a llow marke t partic ipants and the s upe rvis ory authoritie s to make pre para tions

▶ , For a s mooth imple me ntation of the ne w re gime de claration of bus ine s sactivitie s

of the e xis ting financia l inve s tme nt s e rvice s companie s will be re quire d 6 - during a month pe riod prior to e nforce me nt

■ , Following e nactm e nt s ubla ws will a ls o be cons olida te d

▶ , , , Enforce me nt de cre e s minis te ria l ordinance s announce me nts s upe rvis ory re gula tions and othe r laws will be cons olida te d into s ublaws by functions

▶ The curre nt financia l s upe rvis ion s ys te m divide d by indus try type will a ls o be change d into a functiona l re gula tory s ys te m

[4 ] Propos e d da te of e nforce m e nt



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