The Ministry of Finance and Economy (Mofe) in Korea recently announced that the Bill on Financial Investment Services and Capital Markets will be submitted to the National Assembly before the end of 2006.
The Bill is designed to streamline the current system, under which individual regulations separately govern capital markets, by consolidating various relevant regulations. The Bill lays the foundation for emergence of competitive investment banks and puts advanced investor protection mechanisms in place to promote investor confidence in capital markets.
The Bill broadens the definition of financial investment products, so that the new system can embrace all future products with a view to keeping pace with rapidly developing financial investment markets. It also broadens the permissible types of derivatives and securitized derivatives to allow structuring of a diverse range of derivatives and securitized derivatives based on all types of underlying assets with measurable risk.
Financial investment services are classified into six main categories: dealing, arranging, asset management, discretionary and non-discretionary investment advisory services, and asset custodian management. A financial company will be able to concurrently engage in all of these services.
The Bill also implements a system that permits, in principle, a financial company to engage in non-financial services that are incidental to carrying out financial investment services, with a view to broadening the scope of services that a financial company can provide.
The types of vehicles eligible for use as collective investment scheme vehicles, currently restricted to investment trust, joint-stock company and partnership, will be expanded to include the limited liability company, partnership (including public offering), anonymous partnership and general partnership. And the current fund categories consisting of securities fund, derivatives fund, real estate fund, tangible asset fund, money market fund (MMF), fund of funds (FoF), and special asset fund will be reclassified into four main categories encompassing securities fund, real estate fund, special asset fund, and MMF, while removing restrictions on the scope and/or the type of assets to be managed by funds to enhance autonomy of the asset management.
Investors will be classified into professional and non-professional investors according to their risk-taking and hedging capabilities, as reflected in their expertise and total asset size. Unlike non-professional investors, who require adequate protection mechanisms, professional investors require less stringent regulations as they are better equipped to deal with any potential risks.