On June 27, 2016, the Financial Services Commission ("FSC") announced the proposed amendments to the Presidential Decree to the Financial Investment Services and Capital Markets Act (FSCMA). The amendments are anticipated to come into effect around November 2016.
Potential Impact: The changes, if implemented, should result in more opportunities for foreign fund managers to manage Korean investor's assets.
Major Change – Broader Definition of "Qualified Professional Investors":
While the proposed amendments are quite broad in scope, we highlight below the major change to the relevant regulations governing investment management business in Korea.
Under the existing regulations, an offshore fund that will be privately placed is eligible to register in Korea under the simplified private placement registration regime. Upon such registration, the offshore fund may be offered and sold to Qualified Professional Investors (QPIs). The current scope of QPIs include the Government, certain statutory pension funds and financial institutions, while excluding general corporates (i.e., non-financial institutions) and high net worth individuals.
Such target investor base is narrower than that of Korea-domiciled private funds, which are allowed to be offered and sold to certain qualified corporations and individuals. This has resulted in a disadvantage to offshore fund managers by limiting the scope of target investors, while also limiting the range of fund products available to general corporates and high net worth individuals (who have substantial investment experience and would not be in need of full investor protection measures typically required in a true retail offering).
To address this regulatory gap, the proposed amendment will expand the definition of QPIs to cover the following entities (in addition to the current scope of QPIs):
1. General corporates that are listed on the Korea Exchange;
2. General corporates that are listed on an offshore exchange;
3. General corporates that are "professional investors" (which is expected to be amended shortly to mean companies that have outstanding financial investments of KRW 5 billion or more, and are subject to external audit); and
4. Individual investors who are "professional investors" (which is expected to be amended shortly to mean individuals that: (i) have outstanding financial investments of KRW 500 million or more, and have annual income of KRW 100 million or more; or (ii) have outstanding financial investments of KRW 500 million or more, and total assets of KRW 1 billion or more).
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