(1) Reasons for Proposal
As a follow up to “Comprehensive Improvements to Strengthen Investor Protection for Complex Financial Instruments (December 2019),” this Amendment reflects improvements to investor protection schemes in relation to the sale of financial investment instruments, etc.
(2) Major Provisions
A. Define complex financial investment instruments, etc. (Article 3-3)
Define complex financial investment instrument as a financial investment instrument whose maximum amount at which a principal loss may occur exceeds 20 percent of the principal, and where the method of price determination or the profit-loss structure is difficult for investors to understand.
B. Restrict methods used to fulfill the duty to inform (Article 53)
Accept only signatures, seals, and recordings as a means to confirm that an ordinary investor has understood a financial investment business entity's explanation of the details, investment risks etc., of a financial investment instrument. Exclude e-mail, mail, and ARS methods.
C. Tighten regulations on unethical acts of business by financial investment business entities (Article 68, Article 99, Article 109)
Require the recording of the selling process, prescribe a consideration period, and otherwise strengthen regulations on the sale of financial investment instruments to elderly investors and unsuitable investors, and regulations on the sale of complex financial investment instruments. Prescribe grounds to penalize OEM fund-related fund-selling companies.
D. Strengthen investor protection when changes are made to the method of specified money trust operation (Article 104)
Prescribe a compulsory procedure requiring the trustor to provide handwritten confirmation when the operation method of a specified money trust is modified to manage complex financial investment instruments, even if there is no change to the level of risk. Apply the principles of suitability and appropriateness, duty to inform, and prohibition of wrongful recommendations to assets acquired by a modified operation method.
E. Restrict submission of combined declarations on complex financial investment instruments (Article 121)
As a general rule, restrict the issuing of securities through combined declaration in the case of derivatives-linked securities that are complex financial investment instruments.
F. Clarify criteria for determining the sameness of securities (Article 129-2)
Specify criteria for determining the sameness of funding plans where a security has separate underlying assets or assets subject to management. Prescribe that the criteria for determining the sameness of securities shall be based on the individual who actually recruits or sells securities.
G. Strengthen ordinary investor requirements for hedge funds (Article 271)
Strengthen ordinary investor requirements for hedge funds by increasing the minimum investment amount from at least 100 million won to at least 300 million won (for funds with a leverage of at least 200 percent, increase from at least 300 million won to at least 500 million won).
