(1) Reasons for Proposal

As the issue of protecting investors has been recently raised in the private-equity fund market about incomplete sales, liquidity management failure, violations and unfair practices in management, this Partial Amendment aims to reflect improvements to tackle such side effects, while improving some shortcomings observed in the operation of the system such as easing the deadline for public disclosure documentation by a credit rating company.

(2) Major Provisions

A. Include private-equity management companies in the scope of Type 2 financial investment business entities (Articles 3-6, 3-26, 3-27, 3-28, 3-36, and 4-40)

Impose obligations to maintain the minimum working capital on private-equity management companies like public offering management companies, recommend, request, and order improvements in management for failing to meet requirements, and exclude such entities from timely corrective action.

B. Clarify action taken for failing to implement the management improvement plan (Articles 3 through 34)

Clarify that not only authorization but also registration shall be canceled for the financial investment business in the event that any financial investment business entity which is ordered to improve its business fails to implement the management improvement plan. 

C. Specify more details to be included in a business report by asset management companies (Articles 3 through 66)

Make it mandatory to include the details of implementation of risk management policy and internal control policy when any asset management company with at least 200 billion won under management submits a business report. 

D. Change how to calculate assessed risks in a private-equity fund (Articles 4 through 54)

Consider the acquisition price of reference assets to be assessed risks in the event that if there is virtually the same effect as a loan through the total return swap (TRS) or its equivalent when calculating assessed risks in a private-equity fund. 

E. Strengthen requirements for a fund’s cross trading (Articles 4 through 59) 

Obligate assessment by an independent third party on all assets without any reliable market price when cross trading, and limit the monthly cross trading volume to be within 20% of the average assets under management in the 3 preceding months.

F. Specify obligations to provide an asset management risk report to ordinary private-equity fund investors (Articles 4 through 63)

Define that it is an unsound business activity for an asset management company to not provide ordinary private-equity fund investors with any report regarding asset management risk.

G. Specify more details to be included in a collective investment agreement by any fund managing assets through loans (Articles 7 through 8)

Reflect the possibility of loans and the maximum loan limits in a collective investment agreement in the event that a fund intends to be managed with loans. 

H. Specify more details to be reported by a private-equity fund to supervisory authorities (Articles 7 through 41-6)

Include and submit important asset management risk details under Articles 4 through 63 in a report by a private-equity fund to supervisory authorities.

I. Ease the deadline for public disclosure documentation by a credit rating company (Articles 8 through 19-7, 8 through 19-10, and 8 through 19-11)

Change the one which establishes standard internal control standards for credit rating companies from the Governor of the Financial Supervisory Service to a relevant association, clarify who has the obligations to check credit rating data, and specify the deadline for the submission of some public disclosure documentation.