1. Reason for revision
As “Capital Market and Financial Investment Business Act” (hereinafter referred to as Capital Market Act) was recently revised (Act No. 18128, promulgation on April 20, 2021, enforcement on October 21, 2021) with the contents to strengthen protection of private equity fund investors and to reorganize the system, it is intended to determine the matters to be legally delegated and to improve and supplement some insufficient points found in operation of current system.
2. Main content
A. Restriction of reentry of investment advisory and delegation business or general private collective investment business which had been registered but was ex officio canceled (Article 21.5 through 21.7 and Article 271-2.5 and 271-2.8 of draft)
Restriction of reentry of the company, major shareholders, and executives whose registration was ex officio canceled into financial investment business for certain period (five years) with establishment of ex officio cancellation system of financial investment business registration (Article 20-2 of Capital Market Act)
B. Liability for supplying manual of complex financial products (Article 68.5 of draft)
As the liability for preparation and issuance of core product manual on general private collective investment scheme (Article 249-4 of Capital Market Act), core product manual may be supplied to investors as the summary manual for private collective investment scheme of complex financial products.
C. Rule on unwholesome business activities of collective investment business operators (Article 87.4.1, Article 87.4.8-6, and Article 87.4.8-7 of draft)
The action to operate collective investment property in violation of the content stated in core product manual supplied by general private collective investment business operators to investors, the action to collect loan brokerage commission of collective investment scheme operated by the company,
D. Improvement of terms of private collective investment institutes for investment by collective FoF (Fund of Fund) scheme (Article 80.1.5-2, Article 80.1.5-3, Article 80.1.8-3, and Article 80.1.8-4 of draft)
Private collective investment scheme for private collective FoF scheme and collective investment scheme of real estate and special asset is improved as general private collective FoF scheme for non-investment under Article 249-7.5.1 or 249-7.5.2 of Capital Market Act.
E. Addition of items to be stated in asset operation report (Article 92.3 of draft)
Fluidity risk of collective investment scheme and the method to control such fluidity risk are added in the items of asset operation report to be supplied to investors.
F. Condition for setup and establishment of redemption-ban collective investment scheme (Article 242.2.5 of draft)
Collective investment scheme, which is general collective investment scheme to be invested by public-offering collective investment scheme or general investors and will invest in non-marketable assets designated and notified by Financial Services Commission exceeding the rate designated and notified by Financial Services Commission within 50% of total assets, shall be set and established as redemption-ban collective investment scheme.
G. Items to be stated in core product manual of general private collective investment scheme and verification items of selling companies are specified (Article 271-6.1 through 271-6.6 of draft).
As the liability of the company which recommends investment in or sells general private collective investment scheme to issue core product manual (Article 249-4.1 through 249-4.3 of Capital Market Act) is established, the items to be stated in core product manual, prior verification items, and range of investors for issuance and method of issuance are specified.
H. Procedure to confirm operation activities of the company which sells collective investment bond of general private collective investment scheme is specified (Article 271-6.7 through 271-6.10 of draft).
As the liability to confirm operation activities of a selling company is adopted (Article 249-4.4 through 29-44.7 of Capital Market Act), the company which sold collective investment bond of general private collective investment scheme shall confirm the operation activities of general private collective investment scheme through asset operation report and, if general private collective investment business operator does not satisfy the request of the selling company for correction of operation activities inconsistent with core product manual, the matters on report to Financial Services Commission are prescribed.
I. Subjects of investment advertisement by general private collective investment scheme (Article 271-6.11 of draft)
The condition for balance of financial investment products of general investors who may advertise investment in general private collective investment scheme is improved to meet the condition for qualified investors of general private collective investment scheme.
J. Reason for immediate report by general private collective investment scheme (Article 271-9.2 of draft)
If investment is made equivalent to 10% or more of the share of investment target company, the reason for immediate report after setup or establishment of general private collective investment scheme to be operated by the method under Article 249-5.1 or 2449-5.2 of Capital Market Act is prescribed with application of the reason for immediate report after setup or establishment of existing management-participation private collective investment scheme.
K. Limit, etc. of leverage ratio of private collective investment scheme is specified (Article 271-10.1 through 271-10.3 of draft).
When calculating leverage ratio, the amount of redemption-conditional sale of bond and the amount of sale of borrowed bond, which belong to borrowing in fact, is included.
L. Subjects of money loan for private collective investment scheme are specified (Article 271-10.8 through 271-10.12 of draft).
If private collective investment scheme is operated as the method of money loan, money loan to the company which operate the business under Article 4 of Enforcement Decree of Support for Small and Medium Enterprise Establishment Act and personal loan connected with a loan company or online investment connected financial company is prohibited and the range of investors to invest in private collective investment scheme to be operated with money loan is specified.
M. Investment for possible exercise of control power in fact is specified (Article 271-10.20 of draft).
The investment for possible exercise of control power in fact with application of the liability for disposition of the share possessed in collective investment property of private collective investment scheme within 15 years is specified as the investment for possible exercise of control power in fact in main management matters of investment target company such as appointment/dismissal of executives, the investment for possible exercise of control power in fact in determination of policies or execution of work such as reorganization and investment in new projects, etc., or the investment for possible control of investment target company with exercise of shareholder’s right in terms of distribution of shares.
N. The range to apply the liability of trustees to monitor operation activities are specified (Article 271-11.1 of draft).
As the liability of trustees to monitor operation activities of general private collective investment scheme is established (Article 249-8.2 of Capital Market Act), the subjects for application of liability for monitoring general private collective investment scheme for FoF are general private collective investment scheme to be invested by general investors and collective investment scheme to be invested by general investors.
O. Addition of the matter on report of establishment of an exclusive institutional private collective investment scheme (Article 271-13.1 through 271-13.2 of draft)
The case that an exclusive brokerage contract is made between exclusive institutional private collective investment scheme and integrated financial investment company, the matters on integrated financial investment companies, and the case that exclusive institutional private collective investment scheme is operated for participation in management are added in the matters to be reported when exclusive institutional private collective investment scheme is established.
P. Limited liability partners of an exclusive institutional private collective investment scheme are specified (Article 271-14.4 through 271-14.5 of draft).
As Capital Market Act (Article 249-11.6) prescribes that range of limited liability partners as the investors designated by the Presidential Decree as professional investors among non-individual entities (excluding foreigners and executives or operation personnel of workers of corresponding exclusive institutional private collective investment scheme) and as the investors equipped with professionalism or risk control capability and designated by the Presidential Decree, limited liability partners defined as country, the Bank of Korea, financial institutions, special corporations, exclusive institutional private collective investment scheme, pension fund or mutual aid association established under acts, foreigners equivalent to professional investors, and executives or operation personnel of business executive member making KRW 1 million of investment.
Q. Deletion of operation method of exclusive institutional private collective investment scheme (Article 271-15, Article 271-17, and Article 271-18 of draft)
As Capital Market Act is revised (Article 249-12.1 of Capital Market Act) so that the operation method of general private collective investment scheme is applied to exclusive institutional private collective investment scheme, the provisions on detailed operation method of existing management-participation private collective investment scheme are deleted.
R. The items to be reported such as operation situation, etc. of collective investment property of exclusive institutional private collective investment scheme are specified (Article 271-16.2 of draft).
The items to be reported for each exclusive institutional private collective investment scheme are specified as operation situation of collective investment property of exclusive institutional private collective investment scheme and the transactions which belong to borrowing in fact.
S. Detailed operation method of property of investment target company is improved (Article 271-19 of draft).
Operation method of property of investment target company is improved from application of operation method of existing management-participation private collective investment scheme to application of operation method of general private collective investment scheme.
T. The method of financial institutions, etc. under finance-related acts and subordinate statutes to operate exclusive institutional private collective investment scheme of business executive members is specified (Article 271-20 of draft).
Certain financial institutions, etc. among the financial institutions established under finance-related acts and subordinate statutes shall operate collective investment property by the same method with existing management-participation private collective investment scheme.
U. Qualification of professional investment operation personnel to be equipped with by business executive members is specified (Article 271-21.3 of draft).
As the condition for professional investment operation personnel is established as the condition for registration of business executive members (Article 249-15.1.3 of Capital Market Act), the condition for qualification of professional investment operation personnel is specified by Financial Services Commission as full-time executives/employees to satisfy the notification.
V. Subjects of money loan for private collective investment scheme are specified (Article 271-10.8 through 271-10.12 of draft).
As the liability to report the changes in registration of business executive member is established (Article 249-15.8 of Capital Market Act), minor matters excluded from the changes to be reported and the matter which are deemed to have been reported as the changes in exclusive institutional private collective investment scheme are specified.
W. Special case of enterprise groups to be publicly notified (Article 271-25.2 of draft)
As the subjects of exemption from liability of public notification of limited liability partners under Fair Trade Act are changed from the enterprise groups with limited mutual investment to the enterprise groups for public notification (Article 249-20.4 of Capital Market Act), the subjects exempted from liability of public notification are specified as the entities equipped with the condition under Article 249-18.2 of Capital Market Act among the enterprise groups for public notification.
