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[Legal Briefing on Capital Markets in Korea] Fall 2013 Issue 1


  Report on Collective Investment Scheme under Financial Investment Services and Capital Markets Act.   

Young-Joo Ashley Ahn  프로필보기


When the Collective Investment Scheme that was established in a foreign country desires to sell its foreign collective investment securities in the Republic of Korea(“Korea”), it shall have a prior authorization by the Financial Services Commission(“FSC”) pursuant to the Financial Investment Services and Capital Markets Act in Korea (“FISCMA”).

These procedures are commonly conducted by law firms that are located within Korea, and below will briefly explain the overall procedure under FISCMA, based on the frequently asked questions in the past.

In order to get authorization by the FSC as a Foreign Collective Investment Scheme, one must comply with all of the required qualifications as a foreign investment business entity and required sales qualification for foreign collective investment securities under FISCMA.

In relation to the aforementioned qualifications, FISCMA, by acknowledging that the professional investors1)  have the ability to better assess investments and to take greater risk, has simplified the requirements for the professional investors by applying different qualification standards of the foreign investment entity and the foreign collective investment securities.

The following summarizes the qualifications that are set forth in FISCMA.

Requisite

Details

Sales to ordinary investor

Sales to professional investor

Register of foreign Fund

Qualifications for the Fund

Place of issuance

Issued or expected to be issued under the laws of any member countries of OECD2) (excluding territories), Hong Kong or Singapore

N/A

Return of investment including redemption

Upon request by the investor, redemption of the invested amount must be available either directly or indirectly.

N/A

Sales commission

Expense regulations including sales commission and sales remuneration shall be clear and reasonable within the international standard

Other

Overseas public offering, restrictions on  investments in derivatives, and prohibition on short sale, etc.

           N/A

Return of investment including redemption

Scale of operating assets

At the end of the most recent business year, it must exceed one (1) trillion Korean Won, currently

N/A

Minimum equity capital

Must be more than minimum equity capital.

N/A

Liaison

A qualified person in charge of liaison in Korea must be present (asset management company, law firm, etc.)

N/A

No criminal or administrative actions

There shall not be any criminal penalty exceeding a fine or any administrative actions exceeding a suspension, within the past three (3) years.

Other registration requirements

Collective investment business entity related requirements

No persons of any collective investment business entities, including fund management entity or domestic investment trading business or investment brokerage business, may be in a period of suspensions of business.

Requirements on lawful establishment

The fund must be established or created lawfully under the laws of the established country

The regulations of the fund does not violate any applicable laws or impinge on the investors’ interests

Submission of registration statement and investment prospectus at the Financial Services Commission

In the event of ‘invitation to subscribe’3) to more than fifty (50) investors regarding the fund at issue, it is considered a public offering that there exists submission requirement. (Provided, if the amount does not exceed 1 billion Korean Won, no such requirement exists.)

Most of the professional investors are not included in the fifty person assessment thus not required in principle.

Note: Minimum equity capital requirements are set forth between the minimum of 1billion Korean Won and 8 billion Korean Won under the related regulations depending on the type of financial investment instrument and the type of investor.


As illustrated above, the sale of collective investment securities in Korea is classified into two types: public offering and private placement depending on the number of invited investors of collective investment securities. If the sale of collective investment securities in Korea falls under the definition of ‘public offering’ in FISCMA, FISCMA requires submission of a registration statement to the FSC.

In submitting the registration statement, protection of the investor is more strongly emphasized that it requires an investment prospectus to be mandatorily released as well as renewed at least once a year; FISCMA heightened penalty for false statement, and requires to state the risk factors, the risk management and the risk level of the fund.

Hence, in order to sell collective investment securities of collective investment scheme established in a foreign country in Korea, it is recommended to prepare for the registration and authorization procedure after determining whether to have a public offering or a private placement as well as whether to restrict the sales only to the professional investors, taking into considerations of the fund’s target purchaser.

In the next issue, details on the registration of the foreign collective investment scheme at the FSC will be illustrated.


FN 1) ① State; ② The Bank of Korea; ③ Financial Institutions specified by Presidential Decree including commercial bank pursuant to Banking Act, Korea Development Bank, Industrial Bank of Korea, Korea Eximbank, National Agricultural Cooperative Federation, Insurance company, Financial Investor, Financial Holding Company, The Credit Finance Association, or foreign financial institution similar to the above; ④ Stock listed corporations: Provided, That trading over-the-counter derivatives with a financial investment business entity shall be limited to cases where an investor notifies the financial investment business entity in writing of its willingness to be treated as a professional investor ⑤ Korea Deposit Insurance Corporation, Korea Securities Depository, Korea Exchange, Financial Supervisory Service, Collective Investment Institution, Korea Credit Guarantee Fund, Local Autonomous Entity, Domestic corporation listed in foreign exchange, foreign government, International Organizations established pursuant to treaties, Central Bank of foreign nation.

FN 2) Currently, there are thirty four member countries that have joined OECD, which include Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain , Sweden, Switzerland, Turkey, United Kingdom, United States

FN 3) ‘Invitation to subscribe’ in FISCMA means activities conducted in order to invite a certain person to acquire securities, of notifying that securities are to issued or sold, or providing information on the procedures for acquisition of such securities by placing an advertisement in a newspaper, a broadcasting medium, or a magazine; distributing printed ,matters, such as informative material or leaflets; holding a presentation session for inducing investments; or using an electronic communication means.







Lee, Kim & Yoon was founded in April of 2007 by young and enthusiastic attorneys who have gained years of experience in corporate law and corporate financing at major law firms and multinational corporations in the heart of financial district in Korea, Yeouido. With the motto "adding value to your business", lee, Kim & Yoon has gained and developed trust and value over the years by representing many domestic and foreign multinational corporations in the areas of corporate, corporate finance, M&A, IPO, Litigation, and Foreign Investment. It is the belief of Lee, Kim & Yoon that the clients are best served when supported by highly dedicated attorneys providing acute legal knowledge at a cost-efficient and expeditious service.


 

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