Korea moves to ease crowdfunding, asset management regulations

South Korea is moving to amend its finance and investment-related laws to allow more diverse players to utilize crowdfunding for raising capital and ease requirements for those engaging in the asset management business.

The Financial Services Commission said Tuesday that a bill to amend the Financial Investment Services and Capital Markets Act has been passed by the Cabinet.

As a result, the bill will now move to the National Assembly for further deliberation by the relevant committees. Korea’s chief financial regulator plans to submit the bill to the legislature within this month. 

The proposed bill came into motion after the FSC declared plans to revitalize the local crowdfunding ecosystem and to improve the asset management market. It aims to boost innovative small businesses and increase healthy competition in the sector.

A key point of the bill is extending those eligible to engage in crowdfunding from only companies less than seven years old, to all small and medium-sized companies.

It will also allow venture capital companies to form new corporations and private equity funds under the Support for Small and Medium Enterprises Establishment Act.

Moreover, “crowdfunding brokers” -- platforms that facilitate such activities -- will be permitted to provide business consulting to firms that raise capital through this method.

The bill also eases regulations regarding crowdfunding brokers. Employees no longer have to report their personal stock trading records to the authorities. They will also be permitted to own nonfinancial subsidiaries and be exempted from risk management protocols in place under corporate governance laws.

Strengthening the asset management sector by lowering the entry barrier is another major component of the bill, according to the FSC.

Under the bill, those seeking to engage in investment activities no longer have to file a separate application to register as an investment consulting business.

Moreover, a licensed PEF operator registering to become a “general partner” is exempt from meeting the qualification criteria on capital ratio, board qualification and social credit.

The bill also seeks to reduce the operational costs and improve autonomy. As part of such efforts, fund salesmen at commercial banks -- considered to be at a low risk of engaging in unfair trading activities -- will be allowed to submit their stock trading records once a year, instead of every quarter.

Funds will be required to submit an investment report every half year, instead of every quarter. They will be exempt from the obligation to submit the report to investors, if investors voluntarily decline the report.

To better protect fund investors, the bill will legally require all fund managers to report the details of their activities including number of funds in operation, profit margin and compensation measures. Until now, such reports were issued on a voluntary basis.

Funds found to be formed illegally, as well as foreign funds which have become defunct, will also be required to formally unregister themselves under the bill, the FSC said.

By Sohn Ji-young (jys@heraldcorp.com)