Introduction of a Specialized Investment Brokerage Firm for SME Finance

Enhancing Accessibility to Capital Markets for SMEs

[Asia Economy Reporter Kim Hyo-jin] A specialized investment brokerage company system for small and medium-sized enterprises (SMEs) will be introduced.

The Financial Services Commission (FSC) announced on the 16th that it reviewed 194 regulations at the 5th plenary meeting of the Regulatory Verification Committee and decided to improve 38 of them.

Through this, the FSC plans to introduce a specialized investment brokerage company system for SME finance (specialized private investment brokerage business) to enable SMEs to smoothly raise capital in the capital market.

Currently, the capital raising system through the capital market is designed mainly for listed companies, making access difficult for unlisted and small businesses, according to the FSC's assessment.

As of the end of 2018, the funding status of SMEs shows that loans account for 71.5%, policy funds 18.8%, while stocks and corporate bonds account for only 1.0%.

The FSC also decided to proceed with institutional improvements to strengthen investor protection.

First, to strengthen regulations on high-risk financial products, the FSC plans to establish a definition for complex financial investment products.

To enhance the effectiveness of the obligation to explain the possibility of investment losses, email, postal mail, and ARS will be excluded from the methods of confirming the fulfillment of the explanation obligation. Currently, in addition to signatures, name seals, and recordings, email, postal mail, and ARS are recognized as methods of fulfilling the explanation obligation.

Additionally, the FSC decided to exclude investors who sell shares of unlisted companies subject to business report submission on K-OTC, the unlisted stock trading market, from the number of subscription voters. This aims to remove trading restrictions within the K-OTC market.

Measures have also been prepared to facilitate securities companies' capital supply to productive sectors.

Accordingly, venture loans by securities companies will be added to the concurrent business of financial investment firms. Furthermore, to diversify securities companies' corporate finance business, loans for mergers and acquisitions (M&A), refinancing, and companies improving their financial structure will be added to corporate finance business.

The FSC also decided to allow credit extensions within certain limits to directly controlled subsidiaries without potential conflicts of interest with major shareholders or concerns about becoming private treasuries, to support the overseas expansion of comprehensive financial investment business operators.

To enable unlisted companies to more smoothly utilize securities-backed loans as a funding method, loans secured by non-deposit securities and loans secured by securities held by third parties (such as major shareholders) will also be permitted.

A plan to reorganize the licensing system to support innovative growth was also announced. The FSC decided to apply a registration system instead of a licensing system when investment brokerage and trading businesses that have already been licensed add business units within a certain scope.

The FSC also plans to revise subordinate laws in line with the amendment of the Enforcement Decree of the Capital Markets Act, which converts concurrent and incidental businesses to post-reporting and expands the scope of entrusted businesses.

Furthermore, the FSC decided to improve the system so that financial investment businesses can autonomously set their fiscal year according to the External Audit Act, and to ease the joint liability regulation for executives under the Capital Markets Act by limiting joint liability for damages to cases of intentional or gross negligence, judging that imposing joint liability on executives for minor negligence in the course of duty is excessive.

The FSC also plans to unify the basis for sanctions related to violations of the Financial Real Name Act under the Capital Markets Act with other financial sectors by using the Financial Real Name Act itself, and to improve supervisory administration by delegating the authority to impose fines below a certain amount to the Securities and Futures Commission to simplify the fine imposition process.

The FSC stated, "We plan to submit legislative improvement tasks to the National Assembly within this year, and aim to revise enforcement decrees unrelated to legislative amendments within this year."