The Revisions to Korea's Financial Investment Services and Capital Markets Act and Korean Securities Companies' Efforts to Diversify Their Earnings

Abstract

On 26 July 2011 Korea's Financial Services Commission (FSC) published a bill revising Korea's Financial Investment Services and Capital Markets Act (FSCMA), which is modeled on Japan's Financial Instruments and Exchange Law etc.

The bill contains five main provisions: (1) a new category of 'investment bank' for securities companies capitalized at KRW3 trillion or more which will allow them to engage in activities that securities companies are normally not allowed to engage in, (2) the deregulation of Korea's fund management industry to meet the challenges presented by the country's declining birth rate and aging population, (3) the reform of Korea's capital market infrastructure to permit alternative trading systems and, by extension, securities exchange operators other than Korea Exchange (KRX), (4) the diversification of direct financing channels, and (5) stricter regulation of unfair trading practices.

We can attribute the publication of the bill to an attempt by the Korean government, which wants to make Korea an international financial hub, to bring Korean capital markets closer into line with global standards. According to the FSC, the bill's third provision (namely, permitting alternative trading systems as part of the reform of Korea's capital market infrastructure) is intended to bring Korea closer into line with global standards, while the fourth and fifth provisions (namely, the diversification of direct financing channels and stricter regulation of unfair trading practices) can probably also be seen in this context.

However, the bill's main aim is to foster the development of major Korean investment banks able to compete with international rivals. This was also the main aim of the original FSCMA. However, our impression is that its apparent lack of success in achieving that aim has led the Korean authorities to propose further measures to speed up the development of investment banks in Korea.

Keywords: Korea, FSC, FSCMA, investment bank, ATS

JEL Classification: G15, G24