November 28, 2024

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The Financial Services Commission in Seoul (Yonhap)

The Financial Services Commission will revise the net capital ratio regulation to create a more favorable environment for Korean investment firms' overseas lending business, the financial regulator said Monday.

At a seminar held at the Korea Exchange Monday, many securities firms here -- including Mirae Asset Securities -- raised the issue on how the current regulation makes it difficult to conduct their business outside of Korea.

Currently, all investment firms are obligated to maintain a net capital ratio of at least 100 percent. This net capital ratio, which indicates the financial stability of securities firms, is calculated based on credit risk.

The problem is that credit risk for loans given by securities companies to domestic corporations ranges from 1.6 percent to 32 percent depending on the borrower, but when foreign subsidiaries lend funds, the credit risk is set uniformly at 100 percent.

The FSC said it would take action to address the problem.

“We will revise regulations to apply the same credit risk level that is used for parent firms to overseas subsidiaries,” Lee Yoon-su, the FSC director of the capital markets bureau, said during the seminar.

Meanwhile, the FSC also said it will work with lawmakers on allowing cornerstone investments, which was proposed by many private equity funds including MBK Partners as a way to enhance the stability of the initial public offering market.

Cornerstone investors commit to a long-term investment in a portion of the shares in an upcoming IPO at a price to be determined later, in exchange for the allocation of the shares. It is considered a stabilizing method for the IPO market as it can increase the popularity of the offering.

Lee also said the FSC will continue to pursue previously announced initiatives, such as repealing the registration requirement for foreign investors, expanding the English disclosure of listed companies, and improving dividend procedures to attract more foreign investments in Korea.

Monday's seminar, the second in a total of five, was organized to discuss specific action plans and tasks for supporting Korean financial firms’ global expansion with various experts from the field.

The event was sponsored by the FSC and the Korea Exchange and co-hosted by the Korea Financial Investment Association and the Korea Capital Market Institute.

By Song Seung-hyun (ssh@heraldcorp.com)