1. Background
As Korean financial companies have actively pushed into overseas markets recently, foreign direct investment through which a financial company acquires 10% or more equity has increased. In addition, when it comes to the method of foreign direct investment, instead of the direct investment in overseas subsidiaries, forms of indirect investment through overseas funds (an offshore financial company) have increased. Despite this change, however, the applicable Regulation on Financial Institution’s Overseas Expansion requires strict reporting procedures applicable to overseas funds or provides that daily business activities are to be reported, which has been pointed out to be a barrier to the financial institutions’ overseas expansion. In this regard, in a press release (Plan for amendment to the Regulation on Financial Institution’s Overseas Expansion for activation of financial institutions’ overseas expansion) dated November 3, 2021, the Financial Services Commission (“FSC”) announced that it would amend the said Regulation to simplify the reporting process which has imposed unnecessary burdens on the financial companies’ overseas business activities. This Regulation will be finally amended as resolved by FSC under its Notification.
2. Key Amendments
(1) No prior notification of a direct investment in overseas fund in the amount of $20 Million or less is required.
The current Regulation requires a prior notification before the direct investment in overseas funds irrespective of the amount of money invested. On the other hand, an ex post facto report is available for the investment in overseas corporations in the amount of $30 million or less. In this regard, the proposed amendment to the Regulation permits the ex post facto report within one month of an overseas fund investment not exceeding a certain amount ($20 million) in the same way as applicable to the investment in an overseas corporation.
(2) There is no need to report all changes in shareholding ratio one-by-one whenever overseas fund investment is made.
The current Regulation requires the financial companies to report the shareholding ratio when they invest 10% or more in an overseas fund, and details of changes thereof, to the Financial Supervisory Services of Korea. In the case of fund investment, however, the shareholding ratio must continue to change depending on changes in the investment amount of the other investors, even which is required to be reported one by one. In this regard, the proposed amendment to the Regulation imposes the obligation to report in accordance with the 10% rule only with respect to the initial fund investment, and then, no report of any subsequent changes in the shareholding ratio of a Korean financial company arising from changes in the shareholding ratios of other investors is required, unless there is additional investment increase.
(3) Daily business activities of an overseas branch are exempted from the obligation of prior notification.
The current Regulation imposes the obligation to report even daily business activities such as securities trading by an overseas branch of a financial company or loan transaction with a term exceeding one year. To improve this, the proposed amendment to the Regulation aims to improve the system in a way that respects the financial companies’ autonomy with regard to such daily business activities.
(4) Document to be submitted upon direct investment in an overseas listed company will be simplified.
The current Regulation requires that if a financial company makes an overseas investment through stocks other than financial services/insurance business, it shall submit an opinion letter from an accounting firm on the stock valuation whenever each investment is made, irrespective of whether the stocks are listed. In this regard, the proposed amendment to the Regulation, in principle, waives the obligation to submit the opinion letter of stock valuation (however, a proviso clause is added to ensure that FSC may request the financial company to submit the opinion letter in case there are risks of financial soundness/legal issues/management), since the investment in a listed company whose fair value is assessed in the market may be based on sufficient information on the investment target available.
3. Future Plan
According to the Financial Services Commission, the said amendments will be finalized as resolved by it during December.
As Korean financial companies have actively pushed into overseas markets recently, foreign direct investment through which a financial company acquires 10% or more equity has increased. In addition, when it comes to the method of foreign direct investment, instead of the direct investment in overseas subsidiaries, forms of indirect investment through overseas funds (an offshore financial company) have increased. Despite this change, however, the applicable Regulation on Financial Institution’s Overseas Expansion requires strict reporting procedures applicable to overseas funds or provides that daily business activities are to be reported, which has been pointed out to be a barrier to the financial institutions’ overseas expansion. In this regard, in a press release (Plan for amendment to the Regulation on Financial Institution’s Overseas Expansion for activation of financial institutions’ overseas expansion) dated November 3, 2021, the Financial Services Commission (“FSC”) announced that it would amend the said Regulation to simplify the reporting process which has imposed unnecessary burdens on the financial companies’ overseas business activities. This Regulation will be finally amended as resolved by FSC under its Notification.
2. Key Amendments
(1) No prior notification of a direct investment in overseas fund in the amount of $20 Million or less is required.
The current Regulation requires a prior notification before the direct investment in overseas funds irrespective of the amount of money invested. On the other hand, an ex post facto report is available for the investment in overseas corporations in the amount of $30 million or less. In this regard, the proposed amendment to the Regulation permits the ex post facto report within one month of an overseas fund investment not exceeding a certain amount ($20 million) in the same way as applicable to the investment in an overseas corporation.
(2) There is no need to report all changes in shareholding ratio one-by-one whenever overseas fund investment is made.
The current Regulation requires the financial companies to report the shareholding ratio when they invest 10% or more in an overseas fund, and details of changes thereof, to the Financial Supervisory Services of Korea. In the case of fund investment, however, the shareholding ratio must continue to change depending on changes in the investment amount of the other investors, even which is required to be reported one by one. In this regard, the proposed amendment to the Regulation imposes the obligation to report in accordance with the 10% rule only with respect to the initial fund investment, and then, no report of any subsequent changes in the shareholding ratio of a Korean financial company arising from changes in the shareholding ratios of other investors is required, unless there is additional investment increase.
(3) Daily business activities of an overseas branch are exempted from the obligation of prior notification.
The current Regulation imposes the obligation to report even daily business activities such as securities trading by an overseas branch of a financial company or loan transaction with a term exceeding one year. To improve this, the proposed amendment to the Regulation aims to improve the system in a way that respects the financial companies’ autonomy with regard to such daily business activities.
(4) Document to be submitted upon direct investment in an overseas listed company will be simplified.
The current Regulation requires that if a financial company makes an overseas investment through stocks other than financial services/insurance business, it shall submit an opinion letter from an accounting firm on the stock valuation whenever each investment is made, irrespective of whether the stocks are listed. In this regard, the proposed amendment to the Regulation, in principle, waives the obligation to submit the opinion letter of stock valuation (however, a proviso clause is added to ensure that FSC may request the financial company to submit the opinion letter in case there are risks of financial soundness/legal issues/management), since the investment in a listed company whose fair value is assessed in the market may be based on sufficient information on the investment target available.
3. Future Plan
According to the Financial Services Commission, the said amendments will be finalized as resolved by it during December.
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