The Financial Services Commission decided to impose limit regulations on the comprehensive investment account (IMA) business that only super-large securities firms can undertake. This means that there will be restrictions on the amount of funds that securities firms can raise from customers through IMAs.
Initially, the industry expected that IMAs could accept deposits indefinitely, unlike issued bills. However, as commercial banks are also subject to regulations such as the capital adequacy ratio (BIS), there were many speculations that similar regulations would emerge for IMAs. Indeed, the Financial Services Commission is preparing detailed regulations on IMAs that include limit restrictions.
The biggest concern for the Financial Services Commission is differentiating between IMAs and issued bills. Both IMAs and issued bills function similarly in that they provide higher revenue than bank deposits by investing the money of customers. However, the key difference is that IMAs guarantee the principal, while issued bills do not.
Since domestic securities firms began issuing bills in 2017, there have been no instances of principal loss. To ensure that the IMA does not remain a nominal system, the Financial Services Commission must refine the detailed regulations to encourage qualified securities firms to actively participate in IMAs and provide reasons for customers to choose IMAs.
According to the financial authorities on the 24th, the Financial Services Commission plans to establish limit regulations that do not currently exist to designate the first IMA operator by March. Although the specific level has not been determined, it appears that total issuance of bills will be considered during discussions. Issued bills can only be issued within 200% of the capital. The IMA limit is also expected to be set at a multiple of the capital.
Issued bills and IMAs are both systems established to provide a means for the government to raise funds at low costs in order to grow domestic securities firms. Securities firms raise funds through issued bills, which are short-term bills that they issue based on their credit, and then they invest the profits gained from these investments in bonds and share them with customers. Securities firms with capital of over 4 trillion won can obtain permission from the Financial Services Commission to conduct issued bill operations. Mirae Asset Securities, Korea Investment & Securities, KB Securities, and NH Investment & Securities earn hundreds of millions to billions won per year from this business.
IMAs require a capital requirement of 8 trillion won or more, making them accessible only to larger securities firms. Currently, only Mirae Asset Securities and Korea Investment & Securities meet this capital requirement, and as there are no regulations in place, no securities firms have yet received approval for IMAs.
If issued bills are considered 'bills', IMAs are 'accounts'. Aside from this difference in type, both systems involve the securities firm receiving customer funds, investing them, and then paying the promised operational revenue, keeping the rest. Neither product benefits from deposit protection, which is limited to 50 million won. While losses can occur, unlike issued bills, IMAs obligate the securities firm to repay the principal. However, there have been no cases of principal losses from issued bills in the country.
This is the point of concern for the Financial Services Commission. If there is no difference between IMAs and issued bills, securities firms may refrain from venturing into new businesses that need investment. There are not many companies actively utilizing the issued bill system. According to recent quarterly reports, as of the end of September last year, only Korea Investment & Securities exceeded 95% of the issued bill balance against the limit. Both NH Investment & Securities and Mirae Asset Securities have not even utilized half of their limits.
Some securities firms claim that the regulations on investment destinations are too excessive, leading them to refrain from issuing bills. Issued bills were introduced with the intent of encouraging securities firms to actively discover and invest in growth-oriented corporations, but there are investment limits on relatively safe investment destinations. More than half of the funds raised through issued bills must be invested in corporate finance-related assets (loans, bills, securities, etc.). High-quality corporate bonds with a credit rating of 'AA' or higher are not recognized as corporate finance-related assets even if they are purchased in the market. Investments related to real estate are capped at 30%.
In the industry, there is a call for relaxed investment destination regulations for IMAs to succeed compared to issued bills. An official from a securities firm noted, "At present, I am unsure if the business viability of IMAs is more favorable than issued bills," adding that "the unique characteristics of IMAs that allow differentiation from issued bills must be highlighted to create demand."
Even if a securities firm expresses interest in conducting an IMA business, the relevant market will not be activated if there is no customer demand. This means that there must be at least one strength in terms of interest rates or principal guarantees compared to issued bills. A Financial Services Commission official stated, "We will work on the details so that securities firms have a reason to handle IMAs and that for investors, there is a meaningful aspect to investing in IMAs."