The government has restructured the integrated investment account (IMA) system, which had been left unattended for 8 years without detailed regulations. The IMA distinctly clarifies that integrated financial investment businesses (investment corporations) are responsible for principal payment obligations and mandates that products with maturities exceeding 1 year comprise over 70%. From a risk management perspective, the combined limit for issued notes and IMAs is restricted to 200% plus 100% of net equity. Business operators must prioritize the allocation of 5% of IMA operating assets as loss reserves through their own assets, and must additionally reserve amounts corresponding to incurred valuation losses.
The financial authorities plan to accept applications from integrated financial investment businesses for 4 trillion won (issued notes) and 8 trillion won (IMAs) in net equity during the third quarter of this year. They will also strengthen the qualification requirements for integrated financial investment businesses starting next year. Since new business activities equivalent to licensing will be permitted upon designation as an integrated financial investment business, requirements for business plans and personal sanction histories will be established. When designating an 8 trillion won investment corporation, major shareholder requirements equivalent to those of a license amendment will be introduced.
On the morning of the 9th, the Financial Services Commission held a meeting of CEOs from 10 integrated financial investment businesses at the Korea Financial Investment Association in Yeouido, Seoul, chaired by Chairman Kim Byeong-hwan, during which details on the 'measures to enhance competitiveness in corporate financing for the securities industry' were announced.
The IMA, which can only be acquired by securities firms with net equity exceeding 8 trillion won, is a system introduced in 2017 by the financial authorities with the aim of creating a 'Korean version of Goldman Sachs.' IMA business operators are responsible for principal payment obligations and can lend deposits entrusted by investors to corporations or invest in corporate bonds, among other things. The structure involves distributing operational profits back to investors later.
However, despite the passage of 8 years, the first IMA operator has yet to emerge. This is because the financial authorities have only presented an overarching vision for the IMA system without establishing specific operational guidelines. In the meantime, increasing calls have emerged to reinforce the role of integrated financial investment businesses as venture capital providers by revising and improving insufficient policies. This is the backdrop for the government's recent restructuring of the IMA.
The financial authorities clarified that the IMA is a product for which integrated financial investment businesses bear the principal payment obligation, allowing for the flexible design of closed-end, additional types, maturity-based, and performance-based products. However, if a maturity is set, the principal will only be paid at maturity. Losses may be incurred based on operational results when an investor terminates early.
The government mandated that the IMA should be composed of over 70% of products with a maturity of more than 1 year to serve as a smooth corporate finance supply tool. Similar to issued notes, the IMA must also mandatorily supply 25% of managed assets to venture capital. The operational limit for real estate-related assets will also be adjusted downward from 30% to 10%, consistent with issued notes.
Systems to enhance accountability in IMA operations for integrated financial investment businesses and prevent conflicts of interest will also be pursued. The Financial Services Commission plans to introduce a 5% seeding investment obligation currently applicable to publicly offered funds into the IMA, and to require regular issuance of operational reports. Restrictions similar to trusts on the transactions of proprietary assets and on self-dealing will also be applied.
The government plans to set the combined limit for issued notes and IMAs at 200% plus 100% of net equity (with a 200% limit for issued notes). Previously, the IMA was known as an unlimited product, but this time a clear limit has been proposed. Ko Sang-beom, Director of the Financial Services Commission's capital markets division, explained, "Both issued notes and IMAs impose principal payment obligations on integrated financial investment businesses, thus necessitating risk management."
The loss reserves system will also be strengthened. IMA business operators must prioritize reserving 5% of IMA operating assets as loss reserves through proprietary assets; if valuation losses occur in IMA operating assets, they must reserve additional corresponding amounts. The financial authorities will ensure that if loss reserves are sufficiently allocated, only 50% of the IMA operating assets will be reflected in the calculation of the net capital ratio (NCR) to secure operational capacity.
Currently, it is reported that the securities industry is preparing to launch medium-term (2-7 years) and medium-return (3-8%) IMA products. The Financial Services Commission noted, "The IMA is expected to be actively utilized for various corporate finance and venture capital supplies, such as corporate bonds, corporate loans, mezzanine investments, and venture investments, according to target revenue rates."
The government plans to accept applications for additional designations of integrated financial investment businesses during the third quarter of this year, based on the restructuring of the IMA system. Allowable business activities differ based on the net equity of integrated financial investment businesses, such as 3 trillion won (corporate credit offerings), 4 trillion won (issued notes), and 8 trillion won (IMA). The only two operators currently qualified for the IMA are Mirae Asset Securities and Korea Investment & Securities. Director Ko Sang-beom stated, "They could be designated as early as this year," adding, "They must launch products within one year of designation."
The securities firms that meet the qualification requirements for issued notes are Kiwoom Securities, Hana Securities, Meritz Securities, and Shinhan Investment Corp. Among these, the remaining securities firm, excluding Shinhan Investment Corp, is said to be ambitious. Samsung Securities, which has already surpassed the 4 trillion won net equity threshold, has not yet commenced the issued notes business and may submit applications in the second half of the year.
The government stated that starting this year, the qualification requirements for integrated financial investment businesses would be strengthened, and a phased designation principle would be applied. The most critical requirement, net equity, must be met for two consecutive periods based on the year's settlement of account. Once designated as an integrated financial investment business, new activities equivalent to licensing will be permitted, and new requirements for business plans and personal sanction history (social credit) will be established. When designating an 8 trillion won investment corporation (IMA), major shareholder requirements equivalent to those for a license amendment will be introduced.
Additionally, the financial authorities plan to gradually expand the corporate financing functions of integrated financial investment businesses, allowing them to operate for at least two years at each stage of 3 trillion won to 4 trillion won (issued notes) to 8 trillion won (IMA) before granting qualification for the next stage.