Financial authorities will revise related laws to alleviate the phenomenon of large securities firms concentrating their funds solely in the real estate sector, allowing money to flow into productive areas such as venture capital.

According to the amended law, comprehensive financial investment businesses (comprehensive investment companies) that engage in issuing commercial paper and integrated investment accounts (IMA) are required to supply 25% of the funds corresponding to the amount of commercial paper and IMA raised from their total managed assets to domestic venture capital. The current limit of 30% for real estate-related asset management will decrease to 10%.

Financial authorities also decided to expand the scope of designated brokerage work for comprehensive investment companies from funds to include venture capital (VC), real estate investment trusts (REITs), and new technology associations to enhance their comprehensive financial service capabilities.

Chairperson Kim Byeong-hwan is giving a speech at the CEO meeting of comprehensive financial investment companies in April./Courtesy of News1

The Financial Services Commission has announced on the 15th the proposed amendments to the 'Enforcement Decree of the Capital Market and Financial Investment Business Act', 'Regulations on Financial Investment Business', and 'Supervisory Regulations on Financial Consumer Protection'. This is a follow-up measure to the 'Measures to Enhance the Corporate Financing Competitiveness of Securities Firms' announced last April.

The authorities will first require that comprehensive investment companies supply 25% of the funds corresponding to the amount of commercial paper and IMA raised from their total managed assets to domestic venture capital. This venture capital includes small and medium-sized enterprises, VC, new technology businesses, primary collateralized bond obligations (P-CBO), debt securities rated lower than A (excluding large corporate affiliates), medium-sized enterprises, collaborative payments, KOSDAQ venture funds, high-yield funds, materials and components funds, and fund of funds investments.

Currently, comprehensive investment companies with more than 4 trillion won in equity capital can raise up to 200% of their equity capital through commercial paper issued within a year. The funds raised are managed with over 50% in corporate finance and less than 30% in real estate. The financial authorities have determined that it is necessary to expand venture capital supply to support innovative economic growth and have established a new obligation to supply 25% in venture capital. However, to give comprehensive investment companies sufficient time to prepare, the proportion of mandatory venture capital supply will be gradually increased to 10% in 2026, 20% in 2027, and 25% in 2028.

Considering the situation where funds are concentrated solely in real estate project financing (PF), the real estate limit for managed assets under commercial paper and IMA has been gradually reduced from the current 30% to 15% in 2026 and 10% in 2027.

To ensure smooth corporate financing supply, the product characteristics of IMA will also be clarified. It will be legally specified that IMA is a principal repayment product (losses may occur to investors based on management performance in case of early termination), and the basis for applying market value or fair value standards for additional subscriptions or early terminations will be established. Additionally, taking into account that long-term funds are necessary for venture capital supply, more than 70% of IMA will be required to be composed of investments with a maturity of over one year.

In conjunction, authorities decided to expand the designated brokerage work of comprehensive investment companies, previously limited to funds, to include VC, REITs, and new technology associations to strengthen the provision of their comprehensive financial services. This decision was based on the assessment that their investment structures and revenue distribution methods are practically similar to those of funds.

The existing designation requirements for comprehensive investment companies will also be reformed. Currently, the equity capital requirement is assessed only at the time of application, but in the future, it must be continuously met based on the settlement of account standards for the last two business years in order to maintain investment company qualifications. Additionally, business plans and social credit must be evaluated as designation requirements, and new major shareholder requirements for revision authorization will be introduced at the level of 8 trillion won.

The government expects that the revision of this law will lead to the transition of funds from securities firms, which have been concentrated in real estate, to productive areas such as venture capital. The proposed amendments to the enforcement decree and regulations are expected to be promulgated after legislative notice until August 25.

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