February 2021 Amendment on the Korea Capital Markets Act(breaking news)

On February 23, 2021, the first subcommittee(chairperson Byunguk Kim) of the National Policy Committee of the National Assembly approved the Amendment of the Financial Investment Services and Capital Markets Act(the “Capital Markets Act”). This amendment contains what has been discussed from early as September 2018 (when a similar amendment was proposed)—the regulatory consolidation of “Private Equity Funds(PEF)” and “Hedge Funds”.

Since the July 2015 Amendment of the Capital Markets Act, multiple regulatory regimes for private funds were in place—one for “Private Equity Funds(PEF)” and another for “Hedge Funds”. PEFs (buyouts) had to hold at least 10% stake in a company to participate in the firm’s management; hedge funds could not exercise their voting rights attached to shares in excess of 10%. This dual regulatory regime was criticized for not being consistent with global regulatory trends, and hence hindering the Korean PEF market from expanding. This separating line will disappear pursuant to this amendment.

In addition, there used to be a 49-investor limit on PEFs catering to individual investors regardless of whether the investor had specialized knowledge and expertise. The Amendment expands the 49-investor limit to a 100 for institutional investors, whereas the 49-investor limit still remains for private investors.

With regards to the regulatory changes above, obligations in relation to investor protection will now be more stringent. Private funds in which private investors take part in will be obliged to make a quarterly report on asset management. Asset management companies will be required to inform private investors of their products.

This recent regulatory overhaul is anticipated by many to expand the Korean PEF market.

Cha & Kwon Law Offices will be back with further updates on this issue.

 Note,
 “National Policy Committee” of the National Assembly of the Republic of Korea is a type of standing committee pursuant to Article 37 of the National Assembly Act, which is in charge of matters pertaining to (a) the Office of Government Policy Coordination and the Office of Prime Minister; (b) the Ministry of Patriots and Veterans Affairs; (c) the Fair Trade Commission; (d) the Financial Services Commission; (e) the Anti-Corruption and Civil Rights Commission.