Korea lowers hurdle for foreign fund managers

South Korea’s Securities and Futures Commission is likely to reduce the capital requirements for foreign fund managers seeking to establish an onshore investment trust and consulting management (ITCM) business, according to regulators.

At present, any foreign company seeking an ITCM license needs W7 trillion ($6.16 billion) in assets under management. The SFC is likely to reduce this to W5 trillion, says Lim Young-hwan, head of asset management affairs team in the Financial Supervisory Service’s (FSS) asset management supervision department. FSS handles day-to-day implementation of regulations, while the SFC is the senior body that makes final decisions.

Lim explains the W7 trillion figure was conjured two years ago to ensure stability and credibility of any foreign players in the volatile Korean mutual fund industry. Domestic investment trust companies have been much maligned since the 1998 financial crisis for their opaqueness and poor management. “The W7 trillion figure was required because we feared what could happen if there was a bankruptcy,” Lim says. The FSS has since decided to let its hair down, with the new rules likely to come into force early next year.

Choi Won-kyu, attorney at Kim & Chang, says while most foreign fund houses interested in getting an ITCM licence easily have W7 trillion under management, they often have this scattered among regional or country-specific legal entities, and hence don’t have one corporation that has assets of that size on paper. He says the new limit should give the top echelon of houses the necessary room to obtain a license. He adds that he has not heard of this upcoming change, but regulators are trying to accommodate foreign houses as they create a new asset management framework.

This change will be important because to date no foreign fund house has obtained an ITCM licence, which allows for the management – but not distribution – of domestic unit trusts. The other major burden associated with opening an ITCM branch is the requirement of five full-time licensed fund managers based in Korea; seven are required for an ITCM subsidiary. Such people qualified by international standards are rare in Korea. To date, foreigners have either sold their products from offshore or entered into joint ventures with domestic ITCMs. Choi says, however, several applications are pending and he expects the first foreign ITCM licenses to be awarded by early next year.