Improving Capital Market By Segment

To suit various changes following global financial crisis and foster international investment banking in Korea

In this exclusive written interview, Director-General Chin Woong-seob of the Capital Market Bureau of the Financial Services Commission (FSC), discusses plans to upgrade Korea's capital market to cope with changes in the global financial environment following the global financial crisis of recent years. One of the key elements of the plan is to foster investment banking by naming a leading securities firm to be a comprehensive financial investment services provider to spearhead the development of the investment banking sector, along with plans for each key capital market including infrastructure, financial firms, dealers and investors.
Following are excerpts of the interview:
Question: What strategies do you have for making the Korean capital market an advanced one?
Answer: We have to cope with the changes in the financial environment following the global financial crisis so that our capital market and industry will be able to generate reformative energy based on an autonomous basis. We plan to push the development of each segment of the capital market including infrastructure, financial firms, dealers and investors with tailor-made strategies for each of them. In the area of the financial industry, we plan to name a securities firm as a comprehensive financial investment services provider to lead the development of the investment banking sector. In order to develop the asset management sector, we plan to clear up the dividing lines in the asset management businesses and clean up the areas of financial trust and fund management. For reform of capital market infrastructure, we plan to introduce the ATS and licensing system for dealers. In order to remove the dangers in the management of the OTC derivative transactions, we plan to introduce a Central Counter Party (CCP) for financial investment transaction as agreed at the G-20 Summit.
We have to diversify the means for corporate finance to an advanced level, while removing the possibility of abuse for financial gain. We also plan to draw up a special regulation for listed corporations to help general meetings of companies' shareholders properly function.
In order to preclude various unfair transactions by overseas investment banks and hedge funds in Korea, we plan to tighten the loose domestic regulations on such unfair market practices as price manipulation, the use of insider information and others by improving laws on unfair transactions of securities.
Q: What about improving the system for initial public offerings?
A: We are in the process of improving the system for IPOs with a focus on the responsibilities of IPO firms and expanding the capacities of investment banks that take over the newly offered shares.
We also plan to strengthen the IPO managers' public notices on due diligence, and accounting firms confirmation processes as well. We will ensure that IPO firms select managers within three months from the IPO date so that due diligence can be fully done.
We also plan to draw up guidelines for the projection of the number of IPOs, and to ensure that IPO share prices are determined in a fair and transparent manner.
Q: What are some of your plans to strengthen the transparency of corporate management?
A: We plan to limit the abuse of financial operations by making management in business firms more transparent and systematically help to make shareholder meetings more significant. We also plan to limit the rights to take care of forfeited shares with no rights by the companies and make them responsible for issuing the pre-emptive rights certificates when issuing shares at a discount as part of the overall plan for the elimination of problems in share allocation.
We plan to make the shareholder meetings truly meaningful by abolishing the shadow voting system from 2015 and instead improve the power of attorney system. The shadow voting system has been abused by corporate management hindering shareholder meetings. We will also take into consideration the electronic voting system that has been introduced in the shadow voting system.
Also included in the plan is the replacement of the separable BW with a warrant system to help make the financial market sound and healthy.
Lead managers should be held responsible for false reports of share takeover and reimburse for damages incurred by false reports.
Business firms should be made responsible to report on their funds secured to increase their capital, such as the issuance of warrants, in order to make their management transparent.
Q: What are your plans to strengthen the functions of accountancy and auditing by outside auditors?
A: With regard to upgrading the transparency of accountancy in Korea, the IFRS, an international accounting standard, has been adopted by all financial firms and listed companies in Korea. From May, the financial statements for the first quarter were made based on IFRS, which showed that no problems occurred in the adaptation of the international accountant standard. All listed firms (1,411) whose operations end at yearend, last year, except one firm due to be dropped from the stock market, made their financial statements in the new format.
We are ready to extend official support to see that the IFRS takes a deep root in the future successfully with both business firms and investors adjusting to the new accountant standard in a seamless manner.
We will draw up measures to strengthen outside auditing by yearend.
The measures include strengthening the qualification of accounting firms that are to audit listed firms and financial companies by introducing the registration system for those accounting firms.
It will also include measures to have them backed up legally with all kinds of administrative support to create a legal basis to control the quality of audits.
It will also include measures to set up an accounting supervisory system within the companies to prevent damages from the use of false financial information so that the problems can be precluded before happening.
The plan also includes means to help small and medium-sized accounting firms to grow larger and specialized by improving the systems. nw

Director-Gen. Chin Woong-seob of the Capital Market Bureau of the Financial Services Commission.

Photo on Courtesy of FSC