Chairman Na Jae-cheol: "Thoroughly Prepare for Deteriorating Domestic and International Economic Conditions... Urgent Need to Create Conditions for Foreign Investors' Buying"

KOFIA Emphasizes Risk Management with Industry
"Need for Policies to Attract Foreign Investors"
Default Option Implemented on 12th... Product Launch from October
Principal-Protected Standalone Products Disadvantageous
Approach from 'Management' Perspective Rather Than Industry Advantages
Highlights Improvement of Private Equity Fund Regulations

Na Jae-cheol, Chairman of the Korea Financial Investment Association, is delivering a greeting at the opening ceremony of the investor education platform 'R2 Plus' held at the Korea Financial Investment Association in Yeouido, Seoul on the 14th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Hwang Yoon-joo] On the 12th, Na Jae-cheol, Chairman of the Korea Financial Investment Association, stated that he would actively cooperate with the government's policy of proactively responding to macroeconomic risk factors. He also advised that subscribing solely to principal-guaranteed products under the default option system, which takes effect from this day, could be disadvantageous. Furthermore, he emphasized that in line with the new government's regulatory reform policy, the association will play a role in advancing the capital market by entering the digital asset business and improving private equity fund regulations.

Chairman Na held a summer press conference in Yeouido in the morning and said, "We are working closely with the industry to ensure autonomous risk management so that worsening domestic and international economic factors do not undermine the stability of the capital market."

He added, "Although the risk factors are currently not significant, we will thoroughly prepare for any further deterioration in domestic and international economic conditions."

[Image source=Yonhap News]

◆ Increased Burden on Stock Market Due to High-Intensity Tightening... Policies Needed to Attract Foreign Investment= This year, the U.S. Federal Reserve (Fed) has raised interest rates faster than expected, increasing pressure on both the stock and bond markets. The situation is compounded by a strong dollar, leading to the disappearance of major buyers such as foreign investors.

According to the Korea Financial Investment Association, the foreign ownership ratio in the domestic stock market has decreased from 34% at the end of 2019 to 27% currently, and the size of domestic public equity funds has shrunk from 57 trillion won at the end of last year to about 50 trillion won now.

[Image source=Yonhap News]

As a measure to revitalize the domestic stock market, Chairman Na said, "It is urgent to create conditions that attract foreign investment through policies that enhance the attractiveness of the Korean market and enable pension funds and other funds to purchase stocks."

He also diagnosed, "Policy support is needed to shift excessively high individual direct investments to indirect investments through funds and pensions, thereby increasing the purchasing power of institutions."

◆ Default Option Implementation: "Retirement Pension Products Should Be Approached from an Operational Perspective"= The main reason Chairman Na held the press conference was the implementation of the default option system (pre-designated operation system) starting today. He stated, "We will contribute to retirement preparation and national asset formation through the capital market with the implementation of the default option."

Since the system was designed as a 'subscriber choice-type default option system,' both performance dividend products and principal-guaranteed products are included as default option products.

Chairman Na said, "From the subscriber's perspective, selecting only principal-guaranteed products as the default option is not a rational decision," adding, "A six-week waiting period is required for the default option to apply, during which the interest rate of principal-guaranteed products may not be applied." In other words, if one prefers principal-guaranteed products, it is advantageous to give direct management instructions immediately rather than relying on the default option.

Chairman Na mentioned that recently launched standalone ETFs such as TDF-type and TRF-type ETFs require sufficient track record and market verification. He explained that it is entirely possible to include ETFs in TDF or BF for operation, so excluding ETFs does not necessarily imply poor returns.

Above all, rather than weighing the pros and cons of default option products by industry sector, he emphasized that retirement pensions should be viewed from the perspective of 'portfolio management.' He reiterated, "(Retirement pensions) must build appropriate portfolios and rebalance according to various financial market conditions such as interest rates, exchange rates, and oil prices to minimize volatility and achieve stable long-term returns."

Meanwhile, the actual launch of default option products is expected to be possible after October, following product applications, preliminary reviews, and main reviews.

Lee Bok-hyun, Governor of the Financial Supervisory Service, is taking a commemorative photo with attendees at the 'Financial Investment Sector CEO Meeting' held at the Korea Financial Investment Association in Yeongdeungpo-gu, Seoul, on the afternoon of the 28th. Photo by Kang Jin-hyung aymsdream@

◆ Private Equity Fund Regulation Improvement... Demand for Allowing Sales with Prior Consent= Chairman Na also expressed his intention to actively support the new government's regulatory innovation efforts, citing private equity fund regulation improvement as a representative example.

When asked about issues to propose to financial authorities related to asset management companies, he pointed out, "With the restructuring of private equity funds significantly strengthening investor protection, private fund managers are finding it difficult to secure custodians and distributors," and "For newly established private fund managers, business operations may become virtually impossible."

Chairman Na emphasized, "Restricting solicitation even with the consent of qualified investors who are considered more professional or capable of bearing risks than public fund investors runs counter to the fundamental regulatory intent of public and private funds," adding, "Sales solicitation should be allowed with the customer's prior consent."

However, the newly appointed Financial Supervisory Service Governor Lee Bok-hyun's somewhat conservative stance, including strengthening private equity fund monitoring functions, remains a variable.

Reflecting this atmosphere, Chairman Na also expressed a commitment to strengthening internal controls of private equity funds. He said, "We will strive to make private equity funds a trusted investment destination," and "We will continue to enhance internal control and risk management systems for private fund managers supported in the first half of the year."

◆ Participation in New Foreign Exchange Act Legislation... Expressed Willingness to Support Digital Asset Business Entry= Additionally, he expressed a strong willingness to actively participate in the government's efforts to legislate the new Foreign Exchange Act. Recently, the government has been promoting the enactment of the new Foreign Exchange Act, which includes abolishing the prior reporting obligation for foreign exchange transactions.

Taking advantage of the introduction of BDCs (Business Development Companies), plans are underway to actively expand venture capital supply. Chairman Na stated, "We have proposed to financial authorities improvements such as NCR risk value adjustments to facilitate IB business activation of overseas corporations and smooth investments in PEFs and BDCs."

The securities industry's entry into the digital asset business is also a major focus, as interest in digital asset businesses such as virtual assets and NFTs is high within the financial investment industry.

Chairman Na said, "The association will effectively convey the industry's opinions on the Digital Asset Basic Act currently being promoted by the government to the National Assembly and government authorities," adding, "As discussions on applying the Capital Markets Act to security tokens (STO) are underway, we will strive to devise measures that maximize the advantages of digital assets while ensuring robust investor protection."

This content was produced with the assistance of AI translation services.