All Mutual Finance Sectors Will Also Be Able to Raise Funds Through Securitized Bonds

Financial Services Commission Announces Legislative Notice for Amendment to Subordinate Regulations of the 'Asset Securitization Act'

From now on, all mutual finance sectors, including agricultural and fisheries cooperatives, credit cooperatives, and Saemaeul Geumgo, will be able to raise funds through the issuance of securitized securities regardless of whether they are central associations or unit cooperatives.

The Financial Services Commission announced on the 11th that it has given prior notice of the amendment to subordinate laws, including the Enforcement Decree of the "Asset Securitization Act," which contains these details.

This amendment lowers the threshold of the asset securitization system to enable many companies to conveniently raise funds. The credit rating requirement of the asset holder was excluded from the corporate requirements for issuing registered securitized securities. Instead, it was specified that among corporations subject to external audits, those with ▲ assets of 50 billion KRW or more ▲ capital impairment ratio below 50% ▲ and an unqualified audit opinion qualify.

The authorities estimate that the number of companies eligible to issue registered securitized securities among general companies will increase from about 3,000 to approximately 8,400.

In particular, while previously only some mutual finance central associations (credit unions and Saemaeul Geumgo) or unit cooperatives (agricultural and fisheries cooperatives) were defined as asset holders, the amendment improves the system to allow broad issuance of registered securitized securities across all mutual finance sectors without distinguishing between central associations and unit cooperatives.

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The risk retention regulation obligations of fund-raising entities have also been further specified. To manage the risk of deterioration in underlying assets, a risk retention regulation was introduced that obligates fund-raising entities to hold a portion of the securitized securities equity. Accordingly, the subordinate laws specify risk retention entities as those who have transferred or entrusted to special purpose companies (SPCs), etc. The risk retention ratio is set at 5% or more of the issuance balance, and a fine of up to 2 billion KRW can be imposed for violations of this obligation.

Additionally, since companies issuing securitized securities are required to disclose detailed information, the subordinate laws further specify the contents of information disclosure and mandate that the information be made easily accessible through the Korea Securities Depository website, among others.

The Financial Services Commission stated, "Once the legal amendments and subordinate law revisions are implemented, it is expected that more companies will be able to smoothly raise funds through asset securitization. Furthermore, with the introduction of risk sharing by fund-raising entities, the soundness of securitized securities will be enhanced, and transparent information disclosure will also be realized."

Meanwhile, the amendment to the subordinate laws of the Asset Securitization Act will be open for prior notice and regulatory change notice from today until September 20, after which it will undergo review by the Regulatory Reform Committee, the Ministry of Government Legislation, and approval by the Cabinet and Vice-Ministerial meetings. It is scheduled to be enforced from January 12 next year, coinciding with the enforcement date of the law.

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