Home Supervision Financial Institutions Prudential Regulation and Supervision Classification of Financial Services Businesses

Classification of Financial Services Businesses

Financial Investment Services Providers

The Financial Investment Services and Capital Markets Act (FSCMA), which governs securities and investment services, specifies six different types of financial investment services that may be offered by qualified financial services firms. The six services are: dealing, brokerage, collective investment scheme, investment advisory service, discretionary investment service, and trust service. Because the FSCMA provides for function-based supervision of the securities industry, the six business activities are open to all qualified financial services firms.

Primary Businesses

Primary businesses for financial investment services providers, which are financial services firms licensed to carry on one or more of the six financial investment services businessesㅡdealing, brokerage, collective investment scheme, investment advisory services, discretionary investment services, and trust servicesㅡare as follows:

Investment dealing
  • Investment dealing refers to proprietary buying and selling of an investment product (financial investment product) through the company’s proprietary account.
  • Investment dealing extends to underwriting securities on the behalf of an issuer and subscribing to the securities or making offers and accepting bids for the securities.
Investment brokerage
  • Investment brokerage refers to the business of non-proprietary buying and selling of financial investment products through customer accounts.
  • Investment brokerage services cover subscribing to an investment product for a customer or making offers and accepting bids for an investment product.
Collective Investment Scheme
  • Collective investment scheme (CIS) refers to the business of pooling investments from two or more investors and managing the investment in behalf of the investors.
  • Asset management companies are the most common CIS operators.
Investment Advisory Services
  • Companies offering investment advisory services engage in the business of providing advice on investment products and investment decisions in respect of such matters as investment to be bought and sold and the methods and the timing of the buying and selling.
  • In addition to investment advisory service companies, securities companies and asset management companies may offer investment advisory services.
  • Companies seeking to offer investment advisory services must register with the FSC/FSS.
Discretionary Investment Services
  • Companies providing discretionary investment services make partially or wholly discretionary investment decisions and manage the investments on behalf of customers.
  • Discretionary investment service companies, securities companies, and asset management companies provide in discretionary investment services.
  • Registration with the FSC/FSS is required for discretionary investment services.
Trust Services
  • Trust services refer to the business of managing assets of a trust settlor for the benefit of the designated beneficiary.
  • In addition to trust service companies, banks, securities companies, insurance companies, and asset management companies may engage in providing trust services.

Secondary Businesses

Because of the negative-list approach that the FSCMA takes for the regulation and supervision of financial investment services, there is no business activity specified as secondary. Financial services providers may engage in any businesses that are secondary to their primary business unless specifically provided otherwise under the law. To ensure an orderly process for secondary business, financial services firms must report to the FSC/FSS seven days in advance a secondary business to be started. The proposed secondary business may be delayed or denied in consideration of the safety and soundness of the company, investor protection, or risks posed to the market.

The range of services that may be offered by financial services companies as concurrent business together with the primary and secondary businesses vary widely from insurance agency to custodian services to payment settlement services. For services classified as Type 1 business, regulatory authorization/approval must be obtained. For services classified as Type 2, 3, or 4, the FSC/FSS must be notified of the new business seven days in advance before the start day for the concurrent business.

Financial Investment Services-Related Institutions

Certain securities industry associations and companies referred to as financial investment services-related institutions in the Financial Investment Services and Capital Markets Act also engage in limited activities that are closely related to financial investment services.

Korea Financial Investment Association: Korea Financial Investment Association (KOFIA) is the self-regulatory organization (SRO) for Korea’s securities industry. KOFIA’s main self-regulation activities include setting industry rules and regulations, inspecting member firms, and administering and registering various professional certifications. It also works to resolve disputes stemming from the business conduct of its member firms.

Korea Securities Depository

Korea Securities Depository (KSD) is Korea’s sole securities depository that provides centralized securities custody service, transfer services, and transaction settlement services.

Central Counterparties

Central counterparties (CCP) act as counterparties to securities transactions and provide confirmation services for transactions that are cleared.

Securities Finance Companies

Securities finance companies engage in the business of providing credit or lending securities to a broker or a dealer for the purchase or sale of financial investment products. They may also participate in securities underwriting and make securities available to facilitate transactions in the securities markets.

Merchant Banks

The primary businesses of merchant banks include short-term financing activities such as buying and selling of short-term notes, facilitating financing for facilities and operating funds, foreign currency-denominated borrowings, debt issuance, and debt guarantee services. A number of secondary and concurrent businesses are also open to merchant banks. There was one merchant bank operating at the end of 2015.

Money Brokerage Companies

Money brokerage companies provide funding brokerage services for large financial institutions including banks, insurance companies, and securities companies through instruments such as money market products, repurchase agreements, and commercial banks. Money brokerage companies are specifically prohibited from engaging in a financial investment services business, but they may carry on businesses closely related to money brokerage services with FSC/FSS authorization/approval.

Short-Term Finance Companies

Short-term finance companies carry on the business of issuing, discounting, trading, arranging, and underwriting corporate notes with maturity of up to one year. Companies that are licensed in broker/dealer businesses and engage in corporate note transactions not are short-term finance companies.