REGULATION ON BUSINESS DELEGATION OF FINANCIAL INSTITUTIONS

Transcription

1 The English translation of the financial supervisory regulations is not official and is intended for reference only. Neither the FSC nor the FSS is responsible for the correctness of the English translation, and the reader is advised to refer to the most up-to-date regulations in Korean. REGULATION ON BUSINESS DELEGATION OF FINANCIAL INSTITUTIONS Enacted on January 14, 2000 Amended on July 27, 2005 FSC Article 1. (Purpose) The purpose of this Regulation is to prescribe the matters regarding the Business Delegation (as defined below) or the Acceptance of Business Delegation (as defined below) by the Financial Institutions in performing their businesses which have been authorized, licensed or registered (hereinafter, authorized business ). Article 2. (Definitions) (1) Financial Institution used herein shall mean as follows <Amended on July 27, 2005>: 1. Financial institutions established by the Banking Act; 2. Credit business sector of the National Agricultural Cooperatives Federation under the Agricultural Cooperatives Act; 3. Credit business sector of the National Federation of Fisheries Cooperatives under the Fisheries Cooperatives Act; 4. The Industrial Bank of Korea under the Industrial Bank of Korea Act; 5. Trust companies under the Trust Business Act; 6. Mortgage-backed securitization companies under the Mortgage-Backed Securitization Company Act; 7. Mutual savings banks and their associations under the Mutual Savings Banks Act; 8. Merchant banks under the Act Concerning Merchant Banking Business; - 1 -

2 9. Credit specialized financial companies under the Credit Specialized Financial Business Act; 10. Insurance companies under the Insurance Business Act; 11. Securities companies under the Securities and Exchange Act; 12. Futures trading companies under the Futures Trading Act; 13. Credit unions and their associations under the Credit Unions Act and mutual finance sector of their associations in accordance with Article 95 of the same Act; 14. Other institutions or persons engaging in financial business and finance-related business as determined by the Governor of the Financial Supervisory Service (the Governor ). (2) Business Delegation used herein shall mean the continuing utilization by a Financial Institution of services or facilities of a third party (including an individual) in order to maintain its authorized financial business; provided, that the simple purchase or service agreement such as the maintenance of facilities, which are not directly relevant to the engagement of financial business, shall be excluded. <Newly established on July 27, 2005> (3) Acceptance of Business Delegation used herein shall mean the continuing performance by a Financial Institution of the business delegated by a third party. <Newly established on July 27, 2005> (4) Notwithstanding Paragraphs (2) and (3) above, the supply contracts in respect of services or facilities, etc. between local or overseas head office or branches of a domestic branch of a foreign Financial Institution shall be regarded as a Business Delegation or Acceptance of Business Delegation. <Newly established on July 27, 2005> Article 3. (Business Delegation, etc.) (1) In engaging the authorized business, a Financial Institution may delegate its business to a third party or be delegated by a third party the business, except the following cases: <Amended on July 27, 2005> 1. In case where the delegated business includes the essential factors of the authorized financial business; <Newly established on July 27, 2005> 2. In case where a Financial Institution is obliged to conduct the business by itself under relevant laws and regulations; <Newly established on July 27, 2005> 3. In case where the Business Delegation or Acceptance of Business Delegation may significantly undermine the soundness or creditworthiness of a Financial Institution, or may cause extreme concerns of disorders in the - 2 -

3 financial system or damage to the financial users. <Newly established on July 27, 2005> (2) The essential factors in Paragraph (1), item 1 above shall be specified in Appendix 1. <Amended on July 27, 2005> (3) In case where a Financial Institution delegates its business to a third party or is delegated by a third party pursuant to Paragraph (1), the Financial Institution shall make effort so that the delegated business can be performed appropriately after considering followings: 1. The cost and benefit analysis of the Business Delegation or Acceptance of Business Delegation; <Amended on July 27, 2005> 2. Possibility of Damages to financial users and disorders of the financial system; <Amended on July 27, 2005> 3. Matters of whether or not the Business Delegation or the Acceptance of Business Delegation being permissible under the relevant laws, especially regarding a third party; <Amended on July 27, 2005> 4. Matters of whether or not a third party being able to conduct the delegated business appropriately; <Amended on July 27, 2005> 5. Matters of whether or not the Business Delegation or Acceptance of Business Delegation being contrary to the applicable laws such as the Act on Real Name Financial Transactions and Guarantee of Secrecy. Article 3-2. (Standards for Business Delegation) In order to systematically manage the risks associated with the Business Delegation, etc. under Article 3, the Financial Institution shall establish and comply with its own standards for the business delegation, taking into account the financial areas and the characteristics of the counter party, according to the standards for business delegation in Appendix 2. <Newly established on July 27, 2005> Article 4. (Report) (1) In the event a Financial Institution intends to enter into an agreement with a third party in respect of the Business Delegation or an agreement with a third party (other than a Financial Institution) in respect of the Acceptance of Business Delegation pursuant to Article 3, Paragraph (1) above, the Financial Institution shall report thereon to the Governor within seven (7) business days, by using the form in <Annex Form 1> and attaching the following documents: 1. A copy of the agreement relating to the Business Delegation or Acceptance of Business Delegation; <Amended on July 27, 2005> - 3 -

4 2. Copies of opinions and related documents in respect of each item of Article 3, Paragraph (3); 3. Necessity of the Business Delegation or Acceptance of Business Delegation and its expected effect; <Amended on July 27, 2005> 4. Major changes in business procedures as a result of the Business Delegation or Acceptance of Business Delegation. <Amended on July 27, 2005> (2) Notwithstanding the provision of Paragraph (1) above, a Financial Institution shall not submit the prior report under Paragraph (1) above, but instead, shall submit a posterior report to the Governor every half year by the end of the following month of June or December by using the form in <Annex Form 2>, if business delegation falls in one of the following cases. In this case, the relevant association may compile the business delegation cases from its member Financial Institutions and submit the report in compilation. <Amended on July 27, 2005> 1. In case where the Business Delegation or Acceptance of Business Delegation is the same as the case already reported to the Governor by the Financial Institution or other Financial Institutions in the same business area and where the major business area of the counter party is same as that of the Financial Institution; <Amended on July 27, 2005> 2. In case where the Financial Institution has already reported to the Governor on the proposed Business Delegation or Acceptance of Business Delegation when reporting the relevant general terms and conditions (this exception shall be limited to the case of submission of the attachments pursuant to Paragraph (1)); <Amended on July 27, 2005> 3. In case where there is only a minor change in report compared to the preceded report already submitted to the Governor. (3) The Governor shall report to the Financial Supervisory Commission ( FSC ) on a half year basis on the summary of the Business Delegation or Acceptance of Business Delegation reported by the Financial Institutions pursuant to Paragraphs (1) and (2). <Amended on July 27, 2005> Article 5. (Recommendation of Amendment) The Governor may, when judging that the Business Delegation or the Acceptance of Business Delegation is not appropriate to the provisions of Article 3, take necessary measures against the Financial Institution, such as recommending amendment to the details of delegation structure. In this case, the Governor shall report the measures and the amendments thereof to the FSC without any delay. <Amended on July 27, 2005> - 4 -

5 Article 6. (Application) This Regulation may not apply to the cases where a Financial Institution delegates its business to a third party or is delegated by a third party the business in accordance with the statutes governing financial related matters. <Amended on July 27, 2005> Article 7. <Deleted on July 27, 2005> ADDENDA (January 14, 2000) Article 1. (Effective Date) This Regulation shall be effective on January 17, Article 2. (Interim Measurement) If a Financial Institution delegates a business or is delegated with a business before the time of enforcement of this Regulation, such delegation shall be deemed to have been made in accordance with this Regulation. Article 3. (Abolished Provisions) Concurrently with the enforcement of this Regulation, the following provisions shall be abolished: 1. Article 16 of Regulation on Supervision of Banking Business and Article 12 of the Enforcement Detailed Rules thereof 2. Article 80 of the Enforcement Detailed Rules of Regulation on Supervision of Credit Specialized Financial Company, etc. ADDENDA (July 27, 2005) Article 1. (Effective Date) This Regulation shall be effective as of the day of its promulgation

6 Article 2. (Interim Measurement) If a Financial Institution delegates a business to a third party or is delegated by a third party a business at the time of enforcement of this Regulation, this Regulation shall apply from the time when the relevant agreement is terminated

7 <Appendix 1> [Amended on July 27, 2005] Essential Factors of Licensed Financial Business Financial Business Essential Factors Deposits Execution of deposit agreement Proving debt obligation - Issuance of banker s check and certificate of deposit balance, etc. Loan Assessment and granting of loan (except for assessment of loan by a computer system between subsidiaries of a financial holding company) Execution of loan Exchange transaction Assessment and granting of exchange transaction-related matters Debt guarantee and acceptance of bills Money (or property) trust Granting (or approval) of debt guarantee and acceptance of bills Execution of guarantee agreement with the creditor Underwriting of trust Termination of trust Brokerage of securities Confirmation of customer information necessary for investment consultation, such as investment purpose, risk attitude, financial resources, etc. at the time of account opening Execution of account opening contract Investment solicitation and investment consultation (except for production of materials for investment solicitation) Receipt, delivery, execution and confirmation of orders Underwriting of securities Firm commitment underwriting, stand-by underwriting and arrangement of offering and sale Solicitation of subscription to buy or sell publicly offered securities Due diligence Demand forecasting Performance of subscription business of publicly offered securities Determination of offering price Allocation of publicly offered securities Dealing of securities Presentation of quotation for customers and execution of trades Insurance business Solicitation and execution of contract (Sale of insurance product) - Preparation for application - Receipt of notice, etc. Disclosure of insurer (management disclosure and disclosure of products, etc.) Assessment and determination of whether to underwrite insurance contract - 7 -

8 Financial Business Essential Factors Maintenance and management of insurance contract - Termination, invalidation and reinstatement, etc. - Management of receipt of insurance premium (including application form) Cession and assumption of reinsurance (including overseas Cession and assumption) - Execution of reinsurance contract - Calculation of reinsurance Reinsurance (National Agricultural Cooperative Federation, National Federation of Fisheries Cooperative, National Livestock Cooperatives Federation) Assessment and determination of whether to pay insurance proceeds Brokerage and Arrangement of Corporate M&A, etc Issuance, Discount, Sale and Purchase, Brokerage, Acceptance and Guarantee of Note CMA Futures Trading Business Consulting of M&A strategy and business management strategy Support of negotiation and determination of price Issuance, discount, sale and purchase, brokerage, acceptance, guarantee of notes and execution of CMA agreement Proving debt obligations - Issuance of certificate on note issuance, etc. Explanation on futures trading system and risks, etc. Receipt of futures trading order and execution of transaction Daily settlement of futures trading Management of margin Liquidation Cash settlement and physical delivery Credit Card Business Qualifications assessment as credit card member and approval of issuance of credit card - Except for simple business (including offering, confirmation of statement, etc.) accompanying no credit risk Creation of and change in credit card transaction limit Settlement of credit card payments Approval of credit card transactions - Except for unavoidable circumstances, including computer error, overseas transaction, etc. Facilities Lease Business Installment Financing Business Assessment and approval of lease Execution of lease agreement Execution of amended lease agreement Installment financing agreement by and between provider and user Assessment and approval of installment financing - 8 -

9 Financial Business New Technology Business Mortgage-backed Securitization Business Essential Factors Assessment and approval of subject to be invested and financed Execution of investment and financing agreement - Direct investment (acquisition of equity), indirect investment (acquisition of bonds), and conditioned loan, etc. Collection of profits - Listing of share (including registration with KOSDAQ) and sale of equity Establishment of new technology partnership and management and operation of funds Establishment and registration of securitization plan Registration of sale and purchase of mortgaged loans Documentation and keeping of details of mortgaged loans and its status Issuance of mortgage-backed securities Payment guarantee on mortgage-backed securities - 9 -

10 <Appendix 2> [Newly established on July 27, 2005] Standards for Business Delegation In the event a financial institution delegates, or accepts such delegation, of its business, the financial institution shall establish and maintain standards for business delegation, taking into account the following: 1. Measures for evaluation of risks associated with business delegation and measures for management of such risks; 2. Procedures for determination and termination of the business delegation agreement and matters regarding sub-delegation; 3. Matters regarding monitoring the performance of the delegated business; - Procedure for monitoring the major matters relating to performance of the delegated business (such as financial condition of the delegatee, risks, emergency measures and test result thereof, etc.), appointment of employee responsible for monitoring and matters regarding the system of reporting the delegated business to the management. 4. Matters regarding Protection of Customers Information - Separate management of customers information of the delegator, granting access only to authorized persons and security measures in case of violation of confidentiality agreements, such as the right to take measures against the delegatee. 5. Matters regarding Emergency Plan - Matters regarding measures upon occurrence of unforeseen events such as insolvency of delegatee or telecommunication malfunctions, etc. 6. Matters regarding Assurance of Access to Information relating to Delegated Business - Assurance of access by the regulatory authority or external or internal auditors to related materials 7. Main Provisions of Business Delegation Agreement - Scope of delegated business (period, contents, type, etc.); - Method of performance of delegated business;

11 8. Others - Responsibility for provision of information (including the important business information of the delegatee); - Powers of audit in respect of the delegatee; - Fees and considerations for business delegation; - Delegator s ownership to the information and materials in the course of the performance of the delegated business and the conditions for use of the physical facilities and intellectual property of the delegator; - Matters regarding protection of customers information and confidentiality; - Emergency plans including the security of the back-up system in order to secure the continuance of the business; - Provisions for indemnity, insurance, settlement of dispute (arbitration, reconciliation, etc.); - Scope of responsibilities of delegatee; - Provisions for cancellation or termination of the business delegation agreement (such as right of termination of the delegator, restoration of information, etc.); - Obligation to accept the investigation by the regulatory authority; - In case of a sub-delegation by the delegatee, specification of compliance with the original business delegation agreement; - Governing law and jurisdiction (if any party to the business delegation is located in foreign country); and - Other matters necessary for risk management according to the business delegation. - Taking into account the financial besiness areas it engages in and the characteristics of the counter party, the financial institution may add to and/or subtract from the above matters