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Transcript
MEMBER’S REPORT th 11 Asia Oceania Regional Meeting 1. STATISTICAL POSITION (as of the end of 2005) 1.1 DATA AS OF DECEMBER 31, 2005 AND 2004 December 31, 2005 Number Net Assets under of Funds Management (USD bil.) December 31, 2004 Number Net Assets under of Funds Management (USD bil.) No. Type of Funds 1 Equity funds 696 25.7 499 8.2 2 Bond Funds 2,107 60.6 2,427 73.1 3 Hybrid Funds 2,708 39.9 2,752 34.1 4 Money Market Funds 365 63.9 403 56.5 5 Others 1,451 18.7 473 7.7 7,327 198.8 6,554 179.6 Grand Total Note: US 1 dollar ≒ 1,013.00 Korean won (KRW) on Dec. 31, 2005 US 1 dollar ≒ 1,035.10 Korean won (KRW) on Dec. 31, 2004 1.2 Total number of Asset Management / Investment Management companies managing mutual funds: 46 (2 specialized in SOC fund) 1. 3 Total assets under management: As a percentage of total stock market capitalization: Stock holdings of investment funds increased to 5.6% of total stock market capitalization from 3.2% at the end of 2004. * Bond holdings of investment funds remained at 11.5% of total listed bonds, the same level as of the end of 2004. 1 As a percentage of bank deposits: End of Year 2000 2001 2002 2003 2004 2005 2. Total Financial Sector 613.9 680,9 764.9 756.9 785.1 869.2 Funds (A) 141.3 156.2 174.9 140.6 179.6 198.8 (Unit: USD billion ) Bank Ratio Deposits (A/B) (B) 381.3 37% 429.5 36% 485.9 36% 504.4 31% 530.8 34% 580.1 34% DATA RELATING TO INVESTORS IN MUTUAL FUNDS/UNIT TRUSTS 2.1 Are any data available relating to the number of investors in the mutual fund industry ? No. 2.2 If yes, please provide the data for the last two years and the source of this data. 2.3 Are there data available separately for retail investors and institutional investors? No, but the number of accounts for investors is available. 2.4 If yes, please provide data separately for retail and institutional investors for the last two years. (Unit: USD bil.) End of Retail Investors Institutional Investors Total Year No. of No. of accounts Total accounts of Amount Amount No. of of Institutional amount Retail accounts Investors Investors 2004 4,397,394 59.4 84,476 72.2 4,481,870 179.6 (33.1%) (66.9%) 2005 8,992,620 72.2 128,558 126.6 9,121,178 198.8 (36.3%) (63.7%) * Parenthesis indicates the Proportion of total fund amount . 2 2.5 Does the Association play any role in promoting retail investment in the mutual fund industry? If so, please give details. The Indirect Investment Asset Management Business Act prescribes investor education as one of the roles of the Asset Management Association of Korea (AMAK). Some examples are: uploading education materials on the association’s web-site; dispatching professional lecturers on request to entities such as government organizations, schools, public institutions, etc.; and conducting seminars. Also, AMAK has been conducting education focused on the sales staff of distribution channels, which promotes the provision of suitable fund sales to retail investors. In addition, AMAK exercises a selfregulatory function applied to its members and regulates the public relations and advertising activities of the members, including the prevention of false advertisement and excessive competition among the members. Meanwhile, AMAK has been in discussions with the regulatory body to establish an education center, a separate legal entity from AMAK, in order to put more effort into investor education. 3. INTERNATIONAL INVESTMENT FUNDS 3.1 Are funds of other countries sold in the country ? Yes 3.2 Are your funds allowed to invest abroad ? Yes 3.3 If yes, please indicate number of funds, countries where allowed to invest, and value of sales for the year ending December 2005. Any developments in this area could be highlighted. There are no restrictions on the countries where funds may invest. (Unit: USD mil.) End year of 2003 2004 2005 the No. of funds 63 182 210 Stocks Bonds Others Total 254.3 700.8 1,147.6 607.4 770.4 663.4 522.4 2,546.5 3,099.4 1,384.1 4,017.7 4,910.4 3 4. LEGAL AND REGULATORY SITUATION 4.1 Any important developments in this area in the last two years may be highlighted. As of January 2004, the Indirect Investment Asset Management Business Act (AMBA) replaced the Securities Investment Trust Business Act (SITBA) enacted in 1968 for contractual type funds and the Securities Investment Companies Act (SICA) enacted in 1998 for corporate type funds. The AMBA aims to regulate financial institutions by function; that is, investment trusts, variable insurance accounts, and investment advisory & discretionary management services all come under the same act. Also it aims to improve the competitiveness/performance of funds by diversifying investment objects to areas such as real estate, commodities, and OTC derivatives as well as securities, and by expanding distribution channels such as direct sales and sales by insurance companies as well as sales by securities companies and banks. The National Assembly approved on September 10, 2004 a bill that allows the establishment of private equity funds (PEFs) in order to channel more money into stock investments, corporate restructuring, and social overhead capital spending. Previously, asset management companies could create such funds in the form of a mutual fund only for the purposes of a merger or acquisition (M&A). The law became effective from December 5, 2004. 5. DISTRIBUTION OF MUTUAL FUNDS 5.1 No 1 2 3 4 5 Statistical Position (As of Dec. 2005) No. of entities involved Percentage 36 65.0 19 32.7 6 2.3 to be allowed in 2006 Not allowed - Channel Securities firms Banks Insurers, etc. Direct sale by mutual funds Individual agents/brokers/ intermediaries 4 5.2 A brief commentary on developments in the area of distribution. Banks and securities firms were the only permitted distributors for investment funds until 2003. Banks have been allowed to distribute since the end of December 1998, and their market share has increased to 32.7% in 2005 from 26.7% in 2004. In particular, banks have played a major role in the sales boom of installment saving funds, especially from 2004, which has contributed greatly to the inducement of retail investors into the fund market. Also, insurers, which have been allowed to be distributors since from 2004, increased their market share to 1.9% in 2005. 6. SYSTEMS AND PRACTICES IN MARKETING OF FUNDS 6.1 Do the Regulations specify any maximum rates for commission to intermediaries/agents/brokers? If so, please indicate. Yes, ceilings exist for Front-End Sales Load and Contingent Deferred Sales Load (CDSL). 6.2 What is the maximum load allowed under Regulation and for what purpose is it used? According to the AMBA, the maximum load for Front-End Sales Load is 5/100 of the subscription amount while that for CDSL is 5/100 of the subscription amount or redemption amount. The ceiling is to protect investors from excessive sales load (Private-placement funds are excepted). 6.3 Are there any limits prescribed for sales and marketing expenses? If so, please specify. Yes, there is a sales fee, which is limited to the 5/100 of annual average assets (Private-placement funds are excepted). 6.4 Is there a general or specific Regulation or Rule governing intermediaries selling mutual fund schemes? If so, which agency administers the Regulations ? 5 Yes, a distributor shall set up a Code of Sales Conduct that prohibits any act of soliciting that involves any guarantees of an investment principal or other profits; any act of receiving a consideration for sales from investors (Fees directly related to sales shall be excluded.); any act to use the information acquired in connection with sales business of a third party for the interest of the distributor concerned; any act of fictitious indication or any other indication that may cause misunderstanding on important matters; and so on. The Ministry of Finance and Economy (MOFE) and Financial Supervisory Commission (FSC) administer the related regulations. 6.4 Is there a qualifying examination for intermediaries? If so, which agency conducts the exam and what are the details such as syllabus, passing marks, nature of conducting the exam, etc. Yes. The qualifying examination is conducted by AMAK from this year and requires two things: (1) completion of a training course of 30 hours related to the fund industry including laws, fund management and analysis, and sales ethics; and (2) passing the qualifying examination. Details such as the pass mark and syllabus have been discussed with the MOFE. It is expected that qualifying exams will be conducted very frequent this year to meet the expected high initial demand, but they will be conducted less frequently from next year. Previously, sales persons needed to take and complete a sales training course of only 30 hours. 6.6 Are there any regulatory or industry rules relating to marketing practices? Can mutual funds give gifts/prizes to distributors to encourage distribution of their funds? Can such gifts/prizes be given directly to investors? Are these covered by any regulation? Based on the AMBA, in principle, asset managers are not allowed to give gifts/prizes, although there is an exception that they can provide gifts/prizes up to a value of KRW100,100 to distributors, according to the “Code of Sales Conduct” of the AMAK, which is delegated by FSC. 6 7. CUT OFF TIMINGS FOR APPLICATION OF NAV 7.1 What is the system followed in respect of cut off timings? A new regulation for cut off timing has been effective from June 6, 2005. Under this new regulation, the cut-off timing for funds that invest more than 50% of their assets in stocks is 3:00 pm, and for other funds it is 5:00 p.m. 7.2 Are there any rules/regulation or are they left to the individual players? The cut off time is regulated by the AMBA and has to be followed by all players. 7.3 Do such cut off timings vary from Fund to Fund, or is it uniform for all types of funds/classes of funds? Please see above 7.1. 7.4 Are there any instances of late trading? Is late trading an issue and if so what steps are being taken by the Regulator and the industry association to curb such tendencies. There have been no instances of late trading; however, since the Korean regulators have been concerned about such a possibility, a new regulation for cut-off timing was adopted at the end of 2004 (For details, see above 7.1). Considering that distributors needed some time to prepare for this system, the new regulation has been effective from June 6, 2005. 7.5 8] Any specific suggestion to prevent such practices. PRICING ERRORS 8.1 Are there specific rules for reporting pricing errors to regulator? No; however, in case of pricing errors, the acceptable error margin is ±3/1000 based on the AMBA. When an error is beyond this margin, an asset management company shall immediately inform this to 7 investors individually as well as through its own web-site and through the web-sites of the AMAK and distributors. 8.2 Are there specific rules for compensating investors in the event of pricing error? No; however, there is a rule that an asset management company, a trustee company, a custodian, a distributor, etc. shall, in case of being liable to compensate any losses to indirect investors pursuant to the AMBA, assume joint and several liability for loss compensation where there exist any causes attributable to such companies. 9] RISK MANAGEMENT SYSTEMS 9.1 Is there a risk management system prescribed by the Regulator Yes 9.2 If yes, please give a brief description Asset management companies should draw up a Code for Risk Management and have personnel who take charge of such responsibility. The code shall include the management of trusted assets and the acceptable risk level for each asset and transaction. Also, asset management companies should report the code to the Financial Supervisory Service (FSS). 9.3 If no, does the Industry Association formulate any systems 9.4 If yes- please give a brief description 9.5 If no, what is the system followed in the industry 9.6 Does the industry follow any recovery/business continuity plan? Yes 8 system of disaster 9.7 If yes, please give brief details When asset management companies have outsourced accounting to transfer agents, the transfer agents shall be equipped with disaster recovery facilities in accordance with the Presidential Decree. 10] PERFORMANCE EVALUATION 10.1 Are there regulatory provisions relating to making and/or publishing performance evaluation? If so, give details. AMAK releases basic performance information about funds through its web-site and weekly publication, according to the AMBA. 10.2 Are there third party research or other performance evaluation? If so, give details. agencies doing Yes, there were three fund valuation companies as of the end of 2005. The requirements for the companies are: 1) Non-affiliated with asset management companies or distributors, 2) Paid-in-capital: min. KRW500 mil, and 3) employees: at least three (3) qualified evaluators 10.3 Are there Regulatory provisions relating to benchmark indices against which the performance of a mutual fund is to be assessed? According to the regulations of the FSC, the prospectus shall show a fund’s performance against a benchmark index such as the Korea Composite Stock Price Index (KOSPI), a representative indicator in the Korean market. 10.4 Does the Industry Association evaluation activities? undertake any performance AMAK releases basic performance information about investment funds, according to its own rule through its website and weekly publication. 9 Criteria for funds that are rated by AMAK are below: Type of Funds Equity funds & hybrid funds Net assets More than KRW5 billion Period since establishment Bond funds More than KRW10 billion More than 6 months More than 6 months for long-term funds More than 3 months for shortterm funds More than More than 1 month KRW10 billion AMAK prescribes performance measures, and the funds are rated by five categories based on performance; MMFs AAA AA A BBB BB 11] : : : : : top 20% top 40% to top 20% top 60% to top 40% top 80% to top 60% below top 80% ROLE OF MUTUAL FUNDS OFFERING PENSION FUNDS 11.1 Do mutual funds funds/schemes offer and manage their own pension Yes, asset management companies manage private and corporate pensions. In particular, the Corporate Pension system has been introduced in Korea from December 2005. The market size of corporate pensions is estimated to become about USD 95 billion by 2010. 11.2 If yes, please provide details such as number of funds, nature of pension funds, assets under management, fee structure etc. 10 Private Pensions <Private & Corporate Pensions> Characteristics of - Max. KRW 3 million per quarter Pension funds - Min. 10 Years Maturity - Tax Benefit No. of funds and - Stock Fund: 7 fund type - Hybrid Fund: 72 - Bond Fund: 50 AUM USD 1,155.5 million Fee Structure (%) Corporate Pensions Characteristics of Pension funds No. of funds and fund type Fee Structure (%) Average Management fee: 0.85 Average Sales fee: 1.10 Average Trustee fee: 0.05 Average total fee: 1.99 - Not mandatory - Tax benefit for 3 mil. won/year - Stock Fund: 9 - Hybrid Fund: 66 - Bond Fund: 19 - Derivatives Fund: 2 Average Management fee: 0.25 Average Sales fee: 0.51 Average Trustee fee: 0.02 Average total fee: 0.78 11.3 Are there separate guidelines for private pension funds No. However, based on the “Special Tax Exemption Control Law”, private pensions allow subscribers to defer tax on investment amounts and pay a lower tax rate at the time of withdrawal. 11.4 Is there a separate authority for regulating pension No 11.5 If yes, please give details. 11 12] ROLE OF MUTUAL FUNDS IN MANAGING FUNDS FOR INSURANCE AND PENSION COMPANIES 12.1 Do mutual funds manage funds for insurance companies Yes 12.2 If yes, please provide some details Insurance companies may use asset management companies and investment advisory and discretionary management services as well as their own management. However, mostly they entrust the management to asset management companies. 12.3 Do mutual funds manage funds of pension companies Yes 12.4 If yes, please provide some details Pension investment in mutual funds is as below: End of year 2001 2002 2003 2004 2005 Stock Fund 4.8 - Hybrid Fund 41.6 95.0 70.5 - Bond Fund 249.2 1,477.5 2,267.4 - MMF 310.8 1,603.3 715.9 1,515.6 884.5 (Unit: USD million) Others Total 2,158.2 2,766.0 601.6 3,175.8 3,059.6 3,309.8 3,650.5 Note: 1) US 1 dollar ≒ KRW 1,200 for 2001, 2002, 2003 Year US 1 dollar ≒ KRW1,035.10 for 2004 US 1 dollar ≒ KRW1,013.00 for 2005 2) The amount only includes some of the public pensions that are pooled for management under government policy. 3) With the introduction of the AMBA in 2004, most of the public pension pooling has been reclassified from securities funds to Fund of Funds. 12 13] ROLE OF ASSOCIATION 13.1 Does the association consist only of mutual funds/unit trusts or any other entities? If so, please specify. AMAK, established in 1996 and now based on the AMBA, is the only association representing the fund industry in Korea. It consists of asset manager members and associate members, which cover banks, securities firms, transfer agents, etc. From 2004, the range of members of AMAK has been expanded to include insurance companies that conduct the business of variable insurance products. 13.2 Are there different categories of members – If so please specify and indicate their voting rights and other obligations /responsibilities/fee structure? The voting rights of members are based on the annual fee ratio, which is normally 80% for asset management members and 20% for affiliated members. Classification Fee ratio Fee structure Voting rights Rights Asset Management Members 80% Subscription fee: (AMAK’s capital)/No. of members Annual fee: Based on the market share of AUM Mainly based on the annual fee ratio Can be members of BOD Affiliated Members 20% Subscription fee: No Annual fee: based on the market share of sales Based on the annual fee ratio Can be members of BOD 13.3 Briefly describe the role and functions of the Associations. The purpose of AMAK is to protect the interests of investors and those of its members by providing guidance for the sound development of the fund management industry. Details are below. 13 Classification Role as Legal Entity Role as SelfRegulatory Organization Contents 1. Maintain order & transparency among members in relation to the AMBA. - Disclosure of management performance reports among members - Enactment & approval of a standard trust deed - Registration of fund managers and notification of compliance officers 2. Investor Protection Program - Research on asset management industry & system 3. Investor education 1. Review incorrect and/or false data such as fund management reports that are submitted to AMAK pursuant to the Articles of the Association 2. Review & approve advertising materials 3. Supervise & monitor the distribution of funds 4. Manage & support Compliance Officer Committees & Self- Regulatory Committees 13.4 What is the funding pattern, system of contribution. Please refer to above 13.2. 13.5 Is there any financial support provided by Regulator/Government. If yes, please specify No. 13.6 Is the Association officially recognized as a self regulatory organization (SRO) by the Regulator? If yes, please specify the responsibilities, role and activities Yes, see above 13.3 13.7 If not, what is your view on the association becoming an SRO. Is it necessary, effective or not. Please give your observations/comments. 14 13.8 What more could the association do? With the adoption of the AMBA, AMAK’s members now include almost all financial institutions. With the help of the expansion of members, the role and responsibility of AMAK in the Korean financial market has been expanding to include encouraging sound and fair market practices and enhancing market transparency. 14] BUILDING INVESTOR CONFIDENCE IN FUND INDUSTRY 14.1 Does the Regulator play any role in building investor confidence? If yes, please describe in brief. Yes, the financial watchdog supervises financial market participants including asset managers and monitors their market practices such as fund sales and disclosure. 14.2 What does the Association do in this area? Please specify AMAK has strived to improve investor education by dispatching professional personnel to workplaces. In addition, AMAK has been conducting education for distributors. Also, it exercises a selfregulatory function applied to its members and regulates the public relations and advertising activities of the members, including the prevention of false advertisement and excessive competition among the members. 14.3 What do the members of the Association do? Please specify The members cooperate with and participate in various activities of AMAK and the efforts of the Korean government in order to regain investor confidence, for example by providing speakers for seminars related to investor education and so on. 14.4 What are the suggestions in this regard? AMAK believes that continued effort and the determination of market participants for investor confidence are one of the important factors. Also, sooner is always the best way. 15 15. ANY OTHER INFORMATION AMAK has been in discussions with the regulatory body to establish an education center, a separate legal entity from AMAK, in order to put more effort into investor education. Under this project, AMAK is going to utilize the “Investment Stability Fund” established in 1998 for the stability of the asset management industry. Since its primary purpose had been achieved, in 2003 it added investor education as one of its goals. The assets of the Fund totalled USD26.9 million as of the end of March 2005. The background for the education center is: First, asset management is becoming more important among Korean people since Korea is considered as one of the most rapidly aging societies among OECD nations. Second, the Korean government selected the asset management industry as the most crucial industry in its pursuit of developing Korea as a financial hub in North-east Asia. As a consequence, the government established the Korea Investment Corporation (KIC) in July 2005 for the purpose of managing free cash being generated from the public sector such as foreign reserves, public funds, etc. Third, with the popularity of Regular Savings Funds among retail investors and the introduction of Corporate Pension Plans, investor education is becoming even more important. 16