FSC reforms help SME fund raising

The government is easing regulations on firms specializing in SME fundraising and investment to help smaller companies and start-ups access capital.

“Once we have more brokerages focusing on SMEs, long-term investments in promising companies will take root,” Financial Service Commission (FSC) Chairman Choi Jong-ku said Monday.

“In order to enhance our nation’s economic vitality, we have to help investment flow into productive areas and into the right companies at the right time, which is the principle role of finance,” said the FSC chairman. “It is important that we have more specialized brokerages and an expansion of their roles to allow for bold investments into innovative companies with growth potential.”

The FSC chairman noted that the supplying of capital to these companies can be difficult.

“Among the 1,196 industrial complexes nationwide, there are only 16 brokerage branches located within these complexes,” he said.

Choi said the easing of regulations will help in the formation of investment brokerage companies specializing in SMEs and start-ups operating in industrial complexes in regions outside of the greater Seoul area or on college campuses.

It is the first measure the government has announced since it said in November 2018 it would work to make the capital markets better at funding innovative projects.

The FSC has lowered the bar for starting a brokerage firm if that company is specializing in SME investment. The government said it will also simplify the registration process.

Those hoping to begin a brokerage company would previously have to have their business plans evaluated. Under the revised rules, they will simply have to register.

The minimum capital for these companies has been set at 500 million won ($433,000), less than the 1.5 billion won required for brokerages whose clients are mainly institutional investors and the same as crowdfunding brokerages with retail clients.

The new brokerage companies will only be required to have two employees, one specializing in investment consulting and another responsible for internal management.

Regular securities companies need at least 10 employees, including five investment consultants and one risk-management specialist.

In addition to the liberalization of the SME investment sector, the FSC is reforming the rules for qualified professional investor registration.

Only institutions and those recognized by the FSC as professional investors are allowed to commit funds to private equity and other risky vehicles. Individuals are barred unless they register as professional investors.

To qualify, investors must have been in the market for at least a year. They must also have a financial investment account balance exceeding 500 million won.

Income must exceed 100 million won and net worth must exceed 1 billion won.

Under the new plan, the portfolio must be at worth least 50 million won, though low-risk products, such as government bonds, are excluded.

Personal wealth must exceed 500 million won - though the total excludes the primary residence - while an individual applying must be able to handle a portfolio loss of 100 million won.

The government estimates that the lowering of the bar will likely increase the number of qualified investors from 2,000 to roughly 370,000 to 390,000.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]