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Newsletter | February 2016, Issue 1
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SECURITIES
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Korea′s Top Financial Watchdog Plans to Improve the No-Action Letter System
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On September 30, 2015, the Financial Services Commission (the ″FSC″), Korea′s top financial watchdog, announced its plan to improve the no-action letter system.
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To promote the availability of the no-action letter system, the FSC will execute a memorandum of understanding with self-regulating organizations that contains the FSC′s commitment to operating the no-action letter system in an active and consistent manner, and reflect financial companies’ experiences and opinions in the no-action letter system.
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Background:
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Generally, a FSC ″legal interpretation″ only provides an official interpretation of certain laws and regulations in response to an applicant′s request. A ″no-action letter″ will go one step further and indicate whether the authorities will take action against the specific activity.
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The no-action letter system was first initiated in the securities sector by the U.S. Securities and Exchange Commission (the ″SEC″) in 1934. Shortly thereafter, the SEC expanded its coverage to other sectors.
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In Korea, the no-action letter system was first adopted for the securities sector in May 2001. By July 2005, the scope was expanded to include banking, insurance, and other financial sectors.
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However, since its adoption, the no-action letter has rarely been used in practice.
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Improvement Efforts:
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In 2015, the FSC initiated efforts to revamp the no-action letter system.
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In March 2015, for both legal interpretations and no-action letters, the FSC constructed the financial regulatory consumer complaint website14 to facilitate online requests and responses.
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The FSC studied and benchmarked other countries with advanced financial regulatory systems, and the following reform measures are examples that the FSC is contemplating in improving the no-action letter system:
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Expand the scope of applicants for a no-action letter from ″financial institutions″ to individuals and domestic non-financial companies that would be subject to the FSC’s regulatory measures.
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Also, foreign financial institutions seeking to obtain a license to conduct financial business in Korea would be permitted to apply for a no-action letter.
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Previously, each applicant was required to disclose its name and to submit its application separately when applying for a no-action letter.
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The FSC plans to adopt a ″Class No-Action Letter″ system that would allow multiple applicants with a common interest to apply for a no-action letter collectively.15
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Even before receiving any official application, the FSC is considering issuing a no-action letter immediately after laws or regulations are enacted or amended, or in the case of repeated violations.
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The level of uncertainty over the interpretation and application of any newly enacted or amended law or regulation is usually at its highest immediately after its enactment or amendment.
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To address this issue, the FSC is considering establishing a specified time period for the concentrated collection of legal interpretation and no-action letter applications.
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If necessary, the FSC would issue no-action letters in advance even if requests have not been made.
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As the difference between ″no-action letters″ and ″legal interpretations″ may not be clear, the FSC is considering consolidating the application forms for ″no-action letters″ and ″legal interpretations.″
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Previously, only the applicant who submitted the application for a legal interpretation or no-action letter could access the authorities′ response.
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The FSC is considering permitting the general public to access the legal interpretation or no-action letter issued so long as the applicant chooses to make it available to the public.
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Previously, the financial regulators only had two options in responding to no-action letter applications -- ″action″ or ″no-action.″ The financial regulators had to issue an ″action″ response even if just one of the requirements for a ″no-action″ response is not satisfied.
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The FSC is considering the possibility of issuing a conditional response, giving alternative options or specifying additional conditions to be satisfied in order for the applicant to receive a ″no-action″ response.
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Previously, no-action letter requests were reviewed by a committee, solely consisting of members of the FSC’s enforcement arm, the Financial Supervisory Service (“FSS”).
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The FSC plans to include external experts on the review committee.
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For example, multiple applicants could apply under the name of the relevant self-ruling organization, such as the Korea Financial Investment Association.
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