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Laws of the Republic of Korea |
1
MERCHANT BANKS ACT
Wholly Amended by Act No. 5045, Dec. 29, 1995
Amended by Act No. 5374, Aug. 28, 1997
Act No. 5503, Jan. 13, 1998
Act No. 5750, Feb. 5, 1999
Act No. 5982, May 24, 1999
Act No. 6205, Jan. 28, 2000
Act No. 7428, Mar. 31, 2005
Act No. 8526, Jul. 19, 2007
Act No. 8863, Feb. 29, 2008
Act No. 8909, Mar. 14, 2008
CHAPTER GENERAL PROVISIONS
Article 1 (Purpose)
The purpose of this Act is to encourage merchant banks to realize steady growth so as to provide supports for the merchant banking services to enterprises and to make balanced improvement in the financial industry. Article 2 (Definitions)
For the purpose of this Act, the definitions of terms shall be as follows:
1. The term "merchant banks" means those which have obtained authoriza-
tion from the Financial Services Commission pursuant to Article
3 to
run the business listed in each subparagraph of Article 7 (1);
1-2. The term "short-term financial business" means business
listed in
Article 7 (1) 1 and business incidental thereto as determined by the
Financial Services Commission pursuant to subparagraph
8 of the said
Article and paragraph;
2. The term "securities" means securities under the Securities and Ex-
change Act;
3. The term "equity capital" means the total amount of core capital and
supplementary capital according to the standards set by the
Bank for
International Settlements, and the specific scope thereof shall be de-
termined by the Financial Services Commission on
such terms and con-
MERCHANT BANKS ACT
2
ditions as Presidential Decree may determine;
4. The term "credits" means loans, bill discounts, payment guarantees
and purchase of securities (limited to those of fund assistance
nature)
or other direct and indirect transactions by merchant banks which in-
volve credit risk, and the specific scope thereof
shall be determined
by the Financial Services Commission on such terms and conditions
as Presidential Decree may determine; and
5. The term "large stockholder" means a stockholder falling under any
of the following items:
(a) Largest stockholder: the principal in cases where the number of
total outstanding stocks of a merchant bank with voting right
held
by him is the largest, which is calculated by adding all the stocks
held by him and a person specially related to him (hereinafter
referred
to as the "specially related person") as prescribed by Presidential
Decree, no matter whose name the accounts stand in;
or
(b) Major stockholder: a person who holds 10/100 or more of the total
outstanding stocks of a merchant bank with voting right,
no matter
whose name the accounts stand in, or a stockholder who exercises
de facto influence over the important matters of management
of
a merchant bank, such as appointment, dismissal, etc. of executives.
Article 3 (Business Authorization, etc.)
(1) Those who intend to be engaged in the businesses prescribed by each
subparagraph of Article 7 (1) shall obtain authorization
from the Financial
Services Commission. 1. They shall be stock companies whose paid-in capital is not less than
30 billion won;
2. They shall be able to protect the investors and be equipped with
physical facilities such as specialized manpower and electronic
equip-
ments that are enough to operate the intended business;
3. Their business plans shall be appropriate and sound; and
4. Large stockholders (including a stockholder who is a specially related
person of the largest stockholder; if the largest stockholder
is a corpo-
MERCHANT BANKS ACT
3
ration, including the stockholder who exercises de facto influence over
the important matters of management of the corporation,
who shall
be prescribed by Presidential Decree; the same shall apply hereafter
in this Article) shall be equipped with ample investment
capabilities,
sound financial status and social confidence.
(3) A person who intends to be a large stockholder by acquiring stocks
of a merchant bank shall obtain approval from the Financial
Services
Commission in advance after meeting the requirements for healthy manage-
ment prescribed by Presidential Decree from among
the requirements for
large stockholder pursuant to paragraphs (2) 4 and (8).
(6) Those who intend to obtain authorization under paragraph (1) shall
file an application with the Financial Services Commission
under the
conditions as prescribed by Presidential Decree.
(7) The Financial Services Commission may attach a condition to authori-
zation under paragraph (1).
(8) Matters necessary for detailed requirements for the authorization,
approval and order of disposal in paragraphs (2) through
(4) shall be
prescribed by Presidential Decree.
Article 3-2 (Combining Short-Term Financial Business by Financial Insti-
tutions)
(1) Financial institutions as determined by Presidential Decree may be
engaged in short-term financial business on authorization
by the Financial
Services Commission.
(2) The standards, procedures or other necessary matters for authorization
MERCHANT BANKS ACT
4
under paragraph (1) shall be determined by Presidential Decree.
(3) The provisions of Articles 8 (1), 8 (2) 2, 13, 15, 21, 22 (1) through
(3), 23 through 25, 26-2 and 27 (1) shall apply mutatis
mutandis to financial
institutions which have obtained authorization pursuant to paragraph (1),
within the scope of the authorized
business.
[This Article Newly Inserted by Act No. 5503, Jan. 13, 1998]
Article 3-3 (Public Notice of Authorization, etc.)
The Financial Services
Commission shall, in case where it has granted
authorization under Article 3 or 3-2, or cancelled authorization under Article
22
(2), publicly announce its contents, without delay, in the official Gazette,
and notify the general public thereof by means of computer
communications,
etc.
[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000]
Article 3-4 (Qualifications for Executives)
A person who falls under any of the following subparagraphs shall not
be an executive of any merchant bank, and if he falls hereunder
after
becoming one, he shall lose the office: 1. An incompetent or quasi-incompetent person, or a person who was
declared bankrupt and has not yet been reinstated;
2. A person who has been sentenced to imprisonment without prison labor
or a heavier punishment, and five years have not elapsed
since the
expiration of the term of sentence (including cases where the execution
has been deemed to be completed) or since the
decision to exempt such
sentence has been made;
3. A person who has been sentenced to a fine or a heavier punishment
under this Act, finance-related Acts and subordinate statutes
(hereinafter referred to as "finance-related Acts and subordinate stat-
utes") or foreign finance-related laws and regulations
(referring to for-
eign laws and regulations corresponding to this Act or finance-related
Acts and subordinate statutes), and five
years have not yet elapsed
since the completion (including cases where the execution has been
deemed to be completed) or exemption
of the execution;
4. A person who has been sentenced to suspended execution of imprison-
MERCHANT BANKS ACT
5
ment without prison labor or heavier punishment and who has been
on probation;
5. A person who has been dismissed or discharged from office for disci-
plinary measures under this Act, finance-related Acts and
subordinate
statutes or foreign finance-related laws and regulations, and three years
have yet not elapsed;
6. A person who has been an executive or employee of a corporation or
company whose permission or authorization, etc. have been cancelled
under this Act, finance-related Acts and subordinate statutes or foreign
finance-related laws and regulations (limited to the person
who is directly
or correspondingly responsible for the occurrence of causes for such
cancellation and who is determined by Presidential
Decree), and five
years have not yet elapsed since the cancellation on the relevant corpo-
ration or company; and
7. A retired executive or employee who would have been notified of an
advice to resign (including dismissal) or request to resign
under this
Act, finance-related Acts and subordinate statutes, if he/she were holing
office, and five years have not yet passed
since the day of such notification
(seven years from the day of retirement, if the day turning five years
from the day of notification
comes later than the day turning seven
years from the day of retirement).
[This Article Newly Inserted by Act No. 5503, Jan. 13, 1998]
Article 4 (Establishment of Branch)
Where any merchant bank intends to establish any branch, office or other
business places having any similar title (including a dispatch
office or
management office engaged in part of the business, hereinafter referred
to as "branch, etc."), it shall obtain authorization
from the Financial Services
Commission as prescribed by Presidential Decree.
[This Article Wholly Amended by Act No. 5503, Jan. 13, 1998]
Article 5 (Appointment of Outside Directors)
(1) A merchant bank shall have three or more directors who are not engaged
in the regular business of the board of directors, and
who do not fall under
any of the subparagraphs of paragraph (4) (hereinafter referred to as the
"outside director"), and the number
of outside directors shall not be less than
half of the total number of directors.
6
(2) A merchant bank shall establish a committee pursuant to Article 393-2
of the Commercial Act (hereinafter referred to as the
"candidate recom-
mendation committee for outside directors") for the recommendation of
candidates for outside directors. In this
case, the candidate recommendation
committee for outside directors shall have, as its members, outside directors
who amount to
not less than a half of the total members.
(3) Outside directors shall be appointed by the general meeting of stock-
holders from among those who are recommended by the candidate
recom-
mendation committee for outside directors under paragraph (2).
(4) A person who falls under any of the following subparagraphs
shall
not be eligible for an outside director of a merchant bank, and if he falls
thereunder after becoming an outside director,
he shall lose the post:
1. A minor, a incompetent or quasi-incompetent person;
2. A person who was declared bankrupt and has not yet been reinstated;
3. A person, who had been sentenced to imprisonment without labor or
heavier, and two years have not yet passed since the decision
to exempt
such sentence has been made;
4. A person for whom two years have not passed since he was dismissed
or removed from office pursuant to this Act;
5. The largest stockholder;
6. A specially related person of the largest stockholder;
7. A major stockholder, his/her spouse, lineal ascendant or descendant;
8. Person who is a full-time executive or employee, or has been a full-time
executive or employee for last two years of the merchant
bank or an
affiliated company thereof (refers to the affiliated company pursuant
to the Monopoly Regulation and Fair Trade Act;
hereinafter the same
shall apply);
9. Spouse, lineal ascendant or descendant of a full-time executive of the
merchant bank;
10. A person who is a full-time executive or employee, or has been a full-
time executive or employee for last two years of a corporation
that
is in the important business relationship, competitive relationship
based upon business or cooperative relationship based
upon business
prescribed by Presidential Decree with the merchant bank;
MERCHANT BANKS ACT
7
11. A full-time executive or employee of a company in which a full-time
executive or employee of the merchant bank works part-time;
or
12. Other persons prescribed by Presidential Decree, who have difficulty
faithfully performing their duties as outside directors
or who may ex-
ercise influence over the management of the merchant bank.
(5) A merchant bank shall, in case where the composition
of the board
of directors comes not to comply with requisites under paragraph (1) due
to a resignation or death, etc. of outside
directors, make the composition
of the board of directors comply with requisites under paragraph (1) at
the regular general meeting
of stockholders which is first convened after the
date of occurrence of relevant causes.
[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000]
Article 5-2 (Inspection Committee)
(1) A merchant bank shall establish an inspection committee (referring
to the inspection committee under Article 415-2 of the Commercial
Act;
hereinafter the same shall apply). 1. That 2/3 or more of the members on the register shall be outside directors;
and
2. That one or more of the members shall be specialists in accounting
or financial affairs prescribed by Presidential Decree.
(3)
A person who falls under any of the subparagraphs 1 through 4 and
7 through 9 of Article 5 (4) shall not become a member who is
not an
outside director of the inspection committee, and he shall lose the position
if he falls thereunder after he has become
a member who is not an outside
director of the inspection committee: Provided, That a person who holds
office of a member of the
inspection committee who is not an outside
director may become a member who is not an outside director of the
inspection committee
even if he falls under Article 5 (4) 8.
(4) In cases where the composition of the inspection committee comes
not to comply with requisites under paragraph (2) due to a
resignation
or death, etc. of members of the inspection committee, it shall make its
composition comply with requisites under paragraph
(2) at the regular
general meeting of stockholders which is first convened after the date of
MERCHANT BANKS ACT
8
occurrence of the relevant causes.
(5) The proviso to Article 415-2 (2) of the Commercial Act shall not apply
to the composition of the inspection committee under
paragraph (1).
[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000]
Article 5-3 (Criteria for Internal Control)
(1) A merchant bank shall set forth a basic procedures and criteria (herein-
after referred to as "criteria for internal control")
which shall be observed
by the executives and employees in performing their duties, in order to
observe Acts and subordinate statutes,
to make a sound property manage-
ment, and to protect the customers.
(2) A merchant bank shall have one or more persons who are to check
whether the criteria for internal control is observed and to
investigate
and report thereon to the inspection committee (hereinafter referred to
as "compliance officers") in a case of violation
of the criteria for internal
control.
(3) Matters necessary for the criteria for internal control under para-
graph (1) and the compliance officers under paragraph (2)
shall be prescribed
by Presidential Decree.
[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000]
Article 5-4 (Exercise of Minority Stockholders' Right)
(1) A person
who holds the stocks equivalent to not less than 5/100,000
of the total issued stocks of a merchant bank continually for not less
than
six months under the conditions as prescribed by Presidential Decree may
exercise the stockholders' right as prescribed by
Article 403 of the
Commercial Act (including the cases applied mutatis mutandis by Articles
324, 415, 424-2, 467-2 and 542 of the
Commercial Act).
(2) A person who holds the stocks equivalent to not less than 250/100,000
of the total issued stocks of a merchant bank (not less
than 125/100,000
in a case of the merchant bank as prescribed by Presidential Decree) con-
tinually for not less than six months
under the conditions as prescribed
by Presidential Decree may exercise the stockholders' right under Articles
385 (including the
cases applied mutatis mutandis by Article 415 of the
Commercial Act), 402, and 539 of the Commercial Act.
MERCHANT BANKS ACT
9
(3) A person who holds the stocks equivalent to not less than 50/10,000
of the total issued stocks of a merchant bank (not less
than 25/10,000
in a case of the merchant bank as prescribed by Presidential Decree) con-
tinually for not less than six months
under the conditions as prescribed
by Presidential Decree may exercise the stockholders' right under Articles
363-2 and 466 of
the Commercial Act. In this case, when exercising the
stockholders' right under Article 363-2 of the Commercial Act, it shall
be
based upon the voting stocks.
[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000]
Article 6 (Prohibition on Use of Similar Names)
No person shall use the trade name "merchant bank" or any similar name
without authorization under Article 3.
CHAPTER OPERATIONS
Article 7 (Business)
(1) Business of a merchant bank shall be as follows:
1. Issuance, discount, trade, brokerage, acceptance and guarantee of the
bills or debentures as prescribed by Presidential Decree
(limited to bills
and debentures of which maturity comes within the period, as determined
MERCHANT BANKS ACT
10
by the Financial Services Commission up to the period of one year);
2. Making investments and loans to finance equipment or operating
funds;
3. Business as provided in Article 2 (8) 5 through 7 of the Securities
and Exchange Act;
4. Good offices of the inducement of foreign capital, overseas investments
or other international financing, and borrowing and relending
of
foreign capital;
5. Issuance of bonds;
6. Services on management consultation and acquisitions or mergers of
enterprises;
7. Payment guarantee; and
8. Business incidental to the business under subparagraphs 1 through 7
as determined by Presidential Decree.
(2) A merchant bank may carry out the business falling under any of
the following subparagraphs as prescribed by relevant Acts,
in addition to
those under the preceding paragraph (1): 1. Equipment rental business under the Specialized Credit Financial
Business Act;
2. Duties of asset management company under Article 4 (2) 1 and 2 of
the Indirect Investment Asset Management Business Act and duties
of
selling company under Article 26 of the same Act;
3. Trust business under the Trust Business Act except cash trust business;
4. Business as provided in Article 2 (8) 1 through 4 of the Securities and
Exchange Act;
5. Foreign exchange businesses under the Foreign Exchange Transactions
Act; and
6. Other businesses as prescribed by Presidential Decree.
(3) and (4) Deleted.
(1) Where a merchant bank intends to dissolve itself or close out all of
its operations, it shall obtain authorization from the
Financial Services
Commission.
11
seven days from the date on which such cause occurs: Provided, That
for subparagraph 3, it shall report in advance to the Financial
Services
Commission: 1. Amendment of articles of incorporation;
2. Alteration of operational methods; and
3. Removal of the head office, or removal or closure of branches, etc.
[This Article Wholly Amended by Act No. 5750, Feb. 5, 1999]
Article 9 (Establishment of Fund Brokerage Companies)
(1) Any person who intends to establish a company for brokerage of fund
transactions between financial institutions (hereinafter referred to as "fund
brokerage company") shall obtain approval from the
Financial Services
Commission.
(2) Requirements, procedures, or other necessary matters for approval
under paragraph (1) shall be determined by Presidential Decree.
(3) The provisions of Articles 3-3, 6, 8 (excluding paragraph (2) 3 of the
said Article), 20, 21, 22 (excluding paragraph (2) 2-2
of the said Article)
through 26, and 26-2 shall apply mutatis mutandis to fund brokerage
companies under paragraph (1). In this
case, the term "merchant banks"
shall be deemed to read "fund brokerage companies" and the term "authoriza-
tion" in Article 22
(2) through (4) shall be deemed to read "approval".
[This Article Wholly Amended by Act No. 5503, Jan. 13, 1998]
Article 10 (Issuance of Bonds)
(1) Notwithstanding the provisions of Article 470 of the Commercial Act,
a merchant bank may issue bonds within the limits of ten
times of its
equity capital.
Article 11 (Operation of Duties of Asset Management Company, etc.)
(1) A merchant bank may conduct the duties of establishment and
termi-
nation of investment trust and the duties of operation and operational
instructions of investment trust property pursuant
to Article 4 (2) 1 and
MERCHANT BANKS ACT
12
2 of the Indirect Investment Asset Management Business Act after obtaining
permission from the Financial Services Commission, notwithstanding
Article 14 of the same Act. In this case, a merchant bank may not concurrently
operate duties as an asset management company and
trustee company
for the same investment trust.
(2) Deleted.
(3) The Financial Services Commission, for the purpose of paragraph (1),
may designate or restrict types of businesses or method
thereof.
A merchant bank shall audit separate accounts for each class of business,
as prescribed by the Financial Services Commission.
(1) No merchant bank shall extend credits exceeding 25/100 of the mer-
chant bank's equity capital to the same individual or corporation,
or any
person who shares credit risk with it (hereinafter referred to as the "same
borrowers").
(2) No merchant bank shall extend credits exceeding the line as determined
by Presidential Decree within the limits of 25/100 of
the merchant bank's
equity capital to the merchant bank's executives, subsidiaries, or any
person who shares credit risk with them
(hereinafter referred to as "inter-
ested persons").
(4) No merchant bank shall extend credits in excess of 20/100 of the mer-
chant bank's equity capital to the same individual or
corporation,
individually.
(5) No merchant bank shall extend credits in excess of the line under
paragraphs (1) through (4): Provided, That this shall not
apply hereunder
as determined by Presidential Decree:
MERCHANT BANKS ACT
13
1. Where it is necessary for the national economy or for a merchant bank
to promote the effectiveness of securing claims; and
2. Where a merchant bank exceeds the line under paragraphs (1) through
(4) due to changes in its equity capital or changes in the
composition
of the same borrowers although the merchant bank did not extend further
credits.
(6) Where a merchant bank exceeds the line under paragraphs (1) through
(4) pursuant to paragraph (5) 2, it shall ensure that it
meets the line
under paragraphs (1) through (4) within one year from the date on which
it exceeds such line: Provided, That in
any inevitable cause as determined
by Presidential Decree, the Financial Services Commission may extend
it by setting a period.
14
shall announce it in public by means of internet homepage, etc.
(4) A merchant bank shall put together matters prescribed by Presidential
Decree from among the matters of report concerning the
extension of credit
grant to its large stockholder or acquisition of stocks issued by its large
stockholder, shall report them
to the Financial Services Commission every
quarter of a year, and shall announce it in public by means of internet
homepage, etc.
(7) The merchant bank that intends to obtain approval pursuant to para-
graph (6) shall submit a detailed plan to suit with the
extent pursuant
to paragraph (1) to the Financial Services Commission by three months
prior to the period pursuant to paragraph
(5) expires, and the Financial
Services Commission shall determine and notify whether it approves the
detailed plan within one
month from the date it receive it.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 16-2 (Prohibition of Exercising Unjust Influence by Large Stock-
holder)
The large stockholder of a merchant bank shall not conduct an act falling
under any of the following subparagraphs with the object
of his own interest
contrary to the interest of the merchant bank:
1. Act of requesting the merchant bank for data or information that is
not open to the outside in order to exercise unjust influence:
Provided,
That the cases falling under the exercise of right pursuant to Article
466 of the Commercial Act shall be excluded;
2. Act of exercising unjust influence over the personnel affair or manage-
ment of a merchant bank in collusion with other stockholders
on con-
dition that return service, such as economic benefit, etc. shall be
granted; or
MERCHANT BANKS ACT
15
3. Other acts corresponding to subparagraphs 1 and 2, which are prescribed
by Presidential Decree.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 16-3 (Request, etc. for Submission of Data to Merchant Bank,
etc.)
(1) When the Financial Services Commission recognizes that a merchant
bank or its large stockholder is suspicious of violating
Articles 16 and
16-2, it may request the merchant bank or large stockholder to submit
necessary data.
1. Prohibition of extending new credit grant to large stockholder;
2. Prohibition of new acquisition of securities issued by large stockholder;
and
3. Other measures prescribed by Presidential Decree, such as restriction,
etc. on transactions with the character of money supply
to large stock-
holder.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 16-4 (Report of Change in Allotment of Large Stockholder)
Where it falls under any of the following subparagraphs, a merchant bank
shall report the fact to the Financial Services Commission
as prescribed
by Presidential Decree: 1. When the largest stockholder has been changed; or
2. When 1/100 or more of the total outstanding stocks with voting right
held by large stockholder has been changed.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 17 (Investment Limit to Securities)
(1) Except as otherwise prescribed by Presidential Decree, a merchant
bank shall not invest in securities in excess of 100/100 of
its capital equity:
Provided, That the national bonds and the currency stabilization bonds
issued by the Bank of Korea shall not
be included in such amount.
(2) The Financial Services Commission may otherwise determine, as deems
MERCHANT BANKS ACT
16
necessary, the investment limit to stocks and financial derivatives which
are securities, under the conditions as prescribed by
Presidential Decree,
within the scope of investment limit referred to in paragraph (1).
Article 17-2 (Prohibition of Activities Related to Fund Supports)
(1) A merchant bank belonging to the enterprise group subject
to the limi-
tations on mutual investment under Article 9 (1) of the Monopoly Regulation
and Fair Trade Act (hereafter referred
to as the "enterprise group subject
to the limitations on mutual investment" in this Article) shall not perform
the activities
falling under any of the following subparagraphs with a finan-
cial institution (referring to the financial institution under the
Act on
the Structural Improvement of the Financial Industry; hereafter the same
shall apply in this Article) or company belonging
to other enterprise group
subject to the limitations on mutual investment:
1. Activities to make a mutually crossing possession of voting stocks of
another financial institution or company or render a mutually
crossing
extension of credits for the purpose of evading the limit under Article
15, 16 or 17;
2. Activities to make a mutually crossing acquisition of stocks for the
purpose of evading the limit on the acquisition of treasury
stocks under
Article 341 of the Commercial Act or Article 189-2 of the Securities
and Exchange Act; and
3. Other activities which are likely to harm greatly the interests of the
depositors and investors as determined by Presidential
Decree.
(2) A merchant bank may not exercise the voting right of the stocks which
have been acquired in contravention of paragraph
(1).
(3) A merchant bank may not render credits for the purchase of relevant
merchant bank's stocks.
(4) The Financial Services Commission may take necessary measures such
as ordering the merchant bank which has acquired stocks or
rendered credits
in contravention of paragraph (1) or (3) to dispose of the relevant stocks
or recover the credits.
17
In order to ensure repayment of liabilities and urgent withdrawals, a mer-
chant bank shall hold reserve requirement assets under
the conditions as
prescribed by Presidential Decree.
Article 19 (Restriction on Acquisition of Real Estate)
(1) A merchant bank shall not acquire or own real estate except for its
own business purposes: Provided, That, it does not apply to that acquired
through the foreclosure of mortgage.
(2) A merchant bank may not acquire real estate, for its own business
purpose, in excess of 100/100 of its equity capital.
(3) A merchant bank shall dispose of its real estate other than that for its
own business purpose or which has been acquired pursuant
to the proviso
of paragraph (1) as prescribed by Presidential Decree.
(4) The scope of real estate for business purpose referred to in the main
sentence of paragraph (1) shall be determined by Presidential
Decree.
Article 20 (Prohibition of Holding Concurrent Positions)
An executive engaged in full-time work of a merchant bank shall, if he
intends to be engaged in full-time work of any other profit-making corpo-
ration, obtain permission from the Financial Services
Commission.
[This Article Wholly Amended by Act No. 5750, Feb. 5, 1999]
CHAPTER SUPERVISION
Article 21 (Supervision)
The Financial Services Commission may supervise the business of a mer-
chant bank as well as give necessary instructions.
Article 21-2 (Sound Management Guidance)
(1) The Financial Services Commission may determine the standards for
management guidance falling under any of the following subparagraphs
in order to give sound management guidance to merchant banks and to
prevent financial accidents, on such terms and conditions as
Presidential
Decree may determine:
18
1. Financial soundness standards;
2. Asset quality classification standards;
3. Accounting and closing standards; and
4. Risk management standards.
(2) Merchant banks shall, in conducting their business, comply with the
sound management standards
under paragraph (1).
[This Article Newly Inserted by Act No. 5750, Feb. 5, 1999]
Article 22 (Administrative Disposition)
(1) Where the Financial Services Commission deems that a merchant bank
threatens to impair the sound operation as it violates this
Act or an order
under this Act, it may take the following measures: 1. Notice and warning to a merchant bank or notice, warning, and request
for reprimand to its executives or employees;
2. Corrective order for such offense;
3. Advice to resign or suspension of duties of executives or the appointment
of a manager acting for such executives;
3-2. Request to resign to employees; and
4. Suspension of part of operations for not more than six months.
(2) Where a merchant bank falls under any of the following subpara-
graphs, the Financial Services Commission may order it to suspend all
of its operations by setting a period of not more than six
months, make a
decision on contract transfer, or cancel its authorization:
1. Where it obtains authorization on business by fraudulent or by illegal
means;
2. Where it commits any act falling under Article 8 (1) without obtaining
authorization under the said Article and paragraph;
2-2.
Where it is judged difficult to pay claims such as deposits or redeem
borrowings, or it is deemed obvious to impair the sound credit
order
or the rights and interests of depositors, etc. if it continues to conduct
business, falling short of the standards for management
guidance under
Article 21-2;
3. Where it carries on any operations during a suspension of operations
under paragraph (1) 4 above; or
4. Where it fails to fulfill corrective orders under paragraph (1) 2.
MERCHANT BANKS ACT
19
(3) Deleted.
(4) Where the Financial Services Commission cancels the authorization
pursuant to paragraph (2), the merchant bank shall be dissolved.
Where the Financial Services Commission intends to cancel authorization
on business of a merchant bank pursuant to Article 22 (2),
he shall hold
a hearing.
[This Article Wholly Amended by Act No. 5503, Jan. 13, 1998]
Article 24 (Public Notice of Management Status)
(1) The Financial Services Commission may have a merchant bank file
reports on the status of business operations and assets when
necessary.
(1) The Governor of the Financial Supervisory Service established under
the Act on the Establishment, etc. of Financial Services
Commission
(hereinafter referred to as the "Governor of Financial Supervisory Ser-
vice") may have the employees under his control
inspect the operations
and financial status of a merchant bank.
MERCHANT BANKS ACT
20
(2) The Governor of the Financial Supervisory Services may, in case where
deemed necessary for the inspection under paragraph (1),
request a mer-
chant bank to submit the data or to have the related parties present
themselves to state their opinions.
(3) A person who makes the inspection under paragraph (1) shall carry
a certificate indicating his authority and show it to the
persons concerned.
[This Article Wholly Amended by Act No. 6205, Jan. 28, 2000]
Article 25-2 (Notification to Retired Executives,
etc. of Measures Taken)
(1) The Financial Services Commission may have the Governor of Fi-
nancial Services Commission to notify
the head of relevant merchant bank
of the measures deemed to be taken, if a retired executive or employee of
the merchant bank,
who would have been notified of measures falling under
Article 22 (1) 3 or 3-2, if he/she were holing office.
(2) The head of relevant
merchant bank who received such notification
pursuant to paragraph (1) shall notify the relevant executive or employee,
record
and retain it.
[This Article Newly Inserted by Act No. 8909, Mar. 14, 2008]
CHAPTER SUPPLEMENTARY PROVISIONS
Article 26 (Entrustment of Authority)
(1) Deleted.
(2) The Financial Services Commission may entrust part of its authority
under this Act to the Governor of Financial Supervisory
Services as pre-
scribed by Presidential Decree.
Article 26-2 (Contributions)
(1) A merchant bank which undergoes an inspection by the Financial
Supervisory Services pursuant to Article 25 shall pay contributions
for
appropriating for the inspection expenses to the Financial Supervisory
Service.
(2) The sharing ratio, limit or other matters necessary for the payment
of contributions referred to in paragraph (1) shall be determined
by
Presidential Decree.
[This Article Newly Inserted by Act No. 5503, Jan. 13, 1998]
Article 27 (Relations with Other Acts)
MERCHANT BANKS ACT
21
(1) The Bank of Korea Act and the Banking Act shall not apply to merchant
banks established under this Act.
(3) Bonds issued by the merchant bank pursuant to Article 10 shall be
deemed to be bonds under Article 2 (1) 3 of the Securities
and Exchange
Act.
(4) Where the Financial Services Commission takes an administrative dis-
position with regard to merchant banks pursuant to Article
22, the provisions
of Articles 10 (2) and (3), 14 (5) through (7) and (9), 14-2, 14-3, 14-5,
and 15 through 23 of the Act on the
Structural Improvement of the Financial
Industry shall apply, except as otherwise prescribed by this Act.
CHAPTER - IMPOSITION AND
COLLECTION OF PENALTY
SURCHARGE
Article 27-2 (Imposition of Penalty Surcharge)
When a merchant bank has violated Article 16 (1), the Financial Services
Commission may collect a penalty surcharge from the merchant
bank within
the extent of 20/100 of the amount of credit grant that is in excess of
the limit.
1. Contents and degree of violations;
2. Period and frequency of violations; and
3. Scale of benefit obtained from violations.
(2) Other matters necessary for the imposition of penalty surcharge shall
MERCHANT
BANKS ACT
22
be prescribed by Presidential Decree.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 27-4 (Submission of Opinion)
(1) The Financial Services Commission shall give the person concerned,
parties interested, etc. an opportunity to submit opinion
before it imposes
penalty surcharge.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 27-5 (Raising Objection)
(1) A person who is dissatisfied with the disposition of imposition of penalty
surcharge pursuant to Article 27-2 may raise an objection
to the Financial
Services Commission after meeting the causes within 30 day from the date
when he has been notified of the disposition.
(2) The Financial Services Commission shall make a decision within 30
days from the date when it has received an objection: Provided,
That it
is not possible to make a decision within the period due to an unavoidable
reason, the period may be extended within the
extent of 30 days.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
Article 27-6 (Extension of Time Limit of Payment and Installment Payment
of Penalty Surcharge)
(1) When the Financial Services Commission recognizes that the person
(hereinafter referred to as the "person obliged to pay penalty
surcharge")
who been given disposition of penalty surcharge is not able to pay the
total amount of penalty surcharge at a time
due to a reason falling under
any of the following subparagraphs, it may have the time limit of payment
extended or have it paid
in installments. In this case, it may have him
provide guarantee when it is deemed necessary:
1. Where property has been substantially damaged due to disaster, etc.;
2. Where business is in grave crisis as the business conditions have grown
worse;
3. Where grave difficulties for money are expected following the payment
of penalty surcharge at a time; or
MERCHANT BANKS ACT
23
4. Where there are other causes corresponding to subparagraphs 1 through
3.
(2) Where the person obliged to pay penalty surcharge intends to have
the time limit of payment of penalty surcharge extended
pursuant paragraph
(1) or to pay penalty surcharge in installments, he shall file an application
to the Financial Services Commission
by ten days before the time limit
of payment. 1. Where he has failed to pay penalty surcharge within the time limit
of payment, to which payment in installments has been decided;
2. Where he has failed to conduct an order of the Financial Services
Commission, which is necessary for the change of surety or preservation
of surety;
3. Where it is recognized that all or remainder of penalty surcharge cannot
be collected because of compulsory execution, commencement
of auction,
declaration of bankruptcy, dissolution of a corporation, disposition on
default of national taxes or local taxes, etc.;
or
4. Other cases corresponding to subparagraphs 1 through 3, where there
are causes prescribed by Presidential Decree.
(4) Matters necessary for the extension of time limit of payment of penalty
surcharge, instalment payment, surety, etc. pursuant
to paragraphs (1)
through (3) shall be prescribed by Presidential Decree.
[This Article Newly Inserted by Act No. 8526, Jul. 19,
2007]
Article 27-7 (Collection of Penalty Surcharge and Disposition on Default)
(1) When the person obliged to pay penalty surcharge
has not paid the
penalty surcharge within the period of payment, the Financial Services
Commission may collect additional charges
prescribed by Presidential
Decree for the period starting from the day next to the time limit of payment
until the day before the
day when payment was made.
(2) When the person obliged to pay penalty surcharge has not paid the
MERCHANT BANKS ACT
24
penalty surcharge within the period of payment, the Financial Services
Commission may urge him to pay within the period that it
determines,
and may collect penalty surcharge and additional charges pursuant to para-
graph (1) in accordance with the examples
of disposition on default of
national taxes if he has failed to pay them within the designated period.
(3) The Financial Services Commission may entrust the duties of collection
of penalty surcharge and additional charges or the duties
of disposition
on default pursuant to paragraphs (1) and (2) to the Commissioner of
the National Tax Service.
[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007]
CHAPTER PENAL PROVISIONS
Article 28 (Penal Provisions)
(1) A person who falls under any of the following subparagraphs shall be
punished by imprisonment for not more than three years
or by a fine
not exceeding 20 million won:
1. A person who carries out operations comprehensively under any of sub-
paragraphs of Article 7 (1) without authorization under
Article 3;
1-2. A person who carries out short-term financial business without author-
ization under Article 3-2 (1);
2. A person who establishes a brokerage company for fund transactions
without approval under Article 9 (1);
3. A merchant bank that has extended credit grant to a large stockholder
or a specially related person of the large stockholder in
violation of
Article 16 (1), and the large stockholder or a specially related person
of the large stockholder who has been extended
credit grant by the
merchant bank; or
4. Large stockholder or a specially related person of the large stockholder
who has conducted an act falling under any of the subparagraphs
of
Article 16-2 in violation of the same Article.
(2) A person who falls under any of the following subparagraphs shall
MERCHANT BANKS ACT
25
be punished by imprisonment of not more than 1 year or by a fine not
exceeding 7 million won: 1. A person who has acquired stocks of a merchant bank without obtaining
approval in violation of Article 3 (3);
2. A person who has not disposed of the stocks in violation of an order
pursuant to Article 3 (4);
3. A person who has used the title of merchant bank or a similar one
thereof in violation of Article 6;
4. A person who has conducted an act falling under Article 8 (1) without
obtaining authorization pursuant to the same paragraph [including
the cases where it applies mutatis mutandis in Articles 3-2 (3) and
9 (3)]; or
5. A merchant bank that has extended credit grant in violation of Article
15 (1) through (4) [including the cases where it applies
mutatis mutandis
in Article 3-2 (3)].
(3) A person who violates the provisions of Articles 17 through 19 shall
be punished by a fine not exceeding 5 million won.
Article 29 (Joint Penal Provision)
When a representative of a juristic person or agent, employee or other
servant of a juristic person or individual commits an act
of offense of Article
28 in connection with the business of the juristic person or individual,
the juristic person or individual
shall be punished by a fine under the
same Article in addition to punishment of the offender.
Article 30 (Fine for Negligence)
(1) A person who falls under any of the following subparagraphs (including
where Articles mentioned in the following subparagraphs
apply mutatis
mutandis under Articles 3-2 (3) and 9 (3)) shall be punished by a fine
for negligence not exceeding 5 million won:
1. A person who fails to make a report under the main sentence of Article
8 (2) or makes a false report;
2. A person who performs, without filing a report under the proviso
to Article 8 (2), an act falling under subparagraphs 3 of the
said para-
graph of the same Article;
MERCHANT BANKS ACT
26
2-2. A merchant bank that has not gone through the resolution of the
board of directors in violation of Article 16 (2);
2-3. A
merchant bank that has not made a report to the Financial Services
Commission or has not made public notice in violation of Article
16
(3) and (4) or 16-4;
2-4. A merchant bank or large stockholder who has not complied with
a request for submission of data from the Financial Services
Commission
pursuant to Article 16-3 (1);
3. A person who violates the provisions of Article 20;
4. A person who fails to file reports or make public notice of management
status under Article 24, or makes false report or public
notice of manage-
ment status;
4-2. Deleted; or
5. A person who refuses, interferes with or evades the inspection under
Article 25.
(2) A fine for negligence prescribed by paragraph (1) shall be imposed
and collected by the Financial Services Commission as prescribed
by
Presidential Decree.
(3) A person who is dissatisfied with the disposition of the fine for negli-
gence under paragraph (2) above may file an objection
against the Financial
Services Commission within 30 days after receiving the notice of the
disposition.
(4) Where a person subject to the disposition of the fine for negligence
files an objection under paragraph (3) above, the Financial
Services Com-
mission shall notify the competent court without delay, and the competent
court notified shall initiate legal procedures
on the fine for negligence
under the Non-Contentious Case Litigation Procedure Act.
(5) Where no objection is raised or no fine for negligence is paid within
the period prescribed by in paragraph (3) above, it shall
be collected pursuant
to the examples of dispositions on default of national taxes.
ADDENDA
Article 1 (Enforcement Date)
MERCHANT BANKS ACT
27
This Act shall enter into force on April 1, 1996.
Article 2 (Transitional Measures for Merchant Banks and Short-Term
Finance Corporations)
(1) Any merchant bank in operation at the time this Act enters into force
shall be deemed a merchant bank authorized under this
Act.
(2) When a short term finance corporation authorized under Article 3 of
the Short-Term Financing Business Act at the time
this Act enters into
force intends to convert into a merchant bank under this Act, a business
authorization shall be obtained under
this Act as designated by the Minister
of Finance and Economy. In this case, the provisions of Article 3 (2) shall
not apply.
(3) The amended provisions of Article 4 shall not apply to the branch
offices, etc. which have been established at the time of enforcement
of this
Act enters into force, by those who are deemed to have obtained authoriza-
tion or have obtained, as a merchant bank under
paragraphs (1) and (2).
Article 3 (Transitional Measures on Capital Equity)
A merchant bank, licensed or deemed to have obtained
a license, which
fails to comply with the capital requirement pursuant to the amended
provisions of Article 3 (2) from among those
deemed to have obtained
authorization or have obtained authorization under Article 2 (1) and (2)
of the Addenda shall conform to
the amended provisions within 3 years
of the date of enforcement of this Act (if the capital increase is not made
within 3 years,
or within an extended term authorized for such capital
increase by the Minister of Finance and Economy if capital increase plan
is approved).
Article 4 (Transitional Measures for Call Transaction)
A short-term finance corporation approved to act as the brokerage house
for call transaction under Article 7 (1) 5 of the Short-Term Financing
Business Act, at the time this Act enters into force, may
be engaged in
the operation thereof, as from the date of authorization for the merchant
bank under Article 2 (2) of this Addenda
until the date of incorporation
of the brokerage company for call transactions.
Article 5 (Transitional Measures on Penal Provisions)
The application of penal provisions to acts committed prior to enforcement
of this Act shall be governed by previous provisions.
Article 6 (Transitional Measures on Authorization and Permission, etc.)
Where any merchant bank, which is deemed to have obtained author-
ization or have obtained authorization pursuant to Article 2 (1)
and (2)
MERCHANT BANKS ACT
28
of the Addenda has obtained authorization, permission, approval, etc. under
the previous provisions or under the Short-Term Financing
Business Act
shall be deemed to have obtained authorization, permission, approval,
etc., respectively under this Act.
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force on January 1, 1998.
Articles 2 through 7 Omitted.
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force on April 1, 1998: Provided, That an amend-
ment to Article 23 shall enter into force on January
1, 1998.
Article 2 (Abolished Act)
The Short-Term Financial Business Act shall be hereby abolished.
Article 3 (Examples of Application on Qualifications, etc. for
Executives)
An amendment to Article 3-3 shall apply to executives first appointed after
the entry into force of this Act.
Article 4 (Examples of Application on Discipline against Executives and
Employees)
An amendment to Article 22-2 shall apply to acts first performed by officers
and employees after the entry into force of this Act.
Article 5 (Examples of Application on Matters to be Reported)
An amendment to Article 24-2 shall apply to matters to be reported
first
after the entry into force of this Act.
Article 6 (General Transitional Measures)
(1) Any authorization, order or other acts done by the Minister of Finance
and Economy to a merchant bank under the previous provisions
prior to
the entry into force of this Act shall be deemed to be acts done by the
Minister of Finance and Economy, the Financial
Supervisory Commission
or the Governor of the Financial Supervisory Service under this Act.
(2) Any declaration, report or other
acts done by a merchant bank to
the Minister of Finance and Economy under the previous provisions prior
to the entry into force
of this Act shall be deemed to be acts done to the
Minister of Fiance and Economy, the Financial Supervisory Commission
or the
Governor of the Financial Supervisory Service.
MERCHANT BANKS ACT
29
Article 7 (Transitional Measures on Brokerage Companies for Call Transac-
tions)
Brokerage companies for call transactions established under the previous
provisions at the time of the entry into force of this
Act shall be deemed
to be fund brokerage companies established under this Act.
Article 8 Deleted.
Article 10 Omitted.
Article 11 (Transitional Measures on Penal Provisions Pursuant to Amend-
ment of Other Acts)
The application of the Act on Special Cases concerning the Punishment
of Specific Violent Crimes to executives and employees of
a short-term
financial company under the previous Short-Term Financial Business Act
or persons who violated the provisions of Article
23 (1) of the Short-Term
Financial Business Act prior to the entry into force of this Act shall be
governed by the previous provisions.
Article 12 (Relations with Other Acts and Subordinate Statutes)
Where the Acts and subordinate statutes cite the previous Short-Term
Financial Business Act or its provisions at the time of the entry into force
of this Act and if this Act includes the provisions
corresponding to them,
they shall be deemed to have cited this Act or the provisions corresponding
to this Act.
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force on April 1, 1999.
Article 2 (Transitional Measures on Credit Line on Same Borrowers, etc.)
(1)
Where a merchant bank exceeds the line under the amendments to
Article 15 (1) at the time of the entry into force of this Act, it
shall en
sure that it meets the line not later than June 30, 2003.
(2) Where a merchant bank exceeds the line under the amendments
to
Article 15 (2) at the time of the entry into force of this Act, it shall ensure
that it meets the line not later than December
31, 2000.
(3) Where a merchant bank exceeds the line under the amendments to
MERCHANT BANKS ACT
30
Article 15 (3) and (4) at the time of the entry into force of this Act, it
shall ensure that it meets the line not later than June
30, 2000.
(4) The merchant bank shall reduce credits exceeding the line by stages
on such terms and conditions as Presidential
Decree may determine within
the limit of the period under paragraphs (1) through (3), and shall submit
its schedule to the Financial
Services Commission within one month from
the date of the entry into force of this Act.
(5) Where a merchant bank exceeds the line under the amendments to
Article 15 (1) through (4), it shall not extend new credits to
the same
borrowers or interest persons until it meets the line.
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force on the date of its promulgation. (Proviso
Omitted.)
Articles 2 through 6 Omitted.
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force three months after the date of its promulgation:
Provided, That the amendments to Articles 5, 5-2
and 5-4 shall enter
into force on the date of its promulgation.
Article 2 (Transitional Measures following Alterations in Causes for Dis-
qualification of Executives of Merchant Banks)
Where a person who is an executive of a merchant bank at the time of
enforcement of this Act comes to fall under the causes for
disqualification
as provided for in the amendment to subparagraph 6 of Article 3-4 due
to the causes which occurred prior to the
enforcement of this Act, the
previous provisions shall govern, notwithstanding the said amendment.
Article 3 (Transitional Measures
concerning Appointments of Outside
Directors)
A merchant bank shall appoint the outside directors under the amendment
to Article 5 at the regular general meeting of stockholders
first convened
after the enforcement of this Act. In this case, the persons appointed to
outside directors at the relevant regular
general meeting of stockholders
shall be deemed to have been recommended by the candidate recom-
mendation committee for outside
directors under Article 5 (3).
MERCHANT BANKS ACT
31
Article 4 (Transitional Measures concerning Establishment of Inspection
Committee)
A merchant bank shall establish an inspection committee under the
amendment to Article 5-2 at the regular general meeting of stockholders
first convened after the enforcement of this Act.
Article 5 (Transitional Measures concerning Full-Time Auditor following
Establishment
of Inspection Committee)
A person who holds office of a full-time auditor of a merchant bank at
the time of enforcement of this Act (referring to the full-time
auditor des-
ignated by the board of directors of the relevant merchant bank, when
there are two or more full-time auditors) shall,
in case where his term
of office does not expire by the date of regular general meeting of stock-
holders first convened after
the enforcement of this Act and he is not
dismissed at the relevant general meeting of stockholders, be deemed as
a member who
is not an outside director from among the members of in-
spection committee of the relevant merchant bank until the expiry of his
term of office. In this case, the relevant full-time auditor shall be deemed
as a director who is appointed at the general meeting
of stockholders
under Article 382 (1) of the Commercial Act until the expiry of his term
of office.
Article 6 (Transitional Measures concerning Provision of Criteria for
Internal Control)
A merchant bank shall provide for the criteria for internal control under
the amendment to Article 5-3 within six months after the
enforcement
of this Act.
Article 7 (Transitional Measures concerning Prohibition of Activities Re-
lated to Fund Supports)
In case where a merchant bank comes to fall under a contravention of
the amendment to Article 17-2 due to an activity prior to the
enforcement
of this Act, it shall dispose of or recover the relevant stocks or credits
within six months after the enforcement
of this Act.
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force one year after the date of its promulgation.
Articles 2 through 6 Omitted.
ADDENDA
Article 1 (Enforcement Date)
MERCHANT BANKS ACT
32
This Act shall enter into force six months after the date of its promul-
gation.
Article 2 (Applicability concerning Imposition of Penalty Surcharge)
The amended provisions of Article 27-2 shall apply beginning
with the
merchant bank that has extended credit grant in violation of Article
16 (1) for the first time after this Act enters into
force.
Article 3 (Transitional Measures concerning Members of Audit Commit-
tee)
The merchant bank that has to appoint members of the audit committee
pursuant to the amended provisions of Article 5-2 (2) and (3)
shall appoint
members of the audit committee as to suit to the same amended provisions
not later than the date of regular stockholders'
meeting that shall be
convoked for the first time after this Act enters into force.
Article 4 (Transitional Measures concerning
Operation of Duties of Asset
Management Company, etc.)
The merchant bank that has received authorization pursuant to the former
Article 11 (1) at the time when this Act enters into force
shall be deemed
to have received permission from the Financial Services Commission pur-
suant to the amended provisons of Article
11 (1).
ADDENDA
Article 1 (Enforcement Date)
This Act shall enter into force on the date of its promulgation.
Articles 2 through 5 Omitted.
ADDENDA
(1) (Enforcement Date) This Act shall enter into force on the date of its
promulgation.
(2) (Applicability concerning Changes on Executives' Qualification) The
amended provisions of Article 3-4 shall apply to a person
who becomes
disqualified due to the first ground occurs after this Act enters into
enforcement.
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